Category: TDC Update

Senate Committee on Banking, Housing and Urban Affairs 

Hearing entitled: An Update from the Treasury Department: Countering Illicit Finance, Terrorism and Sanctions Evasion. 

On April 9th, 2024, the Senate Banking, Housing, and Urban Affairs Committee held a hearing for clarity from the Treasury Department on Illicit finance, terrorism and sanctions evasion.  

Witness (testimony linked): 

Honorable Adewale “Wally” O. Adeyemo, Deputy Secretary, Department of the Treasury 

Hearing Takeaway: 

The nearly two-hour hearing covered broad topics including the effectiveness of U.S. sanctions and the Biden administration’s recent decision to release another Iran sanctions waiver, indicating a focus on global finance and geopolitical issues.  

In terms of digital assets, Deputy Secretary Adeyemo reinforced his earlier calls for more rigorous regulation and monitoring in response to their increasing use in illicit activities. He advocated for Congress to allocate more authority to Treasury to effectively manage the risks associated with cryptocurrencies, though the details of these expanded powers were not thoroughly explored. 

There was a shared recognition between parties and Treasury of the challenges posed by the evolving use of cryptocurrencies in illicit finance. Both parties acknowledged the necessity for effective regulatory frameworks to address the misuse of digital assets by terrorists, state actors, and criminal organizations. While their focus and proposed solutions may differ, there is a common understanding of the need for legislative and regulatory actions to adapt to the changing financial landscape, ensuring U.S. national security and financial system integrity.  

Republican Takeaway: 

Ranking Member Tim Scott (R-SC) and other Republicans expressed concerns about the current administration’s focus, particularly on digital assets, which they viewed as potentially distracting from more significant security threats and economic policies. They were also critical of policies toward countries like Iran and Venezuela, connecting these to broader security and economic issues in the U.S., such as the fentanyl crisis. The Republicans seemed skeptical of the heavy focus on regulating cryptocurrencies, suggesting it might be an overemphasis at the expense of addressing broader financial and international policy issues. 

Democrat Takeaway: 

Democrats, led by Chairman Sherrod Brown (D-OH), emphasized the threats posed by the misuse of cryptocurrencies by terrorists, autocrats, and criminal organizations. They supported strict regulatory measures for crypto platforms, akin to those for traditional financial institutions, to close gaps in anti-money laundering and counter-terrorism financing. They expressed urgency in equipping the Treasury and other agencies with the necessary tools to regulate and monitor illicit activities facilitated by digital assets, emphasizing the need for legislative action to address these challenges. 

Member Opening Statements: 

In his opening statement, Chairman Brown emphasized the threats to American national security posed by various global actors, including autocrats, terrorists, and drug traffickers. He specifically highlighted the increasing use of cryptocurrencies by these groups as a method to move money and evade traditional financial safeguards like KYC rules. Brown pointed out incidents involving Bitcoin, Tether, and North Korea’s crypto activities to underscore this trend. He emphasized the need for crypto platforms to follow the same regulatory standards as traditional financial institutions and urged for the closing of legislative gaps to effectively combat illicit finance involving digital assets. 

Ranking Member Scott (R-SC) emphasized the need for U.S. leadership in tackling global security issues, expressing concern over the administration’s policies towards Iran and Venezuela. He criticized the easing of financial restrictions on these countries and linked these international policies to domestic challenges, particularly the U.S. fentanyl crisis. Scott also expressed disappointment in the administration’s focus on climate goals over security concerns. Notably, his statement did not specifically mention cryptocurrencies or their role in these issues. 

Witness Statement: 

Deputy Secretary Adewale O. Adeyemo’s testimony focused on the Treasury Department’s efforts to combat illicit finance, emphasizing the growing challenge of cryptocurrency use by terrorist groups and state actors. He highlighted instances of digital asset misuse by al-Qaeda, Hamas, and countries like North Korea and Russia. Adeyemo proposed three key reforms: secondary sanctions against foreign digital asset providers involved in illicit finance, updating existing authorities to cover digital asset players, and managing jurisdictional risks from offshore crypto platforms. Adeyemo stressed the importance of Congressional action to provide the necessary tools to address these challenges effectively. 

Questioning: 

In the questioning between Chairman Brown and Deputy Secretary Adeyemo, the focus was on the risks associated with the gaps in the illicit finance framework, particularly concerning digital assets. Chairman Brown asked about the potential risks if Congress fails to address these gaps, especially in preventing terrorists and drug traffickers from exploiting cryptocurrencies. Adeyemo responded by emphasizing the shift of such groups towards cryptocurrencies as traditional financial monitoring becomes more stringent. He noted that cryptocurrencies provide an easier and faster route for illegal transactions, which is why obtaining tools proposed in recent legislation is crucial. 

The discussion also covered the administration’s actions against China regarding the fentanyl trade. Adeyemo mentioned ongoing dialogues with China, emphasizing the U.S.’s preparedness to take action against companies supplying precursor chemicals for fentanyl if China does not act. He highlighted the importance of U.S. sanctions in discouraging such activities. Furthermore, Adeyemo addressed the Chairman’s concerns about Russia, detailing efforts to build international coalitions to reduce Russian revenues and disrupt their ability to finance their military operations, including the war in Ukraine. Lastly, Chairman Brown mentioned he would send a written question about the use of stablecoins in illicit activities. 

