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The Chamber of Digital Commerce applauds Congressman Pete Sessions’ (R-TX) for introducing a Congressional Resolution highlighting the importance of Proof-of-Work (PoW) mining. This is the first-of-its-kind signal in support of the digital asset mining industry in the United States Congress.

The Resolution affirms that it is the sense of the U.S. Congress that PoW mining can help the U.S. achieve its energy goals. PoW mining involves using very powerful computers to attempt to solve complex computations that are necessary to create a new block in the Bitcoin blockchain. This process verifies the legitimacy of every transaction and is essential to the security of the cryptocurrency industry.

The Chamber’s Mining Initiative has fought vigorously for the opportunities that PoW mining can afford to achieve the U.S. economic, technology, and energy security goals. PoW mining is often misunderstood and attacked with misinformation around its energy consumption. However, PoW mining’s energy usage is transparent, verifiable, and represents only .14% of the global energy usage. That’s less than the total electricity output lost in transmission and distribution on the grid each year.

Today’s resolution is an important step towards recognizing the potential of PoW mining as a tool for developing U.S. energy opportunities and understanding the future of energy development requires collaboration and innovation across multiple sectors and industries, including the blockchain industry. We hope the entire Congress will rally behind Congressman Sessions’ Resolution and support PoW mining’s role in cementing the U.S.’ leadership in technology and energy development.

We commend Congressman Sessions for working with the Chamber’s members to formally support this industry on the House floor. We will continue to refute the misinformation around this industry through smart, common sense policies.

“As regulators look to build renewed confidence in our financial system, digital assets and blockchain should play an integral role in updating our banking infrastructure. Blockchain rails, for example, can provide certainty and transparency to banking customers seeking real-time access to their funds.

This is an inflection point for the banking system. Regulators and policymakers should step away from the discriminatory tone, in recent months, aimed at the digital asset industry and their banking partners. Rather, they should seriously consider how new innovations can contribute to solutions that solve an old set of problems that have yet again undercut public trust in our financial system.”

– Perianne Boring, Founder and CEO, Chamber of Digital Commerce

We are at an inflection point. The ongoing banking crisis has created questions about the relationship between digital assets, blockchain technology and the U.S. banking system. Forthcoming, there will be increased scrutiny of the industry and its relationship with traditional financial services. It is critical that we respond to this reality with viable solutions.

To that end, we have curated a list of talking points for our membership focused on the potential of blockchain technology as the solution, not the problem, for the U.S. banking system and solving the issue of industry access to banking services. 

1. What happened: On March 8, Silvergate Bank voluntarily commenced the process of liquidation. This was followed by regulatory takeovers of Silicon Valley Bank on March 10 and Signature Bank on March 12. Poor risk management and internal controls, mismatched duration of investments against deposits, rapid asset growth, and overreliance on uninsured deposits, among other things, were critical regulatory deficiencies leading to these banks’ demise. 

2. Crypto has a banking problem, but banking doesn’t have a crypto problem. Each of these failures is the result of poor risk management of customer deposits and a subsequent bank run. Regulators pressuring banks to be hyper-cautious in working with blockchain companies without providing regulatory clarity has concentrated risk in a small subset of the banking industry. This has led to less banking options for crypto companies and has ensured that only a few bank entities are exposed to industry-specific market events. 

3. Crypto and blockchain technology is a solution. The recent failures would not have been possible in a decentralized, transparent, auditable, and over-collateralized crypto asset ecosystem. The transparency of blockchain technology eliminates the opacity and regulatory mistakes of the traditional financial system. For example:
   1. Transparency: Blockchain technology can help improve transparency by creating an immutable and transparent ledger of all transactions. This would allow regulators to monitor and audit financial transactions in real-time and detect any suspicious activities.
   2. Smart Contracts: Smart contracts can be used to automate financial transactions and enforce regulatory compliance. This can help reduce the risk of human error and ensure that transactions are executed according to regulatory requirements.
   3. Identity Verification: Blockchain technology can be used to create a secure and decentralized identity verification system. This would allow banks and other financial institutions to verify the identity of their customers more easily and securely.

