SUKU Develops a Blockchain-based COVID-19 Solution with a Fortune 500

By Yonathan Lapchik, CEO, SUKU

Standard for AML Funds Travel Rule Jointly Approved by Chamber and Industry Bodies

Ushering In Japan’s Race to Embrace Blockchain

By Ken Kodama

April 24, 2020

The Early Days of Blockchain In Japan

I entered the blockchain and cryptocurrency space in 2013, after having consulted on financial products for personal clients through my previous career in the financial planning business. The most well-known cryptocurrency exchange at the time happened to be Mt. Gox which was based in Japan. Due to the infancy of the industry and lack of proper regulatory measures during those days, Mt. Gox had many issues including a big hack. It was a big national issue especially as it brought mainstream media awareness to the unregulated nature of cryptocurrencies. I became acutely aware that interest in cryptocurrencies and Bitcoin was increasing day by day and that there was something worth thinking about more in depth as established stakeholders would become more aware of this industry moving forward and practical building would continue to ensue. 

Around that time, I happened to meet Charles Hoskinson, the former co-founder of Ethereum, and we deeply connected over our shared belief in the potential of cryptocurrencies and blockchain technology to provide useful utility for a vast number of industries and people. There was a growing blockchain community of interested developers and investors in Japan at the time, to be one of the first real efforts in the country to build a blockchain and raise more mainstream awareness of blockchain in Japan and the surrounding region.

The Blockchain Industry in Japan These Days

When it comes to the relevant laws and regulations surrounding blockchain & cryptocurrencies, Japan was at the forefront in the region. With a base of interested blockchain enthusiasts from the early days, Japan had been one of the first countries to define cryptocurrency as an official method of payment and regulate crypto exchanges with KYC measures in 2016. However, since a hacking incident of Japan’s leading cryptocurrency exchange Coincheck in 2018, Japan has seen a shift to a more strict and conservative policy. While this is important from the standpoint of consumer protection, there is also a perception that the restrictions on leverage and taxing capital gains from cryptocurrencies as additional miscellaneous income  may actually hinder the development of the blockchain industry. 

Singapore on the other hand, is very strict with its anti-money laundering rules, but outside of that has been creating blockchain-friendly legislation that promotes the development of the cryptocurrency and blockchain industries. Japan can learn much from this example on how to foster our industry by promoting development and protecting consumers at the same time with appropriate policy initiatives that are well-balanced. 

How Japan is Leading The Way

EMURGO is working on several ambitious projects, including a 5G alliance with NTT Docomo – Japan’s largest telecommunications company – a collaboration with large fintech company Metaps Plus to allow Cardano ADA payments at 30,000 retail stores in Korea, creating a blockchain task force with the Republic of Uzbekistan to develop a blockchain-based digital economy, and running a successful blockchain education business in India including collaborative partnerships with five well-known Indian universities.  

Although our business within Japan is relatively small compared to our overseas presence, EMURGO is the best known blockchain firm with a Japanese heritage and proud to be a founding entity of Cardano which is a globally recognized top ten blockchain protocol. EMURGO & Cardano are always building the protocol and expanding the drive to adopt blockchain solutions abroad but also keeping in mind on how to tailor the built-up experiences to the Japanese market. Being a part of the Chamber of Digital Commerce’s Executive Committee has also been very fruitful in allowing us to share information resources with some of the top policymakers and stakeholders in the global blockchain industry.

One Of The Most Impactful Inventions Since The Internet

The cryptocurrency and blockchain industries are still in their infancy and many things have happened in the past five years, with gradual mainstream recognition. However, there is no doubt that this technology will be one of the most impactful inventions since the Internet, and it is being actively employed in both the developed and developing world. It is unfortunate that Japan, which had been at the forefront of this industry for a time, has now moved in a more conservative direction since the hacking incident for the time being. Of course, the customer protection standpoint is very important, so we hope to create many business use cases to demonstrate the useful utilities of blockchain technology, and then follow-up with further support to continue to contribute to the development of the Japanese cryptocurrency and blockchain industries. This shall provide encouragement for the Japanese government to shift back to a more progressive rather than defensive stance when it comes to driving the adoption of blockchain technology. 

Ken Kodama is CEO of EMURGO – a global blockchain technology company providing solutions to developers, startups, governments, and enterprises. EMURGO builds enterprise-grade applications, builds developer tools, invests in startups, and provides blockchain education. EMURGO has offices and manages projects in Singapore, Japan, the USA, India, and Indonesia, and is a founding member of the Cardano protocol. 

Familiarity Breeds Adoption For Digital Asset Marketplace

April 22, 2020

We are always pleased to see our Members team up to introduce innovative solutions to the market and this month was no exception.  We saw the news Chamber Member ErisX joined forces with fellow Chamber Members Fidelity and TradeStation in separate announcements to bring familiarity, liquidity and security to the crypto community.  Fidelity’s announcement focused on institutional investors gaining secure and regulated access to ErisX’s cryptocurrency markets while TradeStation Crypto focused on their retail and individual services to their customers looking at digital assets.

