Government Regulations And Cryptocurrency

Government Regulations And Cryptocurrency – The Role of the Federal Reserve in the U.S. The Housing Crisis: A VAR Analysis with Endogenous Structural Breaks

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Government Regulations And Cryptocurrency

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Congress To Shape Crypto Regulation After Ftx Collapse: Here’s What Could Happen

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Finance Department, FAU College of Business, Florida Atlantic University, Barry Kaye Hall (KH-25), Boca Raton, FL 33431, USA

Regulation Within Cryptocurrency Markets

Tilburg Law and Economics Center (TILEC), Extramural Research Fellow, University of Tilburg, Postbus 90153, 5000 LE Tilburg, The Netherlands

Received: 9 May 2019 / Revised: 12 July 2019 / Accepted: 12 July 2019 / Published: 24 July 2019

Distributed ledger technology, also known as blockchain, is gaining traction around the world. Blockchain offers a secure authentication mechanism and decentralized mass collaboration. Cryptocurrencies use this technology as a new asset class for investors around the world. Cryptocurrencies are used by companies to raise capital through initial coin offerings (ICOs). The large inflow of unregulated capital in a transactional and transnational industry has aroused the interest not only of investors, but also of national securities and monetary regulatory agencies. In this paper, we analyze the Security and Exchange Commission’s initial statements and subsequent comments on the ICO to illustrate the potential problems of applying an older legal framework to an ever-evolving ecosystem. Recognizing the inefficiency of enforcement within existing regulatory frameworks, we discussed the importance of crypto asset class regulation and internal collaboration between government agencies and developers in establishing an ecosystem that includes investor protection and investment.

Blockchain has recently emerged as a secure, peer-to-peer platform for verifying digital events and validating transactions in an increasingly decentralized economy. It facilitates security verification, background checks, and payments, even for small amounts. Businesses benefit from the creation of transparent and accountable supply chains, and the reduction of background checks for identity verification. Perhaps most importantly for entrepreneurs, some barriers to entry for individuals and companies with great, but unfunded ideas have been further lowered in recent years with new, less regulated methods of scaling up. of capital and finding financing (Ahlstrom et al. 2018a) .

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However, with blockchain and related technologies such as cryptocurrency, there are also some concerns that have arisen with this important new technology with respect to security and necessary regulation, especially given the very nature of this technology and its potential. for disruption. So, in this paper, we explain the regulatory and security issues around blockchain and initial coin offerings (ICOs) in an increasingly decentralized economy. We examine ICO structures, and how this crowdfunding mechanism holds promise for economic change. We explain how fraud can be practiced within the context of these innovative asset classes, and the emerging regulatory struggles. Given the value that entrepreneurship can generate for economies and societies (Ahlstrom 2010), it is crucial that these financial innovations are better understood in order to facilitate their regulation and development (Crafts 2006; Spulber 2008).

In the spring of 2016, an entity called the Decentralized Autonomous Organization (DAO) became one of the most successful crowdfunded entities in history, with an ICO that raised over US$150 million worth of Ether, a cryptocurrency, in less than thirty days (Popper 2016a ) ).The DAO, funded through Ether by equity investors located around the world, is not registered as a legal entity in any sovereign jurisdiction, and furthermore, has no employees. As such, it does not have within its “structure,” a board of directors, a chief executive officer or a management team (Dale 2016). The rationale behind crowdfunding was the creation of new software applications, but before the venture could be realized, it was hit by a cyber-attack that effectively drained the DAO of a third of the capital raised (Popper 2016b). It soon became clear that the ICO initiated by the DAO violated a long list of security laws. Many entrepreneurs, while appreciating the desire to find exemptions from registration under the US Securities Act of 1933, and to raise money using security “tokens”, arguing that a new structure is needed to carry out the same goals: raise capital and launch a successful blockchain protocol.

Globally, another digital venture investment fund from India called GainBitCoin guarantees its investors a monthly return of 10% on their crypto-token investment. The scheme is a multi-level marketing scheme that aims to extract liquid bitcoin from investors and provide returns in the form of another cryptocurrency called MCAP. The value of MCAP is negligible in the market. The mastermind of the scheme, one Amit Bhardwaj, was arrested by the Enforcement Directorate and charged with defrauding investors to the tune of $300 million through this nouveau Ponzi scheme (Anupam 2018).

Along with cryptocurrency investment funds DAO and GainBitCoin, many ICOs (also called token sales) are still being launched around the world. In 2017, these ICOs raised a collective $5.6 billion, of which only 48% were successful (Williams-Grut 2018). In late May 2017, SingularityNet, a decentralized marketplace for AI, raised $36 million in 30 seconds (Alois 2017). Bancor, a company developing a cryptocurrency exchange platform, raised over $153 million in just three hours (Suberg 2017).

The Legal Anatomy Of Cryptocurrency Regulation In India

As investors risk their unsecured capital investments, market participants begin to question the silence of regulators. In July 2017, the question was answered by the Securities and Exchange Commission (SEC) of the United States, in a report detailing its findings after its investigation into the DAO. In the report, the SEC stated that the method used to raise equity in the DAO was in fact not a currency, but a security.1 This report used the 70-year-old Howey Test as the report stated that the ICOs are subject to federal securities law because they primarily profit from the efforts of others. In May 2017, the SEC chairman noted that the use of the term coin/token does not avoid the fact that capital is eventually raised from the public, classifying it as a security and not a currency (Roberts 2018).2

The scale of these fintech marketplace developments is clearly creating new avenues for entrepreneurial financing but also for financial fraud (Ahlstrom et al. 2018a). Thus, in this paper, we explain the current issues and overview of some of the regulatory developments and highlight the current regulatory uncertainty. Therefore, the paper is organized as follows. Section 2 and Section 3 provide an overview of blockchain and initial coin offerings, respectively, in terms of new technology, the evolving regulatory process, and regulatory requirements. Section 4 and Section 5 provide more details about crypto and cybersecurity fraud, respectively. Section 6 discusses regulatory developments in selected countries around the world and different speeds of regulatory development. A discussion of the implications of managing regulatory risks, challenges, and uncertainties follows in the final two sections.

A person or a group of people (depending on what you believe) under the name of Satoshi Nakamoto3 published a whitepaper that introduced the world to Bitcoin, a decentralized cryptocurrency system that is not created or controlled by any government.4 It introduced a cryptographically verified electronic payment system, allowing parties to transact directly without intermediaries (Arslanian and Fischer 2019). The technology aims to shift the focus from centralized institutions to peer-to-peer market transactions with equality of distribution control as the primary goal. The peer-to-peer architecture of the technology itself, as well as its open source accessibility and privacy, ensures, through encryption, the direct exchange of value between parties without interference from those banks, governments, and other intermediaries. From an underground unknown currency, Bitcoin has become a globally recognized asset, with Bitcoin futures contracts traded on the Chicago Mercantile Exchange Inc. (CME) and the CBOE Futures Exchange (CFE), which holds a market cap of more than $136 billion.5 Bitcoin is both a cryptocurrency and a global payment system. It is based on a technology called Bitcoin Blockchain. Blockchain is a distributed public ledger that uses a cryptographic consensus protocol known as “proof of work” to allow exchange

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