4. Crypto needs banking partners. The blockchain and digital assets industry’s three largest banking partners are no longer in existence. This void must be filled and businesses are searching for safe, effective alternatives but U.S. options are limited.
   1. Any efforts from federal banking agencies to undermine U.S. competitiveness, including attempts to sever crypto firms’ relationships with their U.S. banking partners, presents a number of legal, ethical, financial stability, and national security concerns.
   2. Unlawful banking discrimination campaigns against any legal industry should be alarming to policymakers, regulators, and to the general public. And for the digital assets space in particular, the Chamber of Digital Commerce stands ready to push back against any attempts to thwart consumer and investor demand for digital asset products & services.

5. If regulators continue to discriminate, the U.S. will lose. The reputational risks of crypto have led to increased regulatory pressures on bank partners to stay away from working with lawful businesses. Without consistent, reliable access to the U.S. banking system, industry is being forced to relocate to more welcoming jurisdictions. This is a troubling precedent and a threat to U.S. competitiveness and national security. 

What we’re advocating for:

1. We encourage the appropriate congressional members and committees to utilize their oversight and investigatory powers to illuminate how coordinated actions by the federal prudential regulators (Federal Reserve, Office of Comptroller of the Currency, Financial Depository Insurance Corporation) have impacted the relationship and provision of services between U.S. banks and the blockchain and digital asset industries.
   1. See: Letter from House Majority Whip Tom Emmer (R-MN) to FDIC Chairman Martin Gruenberg “regarding reports that the FDIC is weaponizing recent instability in the banking sector to purge legal crypto activity from the U.S.” (March 15)
   2. See: Letter from Senator Bill Hagerty (R-TN) to the bank agency heads demanding answers on application of pressure on financial institutions to cut off services to licensed, legally operating cryptocurrency and digital asset companies. (March 9)

2. We encourage passage of S.245,the “Financial Institution Customer Protection Act,” which would prohibit a federal banking agency from requesting or ordering a depository institution to terminate a customer account unless: (1) the agency has a valid reason for doing so, and (2) that reason is not based solely on reputation risk. 

3. As regulators look to build renewed confidence in our financial system, digital assets and blockchain should play an integral role in updating our banking infrastructure. We encourage the Biden Administration to immediately appoint a ‘Blockchain and Cryptocurrency Specialist’ within the Office of Science Technology and Policy as statutorily required by the CHIPS and Science Act of 2022. 

Chamber Submits Statement for the Record: House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion

March 9, 2023

Hearing entitled, “Coincidence or Coordinated: The Administration’s Attack on the Digital Asset Ecosystem.”

The Chamber of Digital Commerce submitted this letter for the record in connection to the March 9, 2023 hearing in the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion entitled, “Coincidence or Coordinated? The Administration’s Attack on the Digital Asset Ecosystem.” 

The letter urges Congress to preserve American preeminence in digital asset and blockchain technology innovation by proposing a legal framework that will allow the United States to lead the exploration of these nascent technologies. The Chamber hopes to be a valuable resource to the Subcommittee and appreciates the opportunity to collaborate on bipartisan, common-sense policy solutions. 

The litigation between the SEC v. Ishan Wahi, Nikhil Wahi, and Sameer Ramani (abbr. Wahi) is an unprecedented, stealth attempt to expand the agency’s jurisdictional reach, and threatens the health and viability of the U.S. marketplace for digital assets. 

The case represents a new front in the SEC’s longstanding “regulation by enforcement” campaign, one which has already caused a great deal of harm to the digital asset industry, as well as investors in digital assets.

The Chamber, alongside the legal team at Winston & Strawn LLP, has filed an amicus brief seeking to dismiss the case and put an end to the SEC’s attempt at “back door” rulemaking. Should the Court support the SEC’s claim that the digital assets at issue in this case  are in fact “securities,” that decision would have far-reaching implications for the digital assets industry and we felt that it was imperative to share our concerns with the Court.