ErisX recently wrote a paper on how familiarity breeds adoption in the crypto market.  The paper discussed the role financial intermediaries play in the digital asset space and their proven track record of understanding the needs of investors.  Financial intermediaries also validate that trading and investing in digital assets is secure, something that cannot be overstated.  With the news this month we thought we would take a look back at that paper and its important points.

The World Economy Transformed

April 17, 2020

The Chamber of Digital Commerce, Reinventing Bretton Woods Committee, and Accenture co-hosted a virtual discussion on the theme of “The World Economy Transformed” which focused on the multidimensional monetary and fiscal policy responses to the global pandemic. Ollie Rehn, Governor of the Bank of Finland, James Bullard, President and CEO of the Federal Reserve Bank of St. Louis, Benoit Cœuré Head of the Innovation Hub and Director of the Bank for International Settlements, and Barry Eichengreen Professor of Economics at the University of California at Berkeley provided insights and comments on the current response in their respective regions, and globally, and on what to expect for the road ahead. 

Benoît Cœuré, Head of the Bank for International Settlements Innovation Hub, published remarks: Learning the value of resilience and technology: the global financial system after Covid-19.

Chamber of Digital Commerce Submits Comment Letter on Digital Assets to Basel Committee

March 23, 2020

Chamber of Digital Commerce Believes that not all Digital Assets Present the Same Levels of Risk – Recommends to Basel Committee that They Should Be Assessed on a Case by Case Basis as Currently Done for Other Similar Products and Services

The Chamber of Digital Commerce (the “Chamber”) recently submitted a letter for consideration by the Basel Committee on Banking Supervision (the “Committee”) with respect to its December 2019 discussion paper regarding the prudential treatment for crypto-assets (the “Discussion Paper”).

While the Committee appropriately recognizes some risks associated with high-risk crypto assets, deserving of a “conservative prudential treatment;” a one size fits all approach to these assets is not warranted or appropriate.

Specifically, such an approach fails to recognize the differences in the risks associated with various activities that a bank may undertake regarding these crypto assets. Because crypto-assets present varying considerations and risks based on their economic function and use by a bank, the Chamber believes that the Committee should analyze the risk profile of a crypto-asset through a framework that takes into account:

1. the economic function of the crypto-asset and unique attributes of the crypto-asset at issue; and
2. the activity in which a bank engages with respect to such crypto-asset. Once the risk profile is properly evaluated, a tailored capital requirement can be determined under a similar approach to the one used for traditional financial assets.

This approach utilizes the principle of “same risk, same activity, same treatment” for crypto-assets that are similar—though not necessarily identical—to traditional asset classes.  We provided an illustrative chart at the end of our comments to demonstrate that even those assets that may currently considered “high risk” have different risk considerations.

Crypto-assets are evolving and the risks present today will evolve as the market develops. As a result, we recommended that the treatment of banks’ involvement with these assets must be agile to meet rapid changes in the market.  Different activities that a bank may undertake have materially different risks and this should impact their prudential treatment.

The Chamber’s approach will allow banks and regulators a flexible approach to properly calculate an appropriate amount of capital in the face of a rapidly evolving industry.

Chamber Member Ownum Testifies on Benefits Blockchain Technology Provides to Small Businesses

March 4, 2020

Today, the House Committee on Small Business held an important hearing focused on “Building Blocks of Change: The Benefits of Blockchain Technology for Small Businesses,” that focused on how small businesses in the United States are leveraging the benefits of blockchain technology.

Chairwoman Nydia Velázquez recognized the importance of being at the forefront of technological progress and the need for action from the federal government to support the private sector’s development of blockchain technology in the United States.

The international competition has begun. Many other countries have invested in blockchain research and initiated coordinated frameworks. Congress must do our part to make sure that the United States remains a leader in blockchain development and engagement.

Because blockchain technology has a wide variety of applications, there are a number of federal agencies that have been looking at the uses of blockchain technology including the SEC, the CFTC and even the IRS. However, many of these efforts are not coordinated between agencies leaving uncertainty for businesses and entrepreneurs.

We must make sure the federal government adopts policies that support blockchain technology as it becomes a driver of wider economic growth and efficiency. There is a need for a coordinated framework to balance the need for regulation while still supporting innovation.

Chamber member Shane McRann Bigelow, CEO of Ownum, a blockchain startup, testified before the Committee on the Chamber’s behalf and discussed how blockchain-based recordkeeping for car titles and vital records can help consumers by reducing the amount of time spent on obtaining documents from government agencies and giving consumers more ownership over their documents.

Bigelow observed, “The question of course becomes why, in this age of technology where we have an abundance of cell phones and readily available internet access, do we still require such antiquated processes as filling out paperwork, spending hours in long lines, and physically showing up at inconvenient locations, all while missing work?”

Policy makers were keen to inquire about the benefits blockchain technology can bring to entrepreneurs and small businesses, including increasing productivity, bolstering security, opening access to new markets, and changing how business is conducted.