Ranking Member Scott (R-SC) questioned Deputy Secretary Adeyemo on the administration’s focus on digital assets, suggesting it is a scapegoat given other pressing global financial issues, particularly regarding Iran. He expressed concerns that U.S. policies were inadvertently aiding Iranian resources and endangering American interests. Adeyemo clarified the Treasury’s limited control over certain financial transactions involving Iran and its need for authority over cryptocurrency transactions. 

Senator Bob Menendez (D-NJ) focused on challenges in sanction enforcement against Iranian oil exports, particularly considering China’s involvement. Adeyemo highlighted the need for more authority to tackle the use of cryptocurrencies in circumventing sanctions. Further, Menendez questioned the Treasury’s efforts to regulate Virtual Asset Service Providers (VASPs), especially those not fully complying with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) controls. Adeyemo affirmed the Treasury’s commitment to enforcing existing laws and updating regulatory frameworks to address these challenges in the digital asset space. He emphasized the necessity for Congress to provide the Treasury with more authority to effectively regulate VASPs and similar entities within the evolving digital asset landscape. 

Senator John Kennedy (R-LA) questioned Deputy Secretary Adeyemo about the U.S. waiving sanctions on Iran, suggesting it indirectly aids Iran financially. Adeyemo assured that the funds in question have never and will not go to Iran, noting that this policy began under the Trump administration. Kennedy argued about the fungibility of money and its potential indirect support to Iran. Adeyemo countered by insisting that the funds would not be used in such a manner.  

In the exchange between Senator Mark Warner (D-VA) and Deputy Secretary Adeyemo, Warner discussed CANSEE and how it targets efforts to evade sanctions through cryptocurrencies and DEFI (Decentralized Finance). He suggested applying similar legislative tools against Hamas. 

Adeyemo expressed willingness to work on this and acknowledged the need for additional tools. Warner elaborated that the proposed bill would expand coverage to foreign financial entities facilitating transactions for any terrorist group. Adeyemo highlighted the challenges of curtailing Hamas’s access to funds, as they are moving away from traditional financial systems to methods like cash and cryptocurrencies. He underscored the necessity of secondary sanctions tools to disrupt these networks. 

Finally, Warner asked about the need for additional resources for entities like OFAC or FinCEN, given the evolving challenges in tracking illicit funds. Adeyemo agreed, emphasizing the importance of equipping these agencies with the necessary resources to effectively pursue these complex financial investigations. 

Senator Thom Tillis (R-NC) questioned Deputy Secretary Adeyemo around the challenges of regulating digital assets and cryptocurrencies. He expressed frustration over previous administrations’ policies towards Iran and the need for effective regulation in the digital asset space. Tillis mentioned the ENFORCE Act, aimed at creating a regulatory framework that accommodates the unique nature of digital assets without overburdening them with traditional banking regulations like BSA, AML, and KYC. He stressed the need for a balanced approach to ensure the U.S. remains an attractive jurisdiction for digital asset enterprises. 

Adeyemo agreed that a differentiated, risk-based approach is necessary and emphasized the role of the regulatory process in providing certainty to digital asset companies. Tillis inquired about the timeframe for implementing new regulations, to which Adeyemo responded that it could be as quickly as a year. 

Tillis highlighted the need for regulations that address the evolving tactics of illicit financing and terrorism, including the use of digital assets by cartels for money laundering. He suggested a joint classified briefing with the Treasury and DEA to better understand and address these challenges, aiming to create a regulatory environment that effectively counters these illicit activities. 

Senator Elizabeth Warren (D-MA) questioned Deputy Secretary Adeyemo about the Treasury’s request for Congress to close gaps in anti-money laundering rules, specifically after reports of Hamas receiving crypto funding. Adeyemo explained that as traditional financial avenues are monitored, groups like Hamas are turning to cryptocurrencies, which are harder to track, necessitating additional tools to counteract this shift. 

Warren inquired about how Hamas accesses financing, to which Adeyemo mentioned their turn to alternative means, including cryptocurrencies. She highlighted the broader use of crypto financing by various illicit actors and pointed out the lack of stringent rules for crypto validators compared to traditional banking. Adeyemo confirmed that there could be instances where such validators are involved in processing transactions for illicit activities, including for groups like Hamas and North Korea. 

Warren raised concerns that Iran, despite sanctions, could be profiting from validating crypto transactions, illustrating the potential for sanctioned entities to exploit the growing crypto market. She emphasized the need for a robust regulatory framework, especially with the growth of the crypto market and the introduction of new on-ramps like stablecoins. Adeyemo agreed, noting the tendency of bad actors to exploit expanding markets. Warren concluded by stressing the importance of implementing effective anti-money laundering rules in the crypto sector. 