Several proposed pieces of legislation currently pending before Congress would help clarify the chaotic regulatory environment for digital assets. Presently, the lack of clear rules and regulations have created significant uncertainty, driving innovators in this space offshore and reducing U.S. competitiveness and its ability to protect investors.

Unfortunately, rather than waiting for congressional action – or even using its rulemaking authority to promulgate rules  or issue adequate binding guidance for the digital asset industry – the SEC has forged ahead with lawsuits and enforcement activity.

In doing so, the SEC is relying on laws enacted in the 1930s, as well as on a 1940s Supreme Court decision, United States v. Howey, which related to investments in a Florida orange grove.  Howey set a four-prong test for determining whether a given asset was sold as an “investment contract” and thus constitutes a securities offering but does not shed any light on whether the underlying asset itself is a security.  Additionally, the Howey test was never meant to apply to the sorts of secondary market transactions at issue here, where there was no “contract” at all. 

The allocators who created the tokens at issue in Wahi, the digital asset exchanges that facilitate their purchase and sale, and the many other entities and individuals that own, trade, advise on, or use those tokens to do business do not consider them to be securities—and there is no federal law stating that they are. Given the opaque regulatory environment, other federal regulators—and even high-ranking officials within the SEC itself—have criticized the SEC’s approach, which is increasingly reflecting the view that all digital assets transactions are securities transactions, even if they bear none of the hallmarks of an “investment contract” under the Howey test.

The Chamber has requested that the Court dismiss the case–noting that the action exceeds the SEC’s statutory authority–and put an end to the SEC’s attempt at this kind of “back door” rulemaking. We also note that judicial restraint in this matter would not let the alleged wrongdoers off the hook; they have been indicted by the DOJ, pled guilty and are certainly subject to an action for civil fraud, as well. A ruling embracing the SEC’s position and endorsing its tactics, however, would have tremendously negative implications for the digital economy and its institutional and individual participants.

In addition to Winston & Strawn, the Chamber would also like to thank our members who contributed to the preparation of the brief, including, among others, Lee A. Schneider of Ava Labs, Rana Kortam of Binance, Steven Gatti and Jesse Overall of Clifford Chance, Lewis Cohen and Freeman Lewin of DLx Law, and Jeremy Williams of TradeStation Crypto, Inc. 

Washington D.C. – Rep. Giovanni Capriglione (R-TX) introduced HB 1666, to protect Texas consumers’ investments in digital assets and to address the important issue of Proof of Reserves, a crucial component in ensuring the stability and security of the digital asset market.

In May of 2021, the Chamber of Digital Commerce crafted a consistent, industry-wide standard for Proof of Reserves to increase the confidence level of consumers, policymakers, and regulators that exchanges and custodians are managing their assets appropriately. Since then, the Chamber has advocated that this standard of transparency, which requires verification that a custodian holds that appropriate reserve backing the digital asset for the customer, must be implemented and enforced. 

The following statement may be attributed to Perianne Boring, Founder and CEO of the Chamber of Digital Commerce: 

“The Chamber of Digital Commerce is committed to fostering innovation in the digital asset industry and advancing policies that protect consumers, promote market integrity, and support the growth of this rapidly evolving sector. HB 1666, through its Proof of Reserve requirement, is a significant step in reinforcing transparency and trust in digital asset markets that can demonstrate that they hold sufficient assets to cover all customer deposits. 

“Representative Capriglione’s bill highlights the innovative technology advantages blockchain and digital assets offer consumers seeking greater control of their assets, as well as policymakers seeking transparent and efficient accountability for custodians. We commend Representative Capriglione for his leadership on this issue, as well as the work of the Innovation and Technology Caucus of the Texas Legislature and the Texas Blockchain Council.”