Bigelow stated, “By recommitting, as we did during the internet boom, to focus our government, at all levels, on what a technology enables, we will help our government to pursue digitization strategies for vital records. Doing so will enable many start-ups and small businesses like us to build the next generation of the innovative and entrepreneurial culture in America today.

While Congress has held a number of hearings focused on issues related to virtual currency regulation, this hearing provided a fresh and positive dialogue on how blockchain technology can benefit small businesses across economic sectors.

Key topics that were discussed include:

• • • Opportunities to move beyond time consuming and outdated paper record-keeping systems to blockchain solutions that provide quick, safe, and easy access to vital records and auto titles.
    • An overview of the fundamental security protocols and protections that are central to both permissioned and permissionless blockchain networks.
    • The need for more cooperation between government agencies and the private sector to create incentives for further advancement and implementation of blockchain solutions benefitting small businesses and consumers.

Many thanks to Chamber member Shane McRann Bigelow, CEO of blockchain startup Ownum, for his important testimony today.

Preparing for the Digital Token Revolution Considerations & Guidelines for Policymakers & Practitioners Now Available for EEA and TTI Communities

March 4, 2020

As part of the EEA’s strategic partnership with the Chamber of Digital Commerce, the Chamber has made its report, “Understanding Digital Tokens,” available to the EEA and TTI communities.

Understanding Digital Tokens: An Overview by Perianne Boring

One of the most striking developments in the blockchain ecosystem is the emergence of token technology platforms, which are offering transformative possibilities for government, business, and consumers. Blockchain technology will improve many aspects of our lives, much of which will be fueled through the distribution and use of digital tokens.

Yet, the versatility of tokens has proved to be a challenge for regulators. The sheer number of unique characteristics that tokens may represent means that much work remains to be done to understand their potential and functionality. The way in which digital tokens operate is complex and can maintain multiple characteristics – from an investment contract, to something necessary for utilizing a digital platform, to a form of payment or exchange.

Simply put, a digital token can be a security, a currency, a commodity, property, or a hybrid of these characteristics. Some have even suggested that a token may start as one functionality, such as a security, and then shift and represent another, such as a commodity. When it comes to the regulatory treatment of a token, this versatility can be confusing.  Nevertheless, other countries are already recognizing the potential of this technology and developing regulatory systems to welcome it.

To address these issues, we established the Token Alliance, an initiative of the Chamber of Digital Commerce comprised of more than 400 industry leaders. Under the leadership of former SEC commissioner Paul Atkins and former CFTC Chair Jim Newsome, the Token Alliance has published a series of reports entitled, “Understanding Digital Tokens: Market Overviews & Guidelines for Policymakers & Practitioners,” which includes the following chapters.

• Considerations and Guidelines for Securities and Non-Securities Tokens – describes securities tokens with corresponding guidelines related to the legal and regulatory frameworks that apply to them. It also details the application of the securities laws, regulations, and rules of the United States for the issuance and trading of tokenized securities. Provides guidelines for non-security token sponsors and token trading platforms for the generation and distribution of digital tokens to enable responsible governance and help to minimize fraud in the industry.
• Market Overviews and Trends in Token Project Fundraising Events – presents economic and market trends, facts, and figures from 2013 to the present to better understand the scope of the growing token evolution.
• Considerations and Guidelines for Anti-Money Laundering Compliance and Combatting the Financing of Terrorism – provides an overview of laws in the United States aimed at the prevention of money laundering and combatting the financing of terrorists, as well as the rules and regulations certain categories of businesses must follow to establish formal AML policies and practices. This section includes guidelines for token sponsors and token trading platforms to consider when crafting AML and CFT compliance programs.
• Considerations and Guidelines for Consumer Protection – evaluates how consumer protection laws may apply to digital tokens, the potential scope of federal and state consumer protection authority, and guidelines to help token sponsors and token trading platforms avoid running afoul of consumer protection laws.
• Considerations and Guidelines for Advancing Cyber Security – considers the substantial rise in the frequency and impact of cybersecurity breaches across industries and how these events have extended into the token economy. This section discusses cybersecurity considerations for permission-less blockchains, policy and regulatory considerations, and guidelines for advancing cybersecurity in a tokenized economy.
• Global Legal Landscapes Governing Digital Tokens – an analysis of legal landscapes governing Australia, Canada, Gibraltar, Japan, United Arab Emirates, United Kingdom, and the United States

It is important that regulations impacting tokenized networks and applications take into account their versatility, unique characteristics and benefits. It is equally important that the industry understands the regulatory considerations when building with blockchain technology.   The Chamber of Digital Commerce and Enterprise Ethereum Alliance recently announced a partnership to facilitate collaboration between the technology and policy communities. We hope you find these resources valuable and look forward to working with the EEA community to ensure we have predictable legal frameworks that support innovation and development in the blockchain technology ecosystem.

Join the Chamber at DC Blockchain Summit 2020, March 11-12, where featured panels will dig into token-related topics including “Token Jurisdiction: Deep Dive into SEC and CFTC Oversight” and “The Future of Money.”  View Understanding Digital Tokens and read more about the Token Alliance on the Chamber’s website.