Senator J. D. Vance (R-OH) had a line of questioning on GDP growth in Russia compared to our European allies, and how the REPO Act would affect Russian sanctions. 

Senator Raphael Warnock (D-GA) expressed concerns with sanctions affecting innocent people disproportionately and the humanitarian crises in Gaza. 

Senator Katie Britt (R-AL) voiced her concerns about Iran’s increasing oil profits and the Biden administration’s approach towards Iran. Deputy Secretary Adeyemo acknowledged the risk of Iran using cryptocurrency to evade sanctions and emphasized the need to make sanction evasion more costly for Iran. When asked about unused tools in sanction enforcement, Adeyemo highlighted the significance of U.S. dollar-based tools. Additionally, Britt inquired about loopholes in the petrochemical sector, with Adeyemo noting that Iran is utilizing financial mechanisms other than U.S. dollars to circumvent sanctions. 

Senator Catherine Cortez Masto (D-NV) was the last to question Deputy Secretary Adeyemo. She questioned Adeyemo about the Treasury’s ability to combat the use of cryptocurrencies in drug trafficking. Adeyemo highlighted the need for additional tools to target the crypto ecosystem, especially parts attempting to evade U.S. jurisdiction. He noted the necessity of updating regulations to include cryptocurrencies and the potential of a secondary sanctions regime. 

Senator Cortez Masto asked if the FEND Off Fentanyl Act would aid in enforcement, and Adeyemo confirmed its utility, but warned that as traditional financial avenues are targeted, traffickers might increasingly turn to cryptocurrencies. 

She also inquired about cryptocurrency mixers and their role in illicit financing. Adeyemo explained that mixers allow for anonymous transactions and are used by bad actors to move money illicitly. He emphasized the importance of gaining more tools to effectively combat these elements of the crypto ecosystem, as they provide means for illicit actors to evade traditional financial monitoring. 

Ensuring Necessary Financial Oversight and Reporting of Cryptocurrency Ecosystems (ENFORCE) Act

Introduction

On April 8, Senators Thom Tillis (R-NC) and Bill Hagerty (R-TN) released the ENFORCE Act, a draft proposal aimed at addressing the U.S. Treasury’s request for more robust legislative framework to address digital asset anti-money laundering concerns and improve the current Bank Secrecy Act (BSA) treatment of digital assets. The proposal was intentionally released the night before a Senate Banking Committee hearing on the digital asset illicit finance featuring U.S. Deputy Treasury Secretary Wally Adeyemo as a witness.

Additionally, the draft aims to serve as a workable counterproposal to the significant momentum that Senators Elizabeth Warren (D-MA) and Roger Marshall (R-KS) have promulgated with S.2669, the Digital Asset Anti-Money Laundering (DAAML) Act.

Below, please find a full summary and analysis of the legislation. If you have any questions, please email The Digital Chamber’s National Security team: Kristopher Klaich, Policy Director and Jack Goewey, Senior Policy Associate.

Summary

Section 1: Title

Section 2: Creates the New Category of Digital Asset Financial Institution

• Dispels any notion that digital asset firms are not required to comply with the BSA under current standards by creating an additional definition for Digital Asset Financial Institutions, focused on centralized, customer facing entities which includes digital asset exchanges, custodians, issuers, or intermediaries that convert monetary instruments into digital assets or vice versa.

Section 3: Applies Applicable AML Requirements to Digital Asset Financial Institutions

• Prescribes the same AML and KYC requirements applied to money service businesses (MSBs) to the new definition of digital asset financial institutions.

Section 4: Applies Applicable Suspicious Activities Reports (SARs) Requirements to Digital Asset Financial Institutions

• Prescribes the same reporting requirements currently applied to money service businesses (MSBs) to the new definition of digital asset financial institution.
• Adds optionality to allow the digital asset financial institution to utilize a third-party to assist with the filing, record-keeping, and management of SARs reporting.
• Requires the Department of the Treasury to conduct a review after five years and to publish a set of ‘best practices’ for SARs reporting by digital asset financial institutions.

Section 5: New Special Measures Authority

• Adds a new provision to existing Section 311 authority that gives Treasury the ability to impose one or more of the ‘special measures’ in instances where digital assets are utilized to facilitate a primary money laundering concern providing legal certainty that Treasury can bring the same tools to bear in instances of digital asset illicit finance as in other assets.
• Maintains existing Section 311 requirements for Treasury to undergo notice-and-comment rulemaking when implementing new authority.

Section 6: Ensures Anti-Tip Off Compliance for Digital Asset Financial Institutions

• Prescribes edits to Section 1510(b)(3) of title 18, United States Code to ensure that digital asset financial institutions and other entities in the digital asset ecosystem operate under the same anti-tip off laws and standards that cover traditional financial institutions to ensure that law enforcement can properly investigate, and the justice system can properly adjudicate those involved in illicit financial activity.

Section 7: Information Sharing Pilot Program to Combat Illicit use of Digital Assets

• Requires the Attorney General (AG) to establish a pilot program under which relevant law enforcement agencies and voluntarily participating private sector entities may share information about potential illicit finance violations and bad actors to coordinate and deploy resources most effectively and establish related best practices.