On, March 21, 2023 at the DC Blockchain Summit, the Chamber of Digital Commerce will host a  session entitled, “Don’t Trust, Verify – Proof of Reserves” where industry leaders will discuss HB 1666 and how a transparent system of proof of reserves can expand and reinforce confidence in our industry.

It’s critical to keep lines of communication open – even when we don’t agree

The Chamber of Digital Commerce hosted Blockchain Education Day at the New York State Capitol in Albany on January 17, 2023. As the world’s largest blockchain trade association, our mission is to promote the acceptance and use of digital assets and blockchain technology. For the first time in New York, our Blockchain Education Day provided our members, that include the world’s leading innovators, investors, operators and digital asset mining companies, an up-close opportunity to promote the industry through education and advocacy in direct coordination with state policymakers, regulatory agencies, and industry advocates.  

With lawmakers back in Albany for the 2023 Legislative Session, the Chamber recognized that now is the time to engage the New York State Legislature and stakeholders to highlight the benefits of blockchain technology and digital assets. The goal was to help establish a responsible, pro-growth environment for digital assets and blockchain technology in the state of New York. 

Why, New York?

New York has implemented several laws and regulations at odds with the industry over the years. Most recently, Governor Kathy Hochul approved a two-year moratorium on digital asset mining operations that use proof-of-work (PoW) authentication methods to validate blockchain transactions (A.7389-C (Kelles)/S. 6486-D (Parker)). Governor Hochul has also vetoed study legislation (A.9275 (Vanel)/ S.8343 (Sanders)) that would examine the impacts of blockchain technology and the industry as a whole, in New York. To date, no other industry has been singled out the way digital assets have in New York. That’s why we invited our members who have operations in the state to attend Blockchain Education Day. 

Key takeaways from these conversations:

Include funding for a cryptocurrency and blockchain task force in the state’s budget. Policymakers should understand the technology before driving the blockchain industry out of New York.  We support this approach led by Assembly Member Vanel and Senator Sanders, and urge lawmakers to include funding for this study in this year’s budget. Governor Hochul, citing the cost of the task force, recently vetoed legislation (A9275 / S8343) that would establish a cryptocurrency and blockchain task force to study the industry’s impacts. Blockchain technologies may offer solutions to a host of challenges facing the state; an investment in fully understanding the technologies is important. 

Invest in the digital asset industry, and promote sustainable energy job growth and development. The industry will bring high paying jobs and technology training in areas where it is needed most and increase union jobs.

Include the Bitcoin mining industry’s sustainable energy mix in Climate Leadership & Community Protection Act (CLCPA) standards. The industry’s sustainable energy mix is 58.4%, making it the most sustainable industry globally and leading all industries in compliance with CLCPA.

Digital assets technologies are an emerging, global financial industry. Digital assets have been adopted by over 100 million individuals worldwide and proof-of-work mining is the foundation of this ecosystem. Digital assets are creating an opportunity for millions of people in less fortunate economic circumstances to access the financial system by storing their savings in a medium that is independent of rapidly increasing inflation, banks fees, and long-standing inequities in our banking system.

It’s crucial that New York remains a leader in global financial services, rather than hindering an industry that is important to its future. Working together, the blockchain and digital asset industries and New York State can set the standard for expanding sustainable, ethical, business growth. 

“Digital asset markets are global and here to stay. It’s essential that regulators hear directly from market participants who can provide key market information and technology insights. The CFTC advisory committees will provide a diverse body of expertise to the agency as it goes about this process, and I am delighted to represent the Chamber of Digital Commerce in the important GMAC advisory committee work being led by Commissioner Pham.” – Perianne Boring, Founder & CEO, Chamber of Digital Commerce.

View CFTC Press Release

The Chamber of Digital Commerce submitted comments to the Financial Stability Board (FSB) addressing the regulatory, supervisory, and oversight challenges raised by the vast network of crypto-asset activities and global stablecoin arrangements worldwide. 

