October 2022 - cypherpunks - lists.cpunks.org

Cryptocurrency: Thousands Worldwide Being Shutdown by Banks for Free Speech
by grarpamp 28 Oct '22

28 Oct '22

DailySceptic, Free Speech Union, Toby Young... All and thousands more voices SHUTDOWN by "Regulated Entities" https://www.youtube.com/watch?v=9tmDLssmC68 DailySceptic Shutdown Make no mistake, these escalating levels of persecution are a result of bending the knee to authoritarian communists. Most redditors are perfectly fine with this because they disagree with the individuals who are being persecuted. They're too short sighted to believe that they'll ever be targeted themselves, because they're so obedient and eager to carry the party line. It's disgusting and dangerous behavior that will inevitably damn us all. The Beast from the Earth Rev13:16 And he causes all, the small and the great, the rich and the poor, and the free and the slaves, to be given a mark on their right hands or on their foreheads, 17 and he decrees that no one will be able to buy or to sell, except the one who has the mark, either the name of the beast or the number of his name. 18 Here is wisdom. Let him who has understanding calculate the number of the beast, for the number is that of a man; and his number is six hundred and sixty-six.

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A Former Goldman Sachs/Hedge Fund Guy Is the New U.K. Prime Minister
by Gunnar Larson 28 Oct '22

28 Oct '22

https://wallstreetonparade.com/2022/10/a-former-goldman-sachs-hedge-fund-gu… The newly installed U.K. Prime Minister, Rishi Sunak, (the third PM in seven weeks) has scrubbed his Goldman Sachs and hedge fund career from his LinkedIn profile and from his official government bio. But, unfortunately for Sunak, those careers have been assiduously chronicled in countless newspaper articles for more than a decade – and not in a good way. Sunak worked as a junior analyst at Goldman Sachs from 2001 to 2004, where part of his research involved railways. He left Goldman to obtain his MBA at Stanford University, following which he joined TCI hedge fund in 2006 as a partner and worked there until 2009, when he left to co-found the hedge fund, Theleme Partners with Patrick Degorce. Sunak worked at Theleme Partners until 2014, when he moved into conservative politics in the U.K. That’s a total of 13 years involvement in financial markets that Sunak wants to obliterate from his work history. Those 13 years in finance include a number of controversial events. Chief among them was Sunak’s direct involvement in activism against the board of the U.S. rail freight operator, CSX. The TCI hedge fund had secretly acquired a large stake in CSX along with another hedge fund, 3G Capital Partners, through the purchase of shares as well as total return equity swaps, a form of opaque derivatives that can be used to disguise a large share stake. (That same type of derivative was used by Archegos Capital Management last year to disguise its giant stake in ViacomCBS and other companies, blow itself up, and leave mega global banks nursing margin loan losses of more than $10 billion.) CSX was highly displeased with the hedge funds’ sneaky activism and took the matter to federal court. The District Court for the Southern District of New York wrote that TCI had sought “to defend their secret accumulation of interests in CSX by invoking what they assert is the letter of the law. Much of their position in CSX was in the form of… a type of derivative that gave defendants substantially all of the indicia of stock ownership save the formal legal right to vote the shares. In consequence, they argue, they did not beneficially own the shares.” The case was appealed to the Second Circuit and TCI was allowed to elect four directors to the CSX Board. Shareholders, however, headed to the exits, sending the stock price down dramatically and delivering large losses to the hedge funds involved. TCI sold its stake and removed its representation from the board. A CSX shareholder, Deborah Donoghue, sued TCI and 3G Capital Partners. That case was settled by TCI with a payment of $10 million to CSX and the payment of legal fees to plaintiff’s attorneys. Sunak is married to Akshata Murty, the daughter of Indian billionaire Narayana Murthy, who is co-founder of the IT company Infosys. Management of her wealth has also cast a negative light on the couple. It was revealed earlier this year that she had saved millions of dollars a year in taxes on the dividends she received from her shares in Infosys by claiming “non-domiciled” status. The withering publicity forced Murty to say she would pay taxes in Britain on her overseas income. The couples’ combined wealth is estimated at approximately $800 million. Related Article: January 23, 2020: Goldman Sachs: The Vampire Squid’s Alum Control Two Fed Banks, the U.S. Treasury, the European Central Bank and the Bank of England

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Cryptocurrency: War On Crypto - US Crypto Regulation Far More Invasive Than Thought
by grarpamp 28 Oct '22

