Author: Ethan Brady

On May 5, 2023, New York Attorney General Letitia James introduced the Crypto Regulation, Protection, Transparency and Oversight (CRPTO) Act (the “bill”). We commend the Attorney General for prioritizing cryptocurrency regulation with the aim of protecting consumers and investors. However, as advocates for a balanced approach to cryptocurrency regulation, we have significant concerns about the bill. 

The bill lacks clear guidance on essential regulatory questions, such as the distinction between securities and commodities in the crypto realm. Without clear definitions and rules in this area, businesses and investors are left to navigate a regulatory gray area, creating uncertainty and discouraging both domestic and foreign investment in New York’s cryptocurrency market.

Additionally, the bill’s imposition of broad rule-writing authority to the Attorney General raises concerns about over centralization of power and a potential lack of checks and balances in the regulation of this vital industry.

Moreover, The CRPTO Act, in its current form, imposes extensive requirements on a wide range of parties involved in digital asset transactions, from issuers and brokers to investment advisers and even social media influencers. Such broad regulation risks stifling innovation and inhibiting the growth of a sector that has the potential to transform financial services, create jobs, and promote economic growth. These new rules, including extensive registration, disclosure, audit, and business conduct stipulations, could disproportionately impact startups and smaller businesses that are essential to industry innovation but lack the resources to navigate this new regulatory landscape.

Lastly, the bill’s mandate for digital asset intermediaries to reimburse customers for unauthorized and fraudulent transfers might seem like a beneficial consumer protection measure at first glance. However, it could lead to significant financial burdens on companies operating in the crypto space and could drive businesses away from New York State, hurting the local economy and the state’s reputation as a hub for fintech innovation.

While we agree with the goal of creating a safe and transparent environment for cryptocurrency transactions, we urge lawmakers to reconsider the breadth and depth of the CRPTO Act. A more balanced approach would provide clear guidelines, encourage compliance, promote innovation, and ensure that New York remains at the forefront of the digital asset revolution.

Summary of the Legislation

Status: As of May 2023, the bill’s prospects for passage in the New York State Legislature remain uncertain. However, the Attorney General’s press release announcing the draft bill has received positive commentary from numerous political figures, state legislators, and consumer protection advocates​.

The Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act proposed by New York Attorney General Letitia James on May 5, 2023, aims to regulate all aspects of the cryptocurrency industry. Here are the key takeaways from the bill:

1. Comprehensive Regulation: The CRPTO Act proposes a broad set of measures to regulate the entire cryptocurrency ecosystem. It seeks to expand New York’s oversight of crypto enterprises conducting business in the state, particularly concerning privacy and cybersecurity matters.

2. Definition of Digital Assets: The bill defines “digital asset” expansively, including any type of digital unit, such as a cryptocurrency, coin, token, virtual currency, or anything that can be used as a medium of exchange, a form of digitally stored value, or a unit of account. The definition also covers digital units that have a centralized repository or administrator, are decentralized, or can be created or obtained by computing or manufacturing effort, with certain exceptions for tokens used in online gaming, sports wagering, customer loyalty programs, and other favored uses.

3. Impact on Various Parties: The CRPTO Act includes provisions that would affect a wide range of parties involved in digital asset transactions. This includes issuers, brokers, investment advisers, marketplaces, and even social media influencers. The bill imposes extensive registration, disclosure, audit, and business conduct rules.

4. Rules for Brokers and Intermediaries: Under the proposed legislation, digital asset brokers would be required to maintain net capital similar to securities broker-dealers. Additionally, digital asset intermediaries would have to reimburse customers for unauthorized and fraudulent transfers.

5. Restrictions on Practices: The bill proposes to outlaw several common practices in the crypto industry. For example, it would prohibit cross-ownership of digital asset issuers, marketplaces, brokers, and investment advisers; borrowing or lending customer assets; certain trading strategies; and self-custody of digital assets. It would also restrict the use of the term “stablecoin” to describe or market digital assets unless they meet narrow criteria.

6. Cybersecurity Requirements: The bill mandates that every digital asset issuer, broker, marketplace, and investment adviser must establish, implement, and maintain a cybersecurity program that complies with state and federal data privacy and cybersecurity laws.

7. Verification of Digital Asset Software Code: Digital asset marketplaces would have an additional responsibility to ensure that the digital asset software code aligns with the issuer’s disclosures to purchasers and contains security properties that comply with state and federal laws.