Digital currency and crypto service providers have the capability to bring tremendous improvements to our national and international financial systems by enabling frictionless, instantaneous transferability of value. It is imperative that lawmakers contemplate a regulatory scheme that can appropriately mitigate risk, but any regulatory scheme needs to be principles-based. Much of the recent turbulence in the crypto markets can be addressed with measured regulatory oversight.

The Chamber’s response focuses on four overarching principles (below) that should be a theme in any framework to regulate and supervise crypto-asset activities moving forward. Any new or introduced regulation must be workable to exist effectively in all relevant jurisdictions.

1. Balance Risks of Crypto-assets with their Potential for Innovation. Each type of risk associated with the various crypto-asset activities should consider the potential benefits.
   
2. Promote Cross-Border Cooperation while Maintaining Cybersecurity and Data Privacy. Access to data is necessary to facilitate cross-border cooperation, but breadth of access must be weighed against the need for security and user privacy.
   
3. Create Comprehensive Risk Management Guidance that is Proportional to Market Size. A company’s market size is critically important as businesses often make decisions on what they believe to be a best practice but have limited standards for comparison.
   
4. Require Disclosures that Sufficiently Protect Consumers and Promote Transparency. Disclosure requirements should be principles-based and reflective of the risks and information relevant to the particular market participants’ activities and size.

As with any regulatory framework the devil will always be in the details, but the FSB should embrace a principles-based framework and with a deep appreciation for the acceptance and use of digital assets and blockchain technology.

The FSB posed fifteen specific questions. Read the Chamber’s entire 22 page response here.

For almost a decade, the Chamber of Digital Commerce has advocated and encouraged U.S. policymakers to fulfill their duty and set a clear legal and regulatory framework for the digital asset industry and investors.  

The demise of FTX and a string of market failures of centralized entities underscores the need for a U.S. legal environment that brings digital assets and blockchain technology further into the regulatory perimeter. While some policymakers are rightly skeptical in light of recent history, calls for more aggressive regulation are misplaced when a lack of clear rules of the road in the first place contributed to these market failures. 

Digital assets and blockchain technologies continue to serve as crucial innovations to the global economy, and U.S. leadership in shaping the policies for our industry is vital. The Chamber’s 2023 policy goals will immediately move the industry forward and provide the regulatory certainty it has advocated since 2014. 

1. Get the language right for digital assets and create a taxonomy 

In the absence of regulatory action, Congress should immediately consider legislative proposals like the Securities Clarity Act (H.R. 4451) or Eliminate Barriers to Innovation Act (H.R. 1602). These proposals help clarify the characterization of assets and will provide the regulatory certainty to operate more effectively and safely in the U.S., and mitigate efforts to flee jurisdictions with more regulatory certainty.

2. Correct the ineffective and confusing patchwork of policies 

Digital asset exchanges are currently regulated at the state and federal levels as money service businesses, subjecting them to a host of divergent laws and regulations. This patchwork system for a diverse and fast-evolving industry is an ill-tailored and unsuitable substitute for a comprehensive regulatory approach. 

3. Provide regulatory clarity before enforcement actions 

The current “regulation by enforcement” regime in the U.S. and the lack of regulatory clarity has pushed digital asset activity overseas, outside the U.S. government’s purview, and given rise to offshore exchanges, like FTX. It is unlikely regulation would have prevented the FTX fraud but could have minimized the impact on U.S. investors. The Chamber’s National Action Plan for Blockchain provides regulators and Congress with the regulatory blueprint for a sustainable path forward.

4. Move ahead with spot bitcoin Exchange-Traded Funds (ETFs) to protect investors

As U.S. trading activity has sought opportunities in other jurisdictions, U.S. retail investors are being denied access to a well-understood and cost-efficient investment product: a spot bitcoin ETF. U.S. investors will continue to trade bitcoin and should be offered SEC-registered products by financial advisers, broker-dealers and stock exchanges with whom a retail investor interacts for their traditional investments.

For more information, read the Chamber’s report: “The Crypto Conundrum: Why Won’t the SEC Approve a Spot Bitcoin ETF?”

