As the crypto press mulls over Bitcoin’s progress since the release of the 2008 white paper, regulators worldwide took steps forward.

UK regulates stablecoins

The UK government this week published an update on plans for the regulation of fiat-backed stablecoins. The aim will be to bring them into the remit of the Bank of England, FCA, and Payment Systems Reguator (PSR) by regulating both payment chains and the activities around stablecoin issuance and custody. This follows in the footsteps of the Financial Services and Markets Act (FSMA) of 2023.

The results of a consultation on the regulatory approach to cryptoassets and stablecoins was published in April 2022, confirming the government’s plans to legislate to bring certain activities relating to stablecoins under regulatory controls. The changes included amending the Electronic Money Regulations 2011 and Payment Service Regulations 2017 to include stablecoins as well as extending the applicability and scope of Part 5 of the Banking Act 2009 and the Financial Services (Banking Reform) Act 2013 to include stablecoin activities.

Singapore partnership

The Monetary Authority of Singapore (MAS) has announced a partnership with the UK’s FCA, the Financial Services Agency of Japan (FSA), and the Swiss Financial Market Supervisory Authority (FINMA).

“MAS has collaborated with 15 financial institutions to carry out industry pilots on asset tokenisation in fixed income, foreign exchange, and asset management products. These pilots have demonstrated the potential to reap significant market and transaction efficiencies from the use of tokenisation. As the pilots grow in scale and sophistication, there is a need for closer cross-border collaboration among policymakers and regulators,” the financial regulator said.

The partnership aims to:

• identify potential risks and possible gaps in existing policies and legislation relevant to tokenized solutions;
• explore the development of common standards for the design of digital asset networks and market best practices across various jurisdictions;
• promote high standards of interoperability to support cross-border digital assets development;
• facilitate industry pilots for digital assets through regulatory sandboxes, where applicable; and
• promote knowledge sharing among regulators and industry. 

“Through this partnership, we hope to promote the development of common standards and regulatory frameworks that can better support cross border interoperability, as well as sustainable growth of the digital asset ecosystem,” Leong Sing Chiong, Deputy Managing Director for Markets and Development, MAS, said.

Hester Peirce LBRY dissent

In a statement released last week, SEC Commissioner Hester Peirce spoke out on the case of blockchain platform LBRY, making clear she believed there was a regulatory overreach and that the Commission had taken an extremely hardline approach.

In a candid critique of the SEC, Peirce asked: “Are investors and the market really better off now after the Commission’s litigation contributed to the demise of a company that had built a functioning blockchain with a real-world application running on top of it? This case illustrates the arbitrariness and real-life consequences of the Commission’s misguided enforcement-driven approach to crypto.”

Criticism of the LBRY lawsuit was expected from Peirce. She commonly issues dissent, as does her fellow Republican colleague Mark Uyeda. Comments on proposed rules can be issued immediately, while for settlement actions there needs to be a waiting period.

“This case illustrates the arbitrariness and real-life consequences of the Commission’s misguided enforcement-driven approach to crypto.”

Hester Peirce, Commissioner, SEC

“Why go after a company that sold a token for a functioning blockchain with an established use when we could have pursued plenty of other projects that were outright frauds and did not attempt to comply with the securities laws?,” she asked, adding that LBRY’s blockchain had established use cases, facilitating data sharing, affording greater control to content creators, and making censorship more difficult. 

She also mentioned the ambiguity of the SEC’s position on whether crypto was a security or commodity. “The application of the securities laws to token projects is not clear, despite the Commission’s continuous protestations to the contrary. There is no path for a company like LBRY to come in and register its functional token offering,” she said. “The time and resources we expended on this case could have been devoted to building a workable regulatory framework that companies like LBRY could have followed. Then the market could have decided LBRY’s fate.”

Hester Peirce’s recently featured on the GRIP podcast, where she talked about technology and the importance of compliance officers.

BTC whitepaper is 15 years old

Various crypto media outlets are acknowledging the 15th anniversary of the release of the Bitcoin white paper, also known as Bitcoin: A Peer-to-Peer Electronic Cash System.

Forged in the midst of the global financial crisis, the nine-page guide lays out the vision of Satoshi Nakamoto, Bitcoin’s anonymous founder. “The traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party. The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous.

“The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information released by stock exchanges, where the time and size of individual trades, the ‘tape’, is made public, but without telling who the parties were,” the author wrote.

According to the above model, lightweight clients can verify transactions without having to download the full blockchain.

The original Bitcoin white paper serves as the foundation for the development of the Bitcoin network and the broader field of cryptocurrencies. It laid the groundwork for a decentralized, peer-to-peer digital currency system based on cryptographic principles and has had a profound impact on the world of finance and technology.

Over the past 15 years, significant changes have occurred in the Bitcoin protocol and its associated software. Bitcoin has seen advancements in security practices and technologies to protect against hacks and vulnerabilities. Wallet security, multisignature options, and hardware wallets have become more robust.

SafeMoon case

The SEC has charged SafeMoon, its creator, CEO, and its CTO for perpetrating fraud through the unregistered sale of SafeMoon. The defendants reportedly withdrew crypto assets worth more than $200m from the project, and misappropriated investor funds for personal use.

“Decentralized finance claims to deliver transparency and predictable outcomes, but unregistered offerings lack the disclosures and accountability that the law demands, and they attract scammers like Kyle Nagy, who use these vulnerabilities to enrich themselves at the expense of others,” David Hirsch, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit (CACU), SEC, said.

The SEC’s complaint alleges that SafeMoon skyrocketed in price by more than 55,000% from March 12 to April 20, 2021, and reached a market capitalization exceeding $5.7 billion before its price plummeted by nearly 50% when the public learned, on April 20, 2021, that SafeMoon’s liquidity pool was not locked as claimed. After this plunge, Karony and Smith allegedly used misappropriated assets to make large purchases of SafeMoon to prop up its price and manipulate the market. Karony also allegedly used an account he opened on a trading platform to buy and sell SafeMoon to create the impression of market activity, a practice known as wash trading.