Section 8: Crypto Asset Anti-Money Laundering Examination Standards

• Requires Treasury, CFTC, SEC and state authorities to work together to adopt financial institution examination standards related to the prevention of money laundering and sanctions evasion aiming to establish standards comparable to those mandatory for traditional financial institutions, to fill a gap in the regulatory landscape.

Section 9: Rule of Construction

• Delineates that this clarity on requirements for digital asset participants around the BSA, AML, KYC and SARs does not affect any existing FIs’ requirements under the BSA.

How we see it

The Draft takes a reasonable approach in codifying the Financial Crimes Enforcement Network (FinCEN) standards for the newly defined ‘digital asset financial institution’.  The bulk of the bill appears duplicative, essentially restating the same BSA standards for digital asset financial institutions and FinCEN has previously asserted its authority in this area. However, this approach prevents FinCEN from creating specific future rulemaking for the industry. It also ensures the digital asset sector is not treated more harshly than other sectors or industries.

The bill purposefully does not touch miners/validators, P2P transactions, smart contracts, and decentralized finance (DeFi), though it may need more clarification to ensure DeFi founders’ activities do not subject them to this regime. This is a direct win for those miners and validators that were subject to register as financial institutions under Senator Warren’s proposed DAAML Act.

Expanding the Treasury’s Section 311 authority over digital assets financial institutions and transactions codifies what FinCEN has already claimed it has and is not any broader than its authority over other financial institutions.

Furthermore, any changes under this authority require a notice and comment period for industry to respond to rulemaking. Another line of effort to expand the Treasury’s authority to cover digital assets financial institutions has been to modify the 9714 authorities to remove the word “Russia” and make it applicable to any geography. However, implementing this change would NOT require a notice and comment period for future rulemaking so we view the 311 modifications as a beneficial landing point.

Prospects: The Senate has prioritized illicit finance digital assets legislation and a vehicle like this one remains the most likely bill in this space to move forward and receive consideration. However, there remains limited time on the legislative calendar in an election year and digital assets is not a priority for the broader Senate. We do anticipate that this proposal will receive considerable attention and serves as a strong bill to address illicit finance while balancing the goal for U.S. digital asset and blockchain innovation to remain in the U.S., but likely will act as a messaging bill to influence future legislative action.

I am pleased to share with you a significant milestone in our ongoing efforts to shape public policy related to Non-Fungible Tokens (NFTs) and the metaverse.  

I have the privilege of leading the NFT Working Group. The Digital Chamber is leading an effort to draft emerging practices for NFTs that we hope to have considered for formal recommendations to the Commodity Futures Trading Commission. 

This is where you come in: In an effort towards transparency and inclusivity, we would like to invite the entire community to participate in shaping our emerging practices and recommendations for NFTs. 

Today, we are making our draft report public and opening a comment period on our website. Following the closure of comments on April 26, 2024, The Digital Chamber will carefully review all feedback, integrate the relevant suggestions, and then present the finalized report to the NFT Working Group, and then the Digital Asset Markets Subcommittee for presentation. 

I invite you to take advantage of this unique opportunity to help shape the blockchain policy landscape. 

Your insights are invaluable to us, and we encourage you to share your feedback.  
​​
Sincerely,  



Perianne Boring
Founder and CEO,
The Digital Chamber

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Title: Non-Fungible Tokens, Education and Emerging Practices

Start Date: April 5, 2024 
End Date: April 26, 2024  

COMMENT PERIOD ENDED

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What’s in a name? A lot, as we’ve learned over the past decade.

We will celebrate 10 years since our founding later this year, and we thought it was time for a refresh of our brand, our outlook, and even our name. It’s time for everything we do to reflect on the moment we are in now and the incredible opportunities we see ahead.  

So, what’s changing?  

As of today, The Chamber of Digital Commerce officially becomes The Digital Chamber, or as we like to say, TDC. Why? Because we are The Digital Chamber – we represent a cross-section of companies, investors, and builders who are creating a thriving ecosystem of digital assets, services, and products in every category imaginable. And we want our name to reflect the breadth and diversity of this industry as it grows.  

Soon, you’ll see our entire new website, reflecting our new look and new brand. Keep an eye out for this in the coming weeks! 

As always, we see our role as the leading convener of experts, driver of innovation, and defender of digital assets across every segment of this thriving industry. 

We are The Digital Chamber (TDC). The true believers, the champions, and the advocates for digital assets. With your help, we look forward to changing the world together for many years to come. 

A brief history:  

In the year 2014, the first NFT, “Quantum,” was minted on to the Namecoin Blockchain by Kevin Mccoy and sold to Anil Dash for the sum of only $4. Sprouting from the theory and experimentation of Colored Coins on Bitcoin from 2012-2013, this new technology, referred to by Mccoy and Dash as “monetized graphics,” became the basis for the NFTs we understand today.  