28 Oct '22

New US Crypto Regulation Far More Invasive Than We Thought US Congress intends to regulate crypto on a level far deeper than currently understood―They will: Designate Bitcoin, Ether, and their hard-forks as commodities and regulate their transactions accordingly; Create legal uncertainty for all other crypto projects and ICOs by allowing them to be labeled as securities; Ban the use of (unauthorized) stablecoins; Introduce penalties for the use of mixers and privacy coins; Rebrand smart-contracts that take longer than 24 hours to deliver as futures contracts and regulate them accordingly; Re-define legal tender and change the way money is created by the Federal Reserve; and authorize the issuing of a digital USD of which all transactions are recorded; Introduce foreign regulations into US law for all virtual asset service providers in the US (and with US clients). In short: Congress wants to bring crypto-currencies under full oversight and control. These new regulations introduce massive regulatory burdens on existing projects, ban and criminalize current normal activities, restrain innovation and free enterprise, and even introduce a transparent central bank digital digital currency that redefines money as we know it! According to United States representative Don Beyer, congress should incorporate “digital assets into existing financial regulatory structures.”(1) As you will see, they intend to do just that. And it will change the way things are done for crypto forever… <What This Post Is About_ This post provides an overview of the crypto legislation currently (September 2021) being put through US congress. It does not just look at the proposed bills, but rather at the wide range of laws that are to be amended. Once all the puzzle pieces are put together, the big picture reveals shockingly strict regulations of crypto and a complete overhaul of the idea of “money.” This could have serious effects not only on the crypto sector, but also on the financial system as a whole. Behind the excuses of preventing money laundering and ensuring investor protection, the use of crypto is transformed in something it was not supposed to be. Especially delicate is the fact that part of this legislation is drafted outside the US. Disclaimer*: This report provides a high-level overview of the US laws that are to be introduced/amended by two new bills. Its depth is limited by the inadequate knowledge of the author of the large body of US law involved, and given that these bills are subject to amendments and have not even passed into law yet, none of this information can be considered legal or financial advice.* <What Is Going On? On April 06, 2021, a “must pass” bill was introduced called the “Infrastructure Investment and Jobs Act”(2) (“Infrastructure Bill”). It passed in the House of Representatives and, after fierce debate, the Senate. Hidden in this bill, an amendment to the Internal Revenue Code was added. It introduced new reporting requirements and obligations for record keeping. While this bill created a lot of public outcry, more recently, a real game-changing bill was introduced in the House on July 28, 2021, namely the: “Digital Asset Market Structure and Investor Protection Act” (3) (“Digital Asset Bill”). This bill proposes amendments to the Federal Reserve Act, the Bank Secrecy Act, Securities Exchanges Acts, and the Commodity Exchange Act. It changes the definition of legal tender, and it introduces international crypto regulation into US law. This article looks at each of these amendments… <Commodities or Securities?_ The main take-away is that two different bodies of law will apply to crypto projects: commodities and securities laws. So far, only Bitcoin, Ether, and their hard-forks are confirmed to be commodities (see below). All other cryptos are subject to future guidance by market regulators: “Not later than 150 days after the date of the enactment of this section, the SEC and CFTC shall jointly publish, for purposes of a 60-day public comment period, a proposed rulemaking that classifies each of the major digital assets. Not later than 270 days after the date of the enactment of this Act*, the SEC and CFTC shall jointly publish a final rule that classifies* each of the top 25 major digital assets by (i) highest market capitalization and (ii) highest daily average trading volume as— (1) a digital asset; or(2) a digital asset security.” (4) Interpretation: Cryptos will be subject to two different regulatory regimes: commodities and security regulations. Services engaged with both digital assets (commodities) and digital asset securities (securities) could be subjected to both regulatory regimes. <Commodities Regulation_ The Commodity Exchange Act regulates the trading of commodity futures in the United States. Passed in 1936, it has been amended several times since then.(5) It provides federal regulation of all commodities and futures trading activities and requires all futures and commodity options to be traded on organized exchanges. In 1974, the Commodity Futures Trading Commission (CFTC) was created to oversee the market. With certain exceptions, the CFTC has been granted exclusive jurisdiction over commodity futures, options, and all other derivatives that fall within the definition of a swap. Certain cryptos will be regulated as commodities. Definition of “Commodity” Amended to Include Digital Asset: First and foremost, Section 1a of the Commodity Exchange Act on definitions will be amended to read as follows: “The term “commodity” means wheat, cotton, rice, corn, oats, barley, rye, flaxseed, grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool tops, fats and oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, livestock, livestock products, digital asset (including Bitcoin, Ether, and their hardforks), and frozen concentrated orange juice, and all other goods and articles, except onions (as provided by section 13–1 of this title) and motion picture box office receipts (or any index, measure, value, or data related to such receipts), and all services, rights, and interests (except motion picture box office receipts, or any index, measure, value or data related to such receipts) in which contracts for future delivery are presently or in the future dealt in.”(6) Digital Asset Definition Next, the end of Section 1a of the Commodity Exchange Act will be amended by adding a clarification of what a digital asset is (7)(definition to long to post here) Smart Contracts with Delivery Time of More than 24 hours are Futures Contracts A sharpening of the definition of retail commodity transactions could decrease the options for the use of smart contracts outside of regulated exchanges. Currently, Section 2(c)(2)(D)(i) of the Commodity Exchange Act prohibits persons that are not “eligible contract participants” or “eligible commercial entities” to engage in agreements, contract or transactions in commodities on leverage, margin, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis.(8) Next, additional amendments mentioned in the SEC. 202 of the Digital Asset Bill applies this on transactions done by smart contract of which the delivery takes longer than 24 hours: “(ii) Exceptions (III) a contract of sale that– (cc) with respect to digital assets*, results in* actual delivery (including transfer of control over private keys) not later than 24 hours after the transaction is entered into and such delivery is accomplished by either- (AA) recording the transaction on the public distributed ledger for the digital asset; or (BB) with respect to digital which are not recorded on a public distributed ledger for the digital asset, reporting the transaction to a CFTC registered digital asset trade repository; or” (9) Dodd-Frank Act and Market Transparency After the 2008 financial crisis, the Dodd-Frank Act introduced strict regulations for swaps. Naturally, these will also apply to digital assets as well. The definition of swaps, as provided by the Commodity Exchange Act (section 1a(47)) is broad. For example, it could refer to any “agreement, contract or transaction” that “provides for any purchase, sale, payment, or delivery that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.” (10) Next, the Dodd-Frank bill authorizes the CFTC to: Regulate swap dealers by installing capital and margin requirements, require dealers to meet robust business conduct standards, and meet recordkeeping and reporting requirements. Increase transparency and improve pricing in the derivatives marketplace by requiring standardized derivatives to be traded on regulated exchanges or swap execution facilities and