8. Enhanced Enforcement and Anti-Fraud Measures: The CRPTO Act proposes new enforcement authority and an anti fraud statute for the Attorney General. If passed, it would grant the Attorney General extensive rule-writing authority.

It’s a rare moment in public policy history when an industry and large industry players have for years – and fairly consistently – asked a federal agency that may have oversight to actually do its job and create a policy framework for them. It’s even rarer when that agency essentially says, “Yeah, maybe we’ll get to that.” But that’s what the digital asset industry has been seeking from the Securities and Exchange Commission (SEC), and that’s what the SEC just told Coinbase in a court filing. 

The Chamber of Digital Commerce firmly believes in fostering an environment that enables innovation to thrive and ensures impartial regulatory treatment for all participants in the digital asset industry. As the world’s leading blockchain and digital asset trade association, we stand in solidarity with Coinbase in their ongoing legal battle against the Securities and Exchange Commission (SEC). 

Coinbase, as one of the most prominent players in the digital asset ecosystem, has made significant contributions to the growth and development of this transformative industry. We commend their commitment to compliance, consumer protection, and fostering a secure platform for users. Coinbase’s proactive engagement with regulators and its focus on establishing robust compliance frameworks have set a commendable example for the entire industry.

This support for a strong policy framework stands in stark contrast to the SEC, which claims to regulate an industry for which it stubbornly refuses to set clear and certain policies. The recent legal scrutiny by the SEC also raises concerns about the impartiality of regulatory treatment and the potential chilling effect it may have on innovation. Regulation by enforcement is an abdication of a regulatory body’s mission: to engage in fair and transparent processes that encourage a fair, well-functioning market, provide clarity, and foster a regulatory environment that promotes innovation while safeguarding investor interests.

We urge the SEC to exercise fair and balanced judgment in their interactions with digital asset companies, including Coinbase, and to ensure that regulatory actions are guided by a clear understanding of the unique characteristics and potential of this rapidly evolving industry. A well-regulated digital asset ecosystem can unlock immense opportunities for economic growth, job creation, and financial inclusion.

The Chamber of Digital Commerce remains committed to working collaboratively with policymakers, regulators, and industry stakeholders to foster a regulatory landscape that strikes the right balance between consumer protection, market integrity, and innovation. We believe that by joining forces and championing common-sense policies, we can help shape a vibrant digital asset industry that benefits all participants and positions the United States as a global leader in this crucial sector.

We stand with Coinbase and any entity that advocates regulatory fairness and works towards the advancement of common-sense policies that allow innovations to flourish in the United States.

The proposed tax on electricity use by crypto mining companies is not about environmental concerns; rather, it is a misguided attempt to stifle innovation in an industry that uses less than 1% of United States electricity. Crypto mining is an industry that creates new jobs, spurs the transition to renewable energies, and lays the foundation for alternative financial opportunities for the under- and unbanked. Discouraging mining in the United States would increase emissions elsewhere, in countries and regions where energy sectors are much less regulated and responsible than the United States. Therefore, energy security is national security, and it is essential that we develop this technology at home and not allow this leadership opportunity to go abroad.

At a Senate EPW hearing in March, Senators Ricketts and Lummis both highlighted that energy production is already one of the most regulated industries in the world at the point of generation. Mining is an end-user of power purchased in fair and open markets, much like electronic vehicles, and this tax would be a significant overreach by the government picking winners and losers in the market and determining which Americans may purchase and use energy resources for business operations.

Instead of penalizing crypto mining companies, policymakers have the opportunity to work with industry leaders on innovative solutions that will reduce energy consumption while allowing for continued growth and development of the industry.

As originally published in Blockworks.

In today’s deeply polarized political environment, it is rare to find common ground between Democrats and Republicans on almost any issue. 

However, there is an emerging technology that could bring these two sides together: blockchain, the foundation of digital assets and cryptocurrencies like Bitcoin and Ethereum. 

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To fully harness the potential of this groundbreaking technology, it is crucial that crypto legislation be crafted with bipartisan support. Cryptocurrency should provide a rare win-win in Washington. 

The crypto industry needs legislation to provide regulatory clarity — and Congress needs a showing of bipartisanship to make that happen. 