Non-fungible means that the tokens issued or “minted” are unique and cannot be replaced due to its unique identification code or “digital signature,” differing NFTS from other ‘digital tokens’ like bitcoin which are uniform across all coins of the same name, making them interchangeable.  Over the last decade, these NFTs have been increasingly used to represent different goods like art, gaming tokens, digital real estate and many different metaverse projects and products. In 2021, NFT trading volumes reached nearly $13 billion driven by the popularity of NFT-backed digital artwork and collectibles. However, NFTs have the potential to contribute to the digital economy beyond the vehicles that led to their nascent popularity: 

Here are several applications of NFT technology that may impact society from business to healthcare to even replacing your passport and birth certificate:

Represent ownership of physical art 

An NFT could represent ownership of a physical piece of art. Moreover, NFTs allow split ownership of a physical piece of art between multiple individuals. This is called fractionalizing ownership and it’s something that brokerage firms have being doing in recent years when selling stocks.  

Tokenizing a piece of art into multiple NFTs allows individuals who may not have the same financial resources as others to purchase and invest in fine art as well, leveling the playing field in investing and art collecting. 

Home-buying 

Creating NFTs to represent the ownership of a home, for sellers and buyers, can improve the home buying process and make home-selling transactions more efficient, secure, and transparent. NFTs have the capacity to store all the necessary information a buying party would need including who has owned or sold the home, legal actions and disputes involving the home, payments, and more. NFTs can also significantly reduce the time and costs it takes to buy a house due to the elimination of the middleman intermediary and the back-and-forth of reviewing and signing contracts. 

Fractional Investment in Real Assets 

While modern investment tools can allow us to buy fractional shares in chosen publicly traded companies, they don’t help us so much if we want to buy fractional shares of real physical assets. That’s where NFTs come in. With NFT real estate and luxury items can be bought fractionally, similar to how stocks can be bought partially on platforms like Acorns or Robinhood. This tool can level the playing field in luxury item markets and give purchasing power to middle and low-income earners.  

Music 

A popular idea circulating in NFT-privy circles is the idea of NFTs shaking up the music industry and giving modern musicians more power at the negotiation table than ever before. With the tokenization of digital music, album art, and even merchandise, artists can take back their power from big labels and streaming services, both of which have historically taken much larger cuts of the profit than musicians ever have. Josh Katz, CEO and founder of NFT marketplace YellowHeart, coined the “90/10 rule” as he believes tokenized music would shift the revenue earnings from 90/10 in the labels, event venues, and streaming services favor, to 90/10 in the artist’s favor.  

Ticket Buying 

Ticket buying has surged into the public eye, mainly because of the economy-shifting enormity of success that Taylor Swift’s 2023 Eras Tour had, and because of how infamous the ticket buying process became, earning even the attention of the White House for how frequently scalping and fraudulent sales occurred.  

NFTs have the potential to significantly reduce the amount of pain fans must go through to attend their favorite events. NFTs can be used as a digital indicator of ownership of tickets which can allow artists to directly sell their own tickets and remove the need for third-party sellers. With tickets being sold directly from one seller, reductions in the amount of fraud and scalping may occur because of the transparency and authentication abilities of blockchain based technology.  

Supply-Chain 

NFT traceability offers a huge advantage for businesses reliant on stable and efficient supply chains to supply their stores with products. This feature of NFTs allows businesses to know what occurs at touchpoints along a supply chain, offering businesses a crucial way to observe processes and verify whether their goods are safe, legitimate, and moving at a desired rate of speed. 

Products with NFTs minted on a blockchain can be real-time tracked and monitored throughout their transit, and additionally, observing this process can allow data analysts to use data collected to improve supply-chain efficiency and flatten out hiccups with their product deliveries.  

Lastly, NFTs can allow consumers to discover information about the product that they’re buying, learning information such as where fruit was grown, where an electronic was built, or where a fish was caught.  

DeFi’s Intersection with NFTs 

DeFi, or Decentralized Finance, is a tool that offers secure peer-to-peer financial transactions through the use of decentralized distributed ledgers and cryptocurrencies. The system eliminates the need for intermediaries like brokerages and banks to make financial transactions, instead allowing users to use applications, or digital wallets which holds their private keys giving them access to their tokens and cryptocurrencies. DeFi utilizes the same contracts (i.e., smart contracts) that NFTs use, which publish information of your transaction on a blockchain for anyone to review without changing. 

NFTs are also often used as collateral in DeFi loans, based on the NFTs floor price and the NFT’s purchase history. An integrated piece of the DeFi system is its ability to automatically manage debt. If a borrower defaults on a loan, the NFT is automatically transferred through the smart contract to the loaner’s NFT wallet. 

Identification  

While this technology is admittedly one of the most far off on this list due to political and ethical concerns, it’s applicability to personal security as well as national security is immense. Additionally, its potential to revolutionize personal documentation is noteworthy. NFTs in this case can be used to represent certificates or identifying documents because of their containment of unique code that cannot be modified. Birth certificates, IDs, licenses, medical histories and other important personal documentation can be tokenized and stored on a secure blockchain. 

