Bitcoin

Subscribe to Bitcoin via RSS

One driver for the first widely adopted cryptocurrency Bitcoin was to create a store of value that existed outside of government control. It is therefore no surprise that attempts to regulate the rapidly developing crypto asset market have required great efforts from regulators and legislators around the world to keep apace.

In this blog, we compare key drivers and results of the regulatory approach being taken in the US and UK. While the U.S. is leading the way on the enforcement of crypto regulations, the UK has taken greater steps in relation to banking approvals. With regard to tax treatment, the position is becoming much clearer in both jurisdictions.

First though, is there even “an” approach within each country?

Treasury Secretary Steven Mnuchin remarked before a hearing of the Senate Finance Committee three weeks ago that “significant new requirements at FinCEN” for cryptocurrencies would be introduced quickly, in response to Senator Maggie Hassan’s (D-NH) question regarding the Treasury Department’s proposed use of budget increases for anti-money laundering (AML) and…

Once purely theoretical, “majority” or “51%” attacks on public blockchains have dealt participants a reality check: The fundamental assumption of Satoshi Nakamoto’s 2008 Bitcoin whitepaper (that computing power will remain sufficiently decentralized in blockchain networks that rely on a “proof-of-work” consensus mechanism) can in practice actually be exploited to enable double spending.

“The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes…. If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the honest nodes.” – Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System

These incidents have provided opportunities for developers of both public and private blockchains, as well as operators of blockchain-based digital asset trading platforms, to learn from the first generation of blockchain deployments.

The plot has thickened in the longest-running “whodunit” in the blockchain space: Who is Satoshi Nakamoto, the pseudonymous creator of Bitcoin and author of the white paper that started it all, Bitcoin: A Peer-to-Peer Electronic Cash System? Published in 2008, Nakamoto’s paper proposed a form of electronic cash that would operate purely peer-to-peer, without the need for a trusted intermediary (such as a centralized financial institution) and in a verifiable manner that protects against the “double-spend” problem. That white paper served as the launch pad for the Bitcoin network and inspired blockchain’s proliferation. Over a decade later, the true identity of Nakamoto and whether Nakamoto is a single person or a collective remain a mystery, despite speculation and multiple claims to the digital throne.

Recently, claimants turned to intellectual property registrations in their campaigns for recognition. In April 2019, Australian entrepreneur Craig Wright (who has long claimed to be Nakamoto) sparked controversy in the blockchain community by filing two copyright registrations claiming authorship of Nakamoto’s white paper (Reg. No. TXu002136996) and the original Bitcoin source code (Reg. No. TX0008708058). In the wake of Wright’s claims, on May 24, 2019, Wei Liu, reportedly a cryptocurrency entrepreneur and a Chinese citizen with an address in California, upped the ante by also filing a copyright registration (Reg. No. TX0008726120) asserting that he had in fact authored the white paper.

The gauntlet, it seemed, had been thrown down.

Two recent proposals for bitcoin exchange-traded funds (“ETFs”) are vying to become the first to receive approval from the U.S. Securities and Exchange Commission (“SEC”) – one filed by CBOE BZX Exchange, Inc. (“CBOE”) and the other by NYSE Arca, Inc. (“NYSE Arca”). The SEC has yet to approve a cryptocurrency ETF, although several applications were filed throughout 2018.

A bitcoin ETF would allow investors to easily invest in bitcoin without needing to directly buy and manage the cryptocurrency themselves, potentially ushering in additional capital and enabling a wider range of institutional investors to tap into the market.

Once the proposals are published in the Federal Register, the SEC has an initial 45 days from the date of publication to issue a decision or request an extension, with total time not to exceed 240 days.