Finding common ground

At first glance, crypto may not seem like an area of common interest for the two parties, especially with a leading figure in the Democratic party raising an “anti-crypto army.”

Democrats tend to prioritize social equity, workers’ rights, and environmental protection, while Republicans generally advocate for limited government intervention, free markets, and individual liberties. However, a closer examination of what blockchain technology offers shows that it can actually appeal to both parties and their priorities.

For Democrats, blockchain technology has the potential to empower labor unions and protect workers’ rights. 

By leveraging the transparency and security of blockchain, unions can develop tamper-proof voting systems, ensuring that every member’s voice is heard and respected. Additionally, blockchain can be used to create smart contracts that provide clear, enforceable terms for employment, reducing the possibility of exploitation and unfair practices. As a decentralized and trustless system, blockchain can also help to eliminate corruption within unions, giving workers greater confidence in their representatives.

On the other side of the aisle, Republicans can appreciate blockchain technology for its inherent decentralization and trustless environment. By removing the need for central authorities and intermediaries like big government, blockchain empowers individuals to conduct transactions directly with one another, fostering innovation and economic freedom. This reduced reliance on centralized institutions aligns with core Republican values of limited government intervention and individual autonomy.  

It is essential that any crypto legislation be crafted with bipartisan cooperation. This will not only ensure that the resulting laws strike a balance between innovation and regulation, but also send a strong message that the United States is committed to leading the way in the blockchain revolution without sacrificing consumer protection.

As the two parties come together to develop comprehensive crypto legislation, it is important to consider several key ideas. While Republicans and Democrats may prioritize each issue differently (e.g., Republicans and competitiveness; Democrats and inclusivity), it is imperative that legislation prioritizes each principle equally.

1. Preserving U.S. competitiveness: Bipartisan collaboration on cryptocurrency and blockchain legislation can keep the US at the forefront of financial innovation. There needs to be a balance of Republican principles of narrowly tailored light-touch regulation to attract businesses with Democrat’s desires for government policies that help retain talent as well as protect consumers. 
2. Foster Inclusivity: Crypto and blockchain technology will not solve the broad issue of financial inclusion. However, these technologies provide an option to increase access and opportunities for wealth creation for those who face accessing traditional financial services. Legislation can bridge the gap between the unbanked and traditional financial services by balancing Republicans’ desire to embrace private sector innovation with Democrats’ advocacy for policies that ensure equal access and address the digital divide. 
3. Preserve National Security: If the U.S. continues to delay creating rules and regulations, the rules will be made for us. Technology that can impact that way we transact should not be shunned, but instead embraced and innovated incessantly. Ensuring national security in the context of cryptocurrency requires a united approach, made possible by utilizing Republican’s focus on preventing illicit activities such as money laundering and terrorism financing, and Democrat’s emphasis on international cooperation and integrating digital assets into existing regulatory frameworks. 

By working together, Democrats and Republicans can craft balanced, effective crypto legislation that harnesses the transformative power of blockchain technology for the benefit of all Americans without sacrificing consumer protection. In doing so, both parties will not only foster innovation and economic growth, but also demonstrate that it is still possible to find common ground in today’s divided political landscape.

Austin, TX, Monday, April 25, 2023 – The Don’t Mess with Texas Innovation Campaign – founded by Texas Blockchain Council, Chamber of Digital Commerce, and Satoshi Action Fund – will host the Digital Freedom Rally on Tuesday, April 25, 2023 on the Texas State Capitol Lawn. The event aims to promote the use of digital assets like Bitcoin as a means of promoting digital freedom, protecting online privacy, and educating the public and members of the Texas Legislature on the importance of Bitcoin mining in preserving the integrity of the Bitcoin network.

At the rally, expert speakers will discuss the importance of digital freedom and privacy, and how digital assets can play a vital role in protecting these fundamental rights in the state of Texas. 

“The rally is a call to action for individuals who believe in the importance of digital freedom and want to promote innovation in the technology sector,” said Perianne Boring, Founder and CEO of the Chamber of Digital Commerce. “This is a chance to show your support and learn about the benefits of decentralized technologies.”

