The biggest crypto news and ideas of the day |
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There’s been a flurry of filings in Sam Bankman-Fried’s case recently, which mostly boil down to SBF’s lawyers want to win concessions for the jailed FTX founder while prosecutors are doing what they can to prevent special treatment for the presumably former billionaire. In a Tuesday filing, the Department of Justice argued against giving SBF an internet-connected computer and access to a cellblock. Although the cops did cop to the "inconveniences" SBF faces in jail, it does not hinder his defense preparation and comes as a direct result of SBF’s attempts at "witness tampering." The DOJ also countered two of SBF’s defense strategies, in separate filings. The first is a logistics matter: prosecutors denied allegedly dumping “millions” of pages worth of potential evidence on the defense team. The second is strategic: the government called SBF’s recent argument that his former lawyers pushed him to commit fraud “irrelevant.” |
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Stefan Berger, the Germany-based lawmaker and principle architect of the EU’s landmark crypto law MiCA, has taken the reins of legislative efforts to pass a “digital euro.” The European Central Bank has not yet decided whether to issue a CBDC, which has become a politically divisive issue in parliament and the public. For his part, Berger supports a CBDC because it increases EU monetary independence but has said “the project will only succeed” if it's as trusted as cash. Meanwhile, Seba, a crypto bank based in Switzerland looking to expand internationally, said it won “approval-in-principle” from Hong Kong's Securities and Futures Commission to open a regional subsidiary. CEO Franz Bergmueller praised the city’s commitment to supporting the “responsible growth of the digital assets industry,” after passing an overhauled regulatory regime in June in an explicit attempt to attract foreign capital. |
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(Clark Van Der Beken/Unsplash, modified by CoinDesk) |
Preston Byrne, a CoinDesk columnist, is a partner of Brown Rudnick's Digital Commerce Group. He advises software, internet and fintech companies. I cannot recall something that was labeled as a non-fungible token (NFT) being treated as a security by U.S. regulators previously. According to the U.S. Securities and Exchange Commission (SEC), this case is the first. With that in mind, it’s important to revisit first principles on selling crypto-critters in the United States. One thing which I see a lot of, all the time, is when developers start out with something that is unregulated and gradually mission-creep their way into something regulated. Given how powerful cryptocurrency tech is, these mistakes are shockingly easy to make. This is because cryptocurrency, particularly the smart contract variety like Ethereum, is capable of “captur[ing] unlimited richness in flows of actions and events; computer scientists might prefer to recognise this as a state machine with money," as computer scientist Ian Grigg writes. A state machine with money, of course, is capable of performing virtually any function normally performed by the financial technology stack because it automates and secures the “money” portion of it programmatically in a manner which in TradFi needs to be secured by a human authenticator. Grigg’s essay "Financial Cryptography in 7 Layers" – which predates crypto-as-we-know-it by nine years and Ethereum-style smart contracts by 15 years – neatly disaggregates the wet-code concepts which are factored by a human authenticator which most crypto developers, frequently unknowingly, attempt to program into their smart contract applications, compressed into a single layer as they try to implement a particular specification. |
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“Legal,” of course, pervades all of these layers. Or to paraphrase Jean-Jacques Rousseau “most crypto projects are born free, yet everywhere they are in chains.” Designing a basic protocol application and the act of hashing a proof-of-work genesis block is not, generally speaking, a regulated activity anywhere in the world. It is the stuff protocol engineers do afterwards such as creating incentives to use the chain and bring in new users (items five through seven on the above framework). Last week, for example, we saw the Tornado Cash indictment come down. There were howls of dissent from much of the crypto community over this due to the perception that the U.S. government was seeking to censor code and suppress open-source developers. Without prejudice to the constitutional presumption of innocence to which all criminal defendants are rightly entitled, having read the indictment, it seems there was a lot of post-instantiation development of the Tornado Cash platform the devs in hindsight might have preferred to avoid. Leaving protocols published on GitHub without choosing to then embark on associated altcoin launches or management of the protocol as a going concern might be a recipe for protocol failure and obsolescence. It’s also a way to hew much more closely to the First Amendment and cases like Bernstein v. United States, which challenged restrictions on the export of cryptography. Similarly, one thing I see often enough, and increasingly in the wake of Gary Gensler crackdown on more “traditional” financial products, is the recharacterization of certain crypto-asset securities as “non-fungible tokens” or NFTs. It bears reminding that the Howey Test, the gauge the SEC uses to determine whether something is an investment contract that can be regulated as a security, “embodies a flexible, rather than static, principle.” The test is designed to look towards the substance of the transaction or sale or offering and not how it is labeled when determining whether something is or isn’t a security. Read the full article here. – Preston Byrne @prestonjbyrne |
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Phemex, Seeking to Decentralize, Tests a New Idea From Vitalik The trading platform finds a home for users’ ‘souls’ on the exchange Now that we’ve figured out, thanks to NFTs, how to digitally guarantee the provenance of an object or event, we should be able to guarantee the provenance of a human being. And the team behind Phemex, a centralized exchange that intends to partially decentralize, think they’ve figured out how. Continue reading here. |
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