5. Require adoption of proof of reserves methods

Recent events illustrate the uneven and inconsistent audit methods for proving the existence of reserves to meet customer liabilities. Proof of reserve processes enable customers and regulators to verify that their money is safe and secure and that the institution is holding the amount of capital it claims. Digital asset exchanges should be required to adopt on-chain proof of reserves to demonstrate in real-time (24/7) that the platform possesses adequate reserves of assets for customers’ and regulators’ eyes. The method shall be performed by cryptography and/or a third-party consultant, or an independent certified public accountant. Regulators should also leverage blockchain technology in their work to examine digital asset entities to increase efficiency and accuracy. 

For more information, read the Chamber’s Proof of Reserve’s Practitioner’s Guide.

6. Embrace self-custody

The freedom of self-custody through a self-hosted wallet plays an important role, allowing users to preserve financial privacy and to securely store their assets without threat of loss from the security breakdown of a third-party custodian. Still, there is a high degree of risk when one self-custodies. Self custody only works if users are properly educated on the associated risks and are free to choose between self-custody and employing other custodial services. Policymakers and industry should partner to create an education campaign on self custody to make sure risks are thoroughly understood.  

Policymakers should also ensure that the option to self custody is not infringed and consider proposals like the Keep Your Coins Act (H.R. 6727), which would prohibit any federal agency from promulgating a rule that would impair a person’s ability to act as a self-custodian.

7. Provide custody clarity

The SEC, OCC, and state regulators each have differing custodial requirements for digital assets. Progress on guidance and clarity has been curtailed by a revolving door of leaders and jurisdictional battles. Providing continued clarity on how existing custody rules apply to digital assets, and allowing the traditional, regulated financial system to interact with digital assets, will provide a safer arena for users to navigate the digital asset ecosystem. 

Customers should have the choice to hold digital assets with exchanges, regulated banks or broker-dealers. Yet, traditional U.S. custodians are reluctant to offer digital asset services due to unclear regulatory approval requirements. Additionally, the SEC under staff accounting bulletin (SAB) 121 has made it financially unworkable to hold digital assets. SAB 121 requires custodians to hold an equal asset on the balance sheet as a liability, meaning for every $100 in bitcoin the custodian holds, it must also hold $100 in a similar asset on the balance sheet to limit risk – an unprecedented requirement. Congress should require the SEC to rescind SAB 121 in favor of a notice and comment rulemaking and regulators should provide clear custody guidance for incumbent and entrant providers.

8. Require segregation of customer and entity assets 

Unlike brokerage accounts, digital asset exchanges are not currently required to segregate customer assets from the firm’s proprietary business accounts. Commingling of assets should not be an accepted practice and digital asset platforms should proactively take the step to segregate accounts to ensure user funds are always protected. Digital asset exchanges should work with U.S. regulators to ensure these efforts are done safely and soundly and eventually legally enforced. 

9. Encourage insurance coverage 

There should be greater regulatory clarity so digital asset insurers feel more secure extending coverage and offering competitive price points to keep consumer funds safe. Most digital asset platforms lack insurance protection of consumer funds in the event of theft or fraud. Lack of regulatory clarity has muddied insurance risk assessments leading to small coverage offerings. Congress should examine how to best encourage insurance coverage options for digital asset platforms without requiring funding from such federal taxpayers asFederal Deposit Insurance Corporation (FDIC) insurance. 

10. Study the benefits and use cases of decentralized finance (DeFi)

FTX was one of several centralized digital asset platforms that held customer funds and collapsed this year. Failure resulted from individual decisions unrelated to blockchain technology. Decentralized exchanges and lending platforms have both performed safely and securely this year despite market turmoil. DeFi protocols offer immense benefits to the U.S. financial system related to accessibility, autonomy, security, and transparency. Policymakers should study the risks and benefits of DeFi before proceeding with any legislative or regulatory action that may affect its availability and accessibility in the U.S.