Some organizations have already begun utilizing NFTs in their systems to give users a secure digital location to store and access their documents. Romania’s National Institute for Research and Development in Informatics created an NFT marketplace system, allowing users to access their government documents at will, while also being able to transfer and store government documents. University of Georgia’s New Media Institute offered degrees as NFTs, along with the option of paper certificates. According to the Washington Post, approximately 2,800 individuals obtained educational credentials without attending classes. NFTs could be a viable solution to this problem. 

Healthcare 

NFT technology also has applications in healthcare, public health equity and healthcare financing that could lead to greater coverage and inclusivity, as well as faster and more secure transactions. NFTs offer a pathway for ownership for patients wanting to keep their medical data out of the hands of government, big tech and data collectors. 

NFTs can be used to track and securely store medical records as well as medical billing and insurance claims, which would vastly improve patient experiences at medical institutions like pharmacies, specialist visits, physical therapy appointments, etc. If documents and records were minted onto a private blockchain accessible only by pharmacists and providers, it could allow instant access for these health professionals, removing headaches for patients and customers forced to deal with administrative and bureaucratic hurdles. 

Conclusion

NFTs are an enticing and prospective advancement for several different industries, and consumers in an array of different economic sectors can be excited about this technology’s potential adoption. In the coming years, NFTs should gain consideration from businesses, medical institutions, creators and artists, executive government agencies, and especially policymakers.  Ensuring that the technology is properly classified under legislation, is properly regulated by appropriate agencies, and is researched and given the proper protections under law is how both industry and consumers can be convinced that the technology is reliable, safe, and government backed. It’s how the benefits of NFTs can become more than just conjecture and can actually start benefitting and improving the lives of everyday Americans. 

 

In a distressing breach of international law, U.S. citizen Tigran Gambaryan has been detained by the Nigerian government. Employed by Binance as the head of their criminal investigations team, Mr. Gambaryan appears to have been invited to Nigeria under false pretenses, only to be arrested on February 26, 2024, without any charges, except for his current employment for Binance.

It appears that Mr Gambarayan is being held coerce a $10 billion fine from Binance. This egregious act appears to be a state-sponsored kidnapping. Both Gambaryan and a colleague from Binance were deprived of their passports and taken to an undisclosed location by armed personnel, where they have remained in custody. The absence of criminal charges and the refusal to allow unsupervised legal counsel highlight the arbitrary nature of this detention.

The implications of this act are chilling. Tigran Gambaryan’s detainment under such dubious circumstances sets a dangerous precedent, signaling that any American businessman abroad, particularly those in the cryptocurrency sector, is vulnerable to similar unlawful actions by foreign governments.

This action is a flagrant violation of international law. And while Iran, Russia and China have similarly arrested American citizens in their countries as leverage or on dubious arguments, this is notably very different: Nigeria is a U.S. ally and recipient of substantial U.S. foreign aid, exceeding $1 billion annually. The Biden Administration must act to secure Mr. Gambaryan’s release and return him to his family.

Mr. Gambaryan has made notable contributions to the fight against cybercrime, including his involvement in resolving high-profile cases such as AlphaBay, the Welcome to Video child exploitation ring, and the Silk Road cryptocurrency theft. His career, dedicated to upholding justice and security, starkly contrasts with the unfounded circumstances of his arrest.

This incident demands a robust response from the United States. We call upon President Biden and the U.S. government to employ every diplomatic measure to ensure Mr. Gambaryan’s immediate release. The unwarranted detention of Tigran Gambaryan is more than a legal issue; it is a matter of national dignity and the protection of American citizens worldwide. We stand in solidarity with Mr. Gambaryan and his family during this trying time.

On March 12, the US Patent and Trademark Office and US Copyright Office (collectively the “Offices”) published a joint Report entitled, “Non-Fungible Tokens and Intellectual Property: A Report to Congress.” The Report is in response to a June 2022 request from then-Chair of the Subcommittee Patrick Leahy (D-VT) and Ranking Member Thom Tillis (R-NC). The Report includes:

• a completed study into the current and future applications of NFTs; 
• how intellectual property (IP) laws apply to NFTs and assets associated with NFTs; 
• what industry challenges need to be addressed; 
• how NFTs can secure and manage intellectual property rights. 

The Report included comments requested by the Offices from creators, brand owners, innovators, entrepreneurs, technologists, academics, industry associations, and intellectual property practitioners. 

How we see it: The Report concludes that existing laws are adequate to address concerns related to IP and NFTs and that NFT specific-legislation would likely hurt the industry more than help it by impeding development and innovation of the technology. 

Summary:

Much of the Report details the implications of NFT technology’s impact on IP law, IP rights and the alleged risks NFTs may have on the integrity of those laws and rights. The Report explores NFT’s ability to be minted on to IP that the creator does not own; NFT’s immutability on the blockchain; questions around NFT’s ability to be altered or destroyed should law enforcement deem it necessary; it’s decentralized and anonymous nature which could potentially pose issues for law enforcement. The Report states however, that the biggest concern was the prevalence of “consumer confusion” on NFT IP rights and the legal protections in place after a consumer’s creation, purchase, transfer of an NFT.

