These week's news highlighted how governments test new regimes for
cryptocurrency, which can be slow but are certainly some kind of
progress.
A line from immortal comic strip Calvin & Hobbes goes “a good
compromise leaves everybody mad.” When it comes to laws governing
crypto, authorities are usually asking for pretty major compromises
because they are, at their very best-intentioned, trying to work things
out. While it’s a fast-developing area of law — honestly a treat to
cover — that means it’s fast-developing relative to law, not tech.
There
is an innate conservatism to anything having to do with how people
handle their money. That extends to laws governing how money and
investments function. Consequently, everything regulators touch in
crypto develops slower than the industry would necessarily like.
It
is, however, not an unreasonable instinct that regulators are resolute
in setting up controlled ecosystems and sandboxes for all developments
before releasing them into the wild. But restricting crypto’s
technological capacities requires some compromises. The major news from
this week has seen that dynamic play out worldwide, as everything
because a test case.
PayPal’s crypto payments test out New York’s conditional BitLicense and vice versa
After months of rumors, PayPal formally announced that the platform would be onboarding crypto payments.
While
Bitcoin’s price leapt at the news, there is a catch. PayPal’s crypto
will be locked up on the platform. No tokens in or out, a veritable
Alcatraz. PayPal, meanwhile, will be operating on a probationary basis.
PayPal’s
crypto platform received the tentative green light from New York’s
Department of Financial Services, arguably the most important
sub-national financial regulator in the world and the issuer of the
famed BitLicense. But in this case that license is conditional. Just as
PayPal is testing out crypto in an extremely limited capacity, the DFS
is testing out its new format for testing out firms looking to obtain
that coveted license.
A fascinating byproduct of this new system
is that it pairs firms looking to get into crypto in New York with
existing BitLicensees — in PayPal’s case, Paxos. That sets up a dynamic
by which established crypto firms will play mentor to companies that
may, like PayPal, be far bigger in every other part of their business.
Which is cool for the industry, and sets up any existing BitLicensee in a
highly advantageous position as more mainstream firms go the way of
PayPal.
Bahamas Sand Dollar goes live
In what has turned
into a global race for a central bank digital currency (CBDC), the
Bahamas seems to have won. The island nation’s “Sand Dollar” went live nationwide earlier this week.
Pilot
programs involving functional Sand Dollar wallets have been going on
for months. But as with much involving the Bahamas’ system, the central
bank’s announcement was quite opaque, consisting of just a two-sentence
Facebook post. Interesting is the seeming restriction to national usage.
The country’s limited financial reporting standards have made it a
popular venue for shell companies and offshoring money. The limited
scope is possibly an attempt not to contribute further to this
reputation.
The announcement came at a time when government
officials in the U.S. and Russia made statements denying the need to be
first to release a CBDC. And, indeed, with all due fear of being a
condescending American, responsibility for the Bahamian dollar is not
the same as responsibility for the U.S. dollar. However, given its
outsized role in international financing, the Bahamas faces many of the
same concerns of larger economies working out their own CBDCs. Central
bankers for such economies will certainly be monitoring the Sand Dollar
closely.
Mixers beware
U.S. anti-money laundering watchdog FinCEN fined Larry Dean Harmon $60 million for operating mixing services Helix and Coin Ninja.
This
is the first time FinCEN has taken action against a mixer or tumbler,
services that combine and disperse cryptocurrencies through extensive
nexuses of wallets in order to enhance privacy by obscuring their
transaction history. As you can imagine, this is often because the coins
have been involved in illegal activity.
While FinCEN has long
maintained that crypto businesses need to keep the same sort of client
records as banks, actually targeting a mixing operator ups the ante
considerably. There’s really no conceivable way for the business model
of mixers to incorporate the kinds of AML information that FinCEN
requires. Even if you don’t assume that the coins involved have been
caught up in some business that falls somewhere on the spectrum from
shady to horrifying, a mixer’s function is to strip coins of any
features that can be tied to their owner.
To be fair, Harmon is a
remarkably easy target. A resident of Ohio, he’s been facing criminal
charges for his mixers since February. FinCEN consequently had access to
reservoirs of information on Harmon’s mixers that the Justice
Department’s investigation had already dug up. Not to mention that
FinCEN obviously knew where to find him.
Despite the convenience
of the action, it’s obviously jarring news, especially for anyone
running a crypto service that enhances privacy, but more generally for
anyone who thinks that maybe not every transaction should be packed with
personal information.
Further reads
The Electronic Frontier Foundation applauds Coinbase’s new reporting on its interactions with government and its compliance initiatives.
Attorneys for Vinson & Elkins run down the DOJ’s framework for crypto enforcement released earlier this month.
On her podcast Unchained, Laura Shin digs into the DOJ’s methods of tracking down crypto criminals.
Government
is frustrating because when it is working right nobody gets exactly
what they want. Balancing priorities, managing risk, enhancing
compliance — writing about the law entails wading through swamps of such
noxious jargon in search of some grove of what people are actually
saying. Which is typically compromise.
source link : https://cointelegraph.com/news/government-sandboxes-test-beds-and-crypto-compromises