More than 1,200 advocates from Texas and across the country are scheduled to be in attendance on Tuesday. Singer-songwriter and liberty-activist Tatiana Moroz is also scheduled to perform. The rally is open to the press, and a BBQ lunch will be provided. Details of the event, agenda and list of scheduled speakers is below: 

WHAT: Digital Freedom Rally 

WHEN: Tuesday, April 25, 2023

WHERE: Texas State Capitol Lawn

TIME: 11:00AM – 1:00PM CST

Speakers include: 

• Texas Senator Tan Parker
• Texas Rep. Giovanni Capriglione
• Texas Rep. Cody Harris 
• Commissioner Wayne Christian, Railroad Commission of Texas
• Brad Jones, former CEO of ERCOT

The Don’t Mess With Texas Innovation campaign launched earlier this month to protect the state’s energy grid and oppose anti-competitive legislation in the Texas State legislature that would drastically restrict Bitcoin data centers’ participation in the Electric Reliability Council of Texas (ERCOT) grid balancing programs.

Bitcoin miners in Texas employ more than 22,000 Texans and are a huge economic driver in rural areas. They also bring unique energy capabilities that have worked in partnership with ERCOT to secure and stabilize the power grid. 

“Bitcoin mining companies were able to curtail 50,000 megawatt hours of electricity in July 2022 alone to respond to record heat and energy demand, ensuring that Texans could continue to cool their homes,” said Lee Bratcher, the Founder and President of the Texas Blockchain Council. “No other industry can perform the same service as efficiently or effectively.” 

“Since China ceded its leadership on Bitcoin mining in May of 2021, Texas has become #1 in the world in Bitcoin mining. We are joining together at the Capitol in Austin to ensure Texas and the USA continue to lead on this innovative technology.” Said Dennis Porter, CEO & Co-Founder of Satoshi Action Fund. “The future of our energy systems depend on our ability to allow Bitcoin miners to flourish here in the USA. If we hinder the growth of Bitcoin mining in America, our foreign adversaries can and will overcome our lead on this powerful new technology.” 

Join the campaign at www.dontmesswithtexasinnovation.com.

About Satoshi Action Fund 

Satoshi Action Fund is an advocacy organization focused on educating policymakers and regulators on the benefits of Bitcoin and Bitcoin mining for the economy, the environment, and the grid.

About Texas Blockchain Council 

The Texas Blockchain Council is an industry association working to make the State of Texas the jurisdiction of choice for Bitcoin, blockchain, and digital asset innovation.

About Chamber of Digital Commerce 

The Chamber of Digital Commerce is the blockchain industry’s first and largest association. We are fighting to preserve the United States’ leadership in the digital economy through the acceptance and use of digital assets and blockchain technology. 

The Chamber of Digital Commerce submitted a statement for the record in the House Committee on Financial Services hearing entitled “Oversight of the Securities and Exchange Commission.”

Today, the Chamber sent letters to Illinois State lawmakers urging them to oppose H.B. 3479/S.B. 2233, also known as the Digital Asset Regulation Act, or DARA. and other corresponding legislative titles. These proposals would essentially eliminate the digital asset and blockchain industry in Illinois and put the state at an economic and technological disadvantage. 

As noted in our letter, we commend the Illinois legislature for taking the first step to create a much-needed regulatory framework for digital assets, but we urge them to collaborate with industry to limit the negative impact this bill will have on business operations in the state. The legislation contains several deleterious issues, including but not limited to: 

• The definition of “Digital asset business activity” would implement the same licensing requirements on businesses of all sizes, from individuals to start-ups and public companies. 
• Decentralized protocols or communities would be unable to satisfy licensing compliance requirements and thus, be unable to operate in Illinois. 
• The proposals give the Illinois Department of Financial and Professional Regulation (IDFPR) carte blanche to revoke or reject licenses without limitation or explanation. 
• The proposals impose IDFPR oversight on third-party affiliates of digital asset businesses making it overly burdensome to obtain essential services. 

We hope that Illinois State lawmakers will work collaboratively with the Chamber of Digital Commerce, its Illinois State members, and the broader digital assets and blockchain industry to foster a workable and effective regulatory framework that safeguards consumers from the bad actors while providing an environment that allows Illinois’ innovative entrepreneurs to flourish and grow. 

The Chamber will engage in individual states as needed to ensure that bad policy does not impact digital asset and blockchain businesses ability to operate anywhere in the United States. 