Even with this in mind, many commenters stated that they believed current IP laws are adequate to handle NFT-based challenges, such as copyright and trademark infringement, even while stating that these challenges were significant concerns to them. They attributed the problem of consumer confusion largely to the “lack of marketplace standards for clear disclosure by NFT sellers.”Rather, public education initiatives and product transparency were favored and cited to play a more significant role in ensuring awareness and understanding of NFTs.

The opinion by commenters regarding IP law also applies in the context of patent rights as well, with commenters expressing concerns about inaccuracies and fraud while still acknowledging that blockchain technology can help in the management, transfer and licensing of patent rights. Additional findings in the report include an assessment that proposals to use NFTs as replacement or supplemental copyright recordkeeping devices did not demonstrate added value due to the immutability technology of the blockchain, which leave NFTs vulnerable to perpetuating inaccurate records.

The Report also acknowledges NFT potential to enable artists to receive remuneration from downstream resales of their work, but states that they will not be ensured by any US statutory entitlement and instead by the code and policies underlying the NFTs and their provider platforms.

Next Steps: It is unclear how Congress will react to the Report or whether the Subcommittee will convene a hearing. Given the Report’s recommendations, legislation seems unlikely in the near-term to address issues of NFTs and IP. 

The digital asset revolution is here, and the Chamber of Digital Commerce is committed to ensuring the state of Arizona is at the forefront of this financial transformation. That’s why we have voiced our strong support for SCR 1016, a concurrent resolution that encourages the Arizona State Retirement System and the Public Safety Personnel Retirement System to explore investing in digital assets and bitcoin exchange-traded funds (ETFs).

In a letter to Governor Katie Hobbs, the Chamber emphasized the rapidly evolving digital asset landscape and the importance of state retirement systems positioning themselves to capitalize on this innovative asset class. With bitcoin’s market cap surpassing $1 trillion and growing institutional adoption, including approval for several bitcoin ETFs by the SEC, the potential for portfolio diversification and returns is too significant to ignore.

“The Chamber of Digital Commerce believes that Arizona’s state retirement systems must explore all viable investment opportunities that can generate returns and safeguard the financial futures of their members,” the letter states. It highlights that even the federal government recognizes bitcoin’s value by holding approximately 200,000 bitcoins.

By closely evaluating developments in digital asset ETFs and considering their inclusion in investment portfolios, the letter argues that Arizona’s retirement systems can position the state as a leader in embracing innovative financial technologies that benefit its members.

The Chamber calls on Governor Hobbs and the Arizona legislature to support SCR 1016 and provide the necessary resources for a comprehensive feasibility study on investing state retirement funds in digital assets. This forward-thinking approach can unlock new economic opportunities while securing a prosperous future for all Arizonans.

As advocates for the growth of digital assets and blockchain technology, the Chamber of Digital Commerce stands ready to assist Arizona in navigating this cutting-edge financial frontier. The organization’s unparalleled expertise, combined with its broad network of industry leaders, makes it an invaluable ally in shaping policies that foster innovation while protecting consumer interests.

What’s next?

The state Senate passed the resolution in a 16-13 vote in February. Senators followed party lines, with all Democrats voting against the measure. The text is now before the state House Ways and Means Committee. As a concurrent resolution, the measure can proceed with support from the House and Senate, bypassing a signature from Arizona Governor Katie Hobbs. 

If passed, the resolution will ask the ASRS and PSPRS to create a “report on the feasibility, risk and potential benefits of directing a portion of state retirement system monies into digital asset ETFs, including a list of options and recommendations for how the state might safely invest in the digital asset class.”

The time is now for Arizona to seize the immense potential of digital assets. With the Chamber’s support and guidance, SCR 1016 can pave the way for the state to become a model for other jurisdictions seeking to harness the power of this transformative technology responsibly.  Stay tuned as we continue our efforts to drive the secure and sustainable integration of digital assets into the financial mainstream.

House Agriculture Committee 

Hearing entitled: For the Purpose of Receiving Testimony from The Honorable Rostin Behnam, Chairman, Commodity Futures Trading Commission 

On March 6, 2024, the House Committee on Agriculture received testimony from the Honorable Rostin Benham, the Chairman of the Commodity Futures Trading Commission (CFTC). Chairman Benham was the hearing’s sole witness and his testimony focused on the agenda and work of the Commission and its priorities regarding both agricultural commodities, and the need for a digital asset regulatory framework to protect and incentivize investment and the retainment of business in the US. The Committee also asked Chair Benham about artificial intelligence and quantum computing’s current and potential growth and influence in commodities trading.  

Unsurprisingly, digital assets were a key focus. The hearing comes at a time where cryptocurrency has majorly reentered the public eye due to its recent price resurgence. We have provided a summary below. If you have any questions, please reach out to Mack LaBar at Mackenzie@digitalchamber.org.  

Overall Takeaway:  

There was consensus that digital assets have arrived as a major industry that needs regulatory clarity. There was broad support from members, and even Chairman Benham, for the Financial Innovation and Technology (FIT) for the 21^st Century Act (“market structure” bill), led by Committee Chair GT Thompson (R-PA). Benham said the CFTC could implement a regulatory framework if directed by the FIT Act within 12 months and that it was a critical bill for hiring talent, building software, hardware, as well as infrastructure. “Crypto going away is a false narrative,” said Benham.  

There was substantial focus as well on digital asset categorization and whether cryptocurrencies, specifically Ethereum, should be identified as a commodity. Benham was adamant that Ethereum is a commodity and stated that in the case of the SEC validating a ruling that stated digital assets were either securities or commodities, the CFTC would be involved in ensuring that the steps taken were deliberate, and that a focus was put on preserving market compliance and integrity. 

Summary: 

In his opening statement, Chairman Benham pleaded for more regulatory authority over digital assets, highlighting that in FY2023 the CFTC saw 47 actions relating to conduct in the digital assets space, which represented 49% of all Commission enforcement actions… “a staggering statistic considering no federal agency directly regulates the cash digital commodities market,” said Chairman Benham.  

The Chairman continuously advocated for the “filling of gaps” in the crypto and digital assets space, which not only include compliance but also the movement of business overseas to countries in Europe and Asia. The Chairman stated that the regulatory environment in such countries over the course of the three years that he has been CFTC chair, has improved drastically.  He also advocated for the identification of digital assets as commodities, an important debate that would distinguish the authorize of both the SEC and the CFTC in the crypto space. 

Rep. Duarte (R-CA) pushed back against this movement and voiced his opposition to “shoehorning” crypto into either the commodities or securities box and questioned the technology’s legitimacy as a true store of value that investors could observe and trust. Chairman Benham asserted that the question of legitimacy was irrelevant and that regardless of the technologies legitimacy, it is a rapidly evolving market and space where investors stand to lose money and potentially face malpractice within the industry, requiring regulation. Benham went on to state that commodities — even after acknowledging that there are enumerated commodities such as corn, wheat, gold, silver, and fuel — are often assets that are simply “not a security” which could be assessed through a Howie Test, a test that assesses whether or not a transaction is an investment and should be regulated.  

Rep. Langworthy (R-NY) asked about the trend of “disintermediated” crypto transactions and whether this trend should be something the CFTC should be investigating and considering regulation for. Chair Benham commented that these platforms that effectively remove the brokerage stage of asset acquisition offer certain advantages to investors such as removing “frictional barriers” but also acknowledged that these barriers that have been in place in traditional stock purchasing for decades, have acted as barriers to malpractice and security risks, and act as protections for market integrity. 

Both Rep. Budzinski (D-IL) and Rep. Soto (D-FL) asked about the FIT Act regarding the importance of passing it, and the timetable for implementing a regulatory structure under the law, were it passed with substantial funding.  

As stated, Benham is supportive of the bill highlighting its necessity because Bitcoin and Ethereum make up 60% to 70% of the whole market capitalization of digital assets and the CFTC needs delegated authority to regulate. Rep. Casar (D-TX) was a lone exception that lamented legislative efforts should be deprioritized in favor of more research on the appropriate regulatory authority for digital assets and marketplaces. 

Today marks a significant triumph for the cryptocurrency mining sector as the U.S. Energy Information Administration (EIA) has retracted its emergency survey targeting cryptocurrency miners. In coordination with The Texas Blockchain Council and Riot Platforms, the Chamber of Digital Commerce prevented the survey’s implementation. Following initial success in securing a Temporary Restraining Order (TRO) last week, the EIA officially rescinded the survey and its emergency justification.   

This development represents a monumental victory for the industry. As per the agreement reached today, if the EIA seeks to survey cryptocurrency miners in the future, the EIA must undergo the proper notice and comment procedure mandated by law, ensuring public input on the survey’s scope before any re-issuance. We urge the community to remain alert and engage in the comment process should it become available.  

 This win for the cryptocurrency mining industry underscores the importance of transparency and adherence to the rule of law. We extend our heartfelt gratitude to the Texas Blockchain Council, Riot Platforms, and the legal teams at Gray Reed LLP, National Civil Liberties Alliance, and Cherry, Johnson, Siegmund, James, PLLC for their pivotal roles in this achievement. The swift and unified response of this coalition has been remarkable, and we are enthusiastic about the possibilities this victory opens for the future.  

 Background

On January 31, 2024, the EIA released a mandatory survey of cryptocurrency miners using an ‘emergency’ justification. The Chamber of Digital Commerce immediately acted to protect the industry and our mining members. While we support reasonable data sharing, this survey and the emergency justification were not reasonable, leading to an imminent threat of irreparable harm to the U.S. cryptocurrency mining industry.   

During this time, we reached out to the Energy Information Administration (EIA) several times to revise the process and the survey but to no avail. After TBC and Riot Platforms initiated the lawsuit last week, we joined as a co-plaintiff to shield our members from the survey’s potential damages. Following our victory in obtaining a Temporary Restraining Order (TRO) that prevented the EIA from enforcing the survey, the government has now consented to abandon the current survey initiative.