The Financial Accounting Standards Board (FASB) released its long-awaited proposed accounting rules for reporting on certain types of crypto assets. This is a major development. For nearly a decade, the Chamber of Digital Commerce has advocated for setting clear accounting disclosure rules for crypto assets. The Chamber commends the FASB for their efficient work and look forward to getting these rules over the finish line. 

The proposed rules aim to better reflect the economics of the technology by measuring crypto assets at fair value, potentially reducing the cost and complexity associated with applying the current cost-less-impairment accounting model. “The FASB’s proposed accounting rules on crypto assets are a big step forward for mainstream adoption of crypto,” said Perianne Boring, Founder and CEO of the Chamber of Digital Commerce. “Measuring these assets at fair value provides a more favorable, equitable accounting treatment of these assets. This move highlights the desire of the crypto industry to be treated similarly to other forms and classes of investments.” 

The proposed rules would apply to crypto assets that meet all of the following criteria:

1. Meet the definition of an intangible asset, which is defined as an asset that lacks physical substance. 
2. Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets
3. Are created or reside on a distributed ledger based on blockchain technology
4. Are secured through cryptography
5. Are fungible
6. Are not created or issued by the reporting entity or its related parties.

“This will also create greater certainty and transparency for investors into the fair value of crypto assets held by entities, as well as additional disclosures about the types of crypto assets held and changes in those holdings, while also encouraging adoption to diversify investment holdings,” Boring said. 

The Chamber of Digital Commerce plans to review and provide comments on the proposed accounting rules by June 6. After the submission deadline, FASB will review comments received before a vinyl vote on the proposals. 

The Chamber of Digital Commerce is launching a new educational “Know Your Crypto” campaign to build policymaker’s and consumers’ knowledge of cryptocurrency, digital assets, blockchain technology, and these technologies’ potential for financial markets and the real-world economy. The campaign includes a variety of resources, including one-pagers, webinars, and videos.

The primary goals of “Know Your Crypto” are to provide policymakers with greater insights on blockchain technologies, cryptocurrency, and digital assets as they put in place effective policies that support the responsible adoption and use of these technologies. At the same the education effort will empower consumers and investors with a greater understanding of the technologies and confidence in how they can utilize the technologies in their everyday lives. 

“Know Your Crypto is an essential educational initiative that will ensure policymakers have the necessary knowledge to make informed decisions about the rapidly-evolving digital asset ecosystem,” said Perianne Boring, Founder & CEO of the Chamber of Digital Commerce. “Similarly, this campaign will encourage a more engaged and informed consumer who can link their personal financial goals to the policies that affect them.”  

The “Know Your Crypto” campaign is launching at a crucial moment  given the current, unclear regulatory environment for cryptocurrency and digital assets. Many policymakers and consumers are still unfamiliar with the fundamentals of these technologies and the potential benefits and risks they present. 

As well, there is no clear consensus on what policies Congress should set or how digital assets should be regulated by the administrative agencies. By providing education and resources on cryptocurrency, the Chamber is promoting a better understanding of cryptocurrency and its potential impact on financial markets and the economy, ensuring policymakers are crafting effective policies that support innovation and growth in the digital asset industry, while also protecting consumers.  

The educational materials will be posted in a new section on the Chamber’s website and will be used to host briefings with policymakers. Each section of the curriculum will incorporate vignettes featuring the Chamber’s diverse membership and will at a high level cover different crypto and blockchain subjects and categories, including:

• An introduction covering the basics of cryptocurrency and blockchain technologies, explaining how they work and their potential benefits and risks. 
• Videos highlighting the advantages of using cryptocurrency, such as faster and cheaper transactions, greater financial privacy, and the ability to operate in a decentralized manner. 
• Best practices highlighting potential risks associated with cryptocurrency, such as fraud and scams, volatility of cryptocurrency prices, and lack of regulation in the cryptocurrency market.
• A “How to Get Started” introduction on how to set up a cryptocurrency wallet, create an NFT, buy and sell cryptocurrency, and securely store cryptocurrency. 
• Key resources providing a list one-pagers, courses, articles, and reports created by the Chamber’s membership.

We believe the “Know Your Crypto” campaign is an important initiative to help policymakers and consumers gain a better understanding of cryptocurrency and its potential impact on the economy. With increased knowledge, policymakers can make informed decisions about cryptocurrency regulation, while consumers can make informed decisions about the responsible adoption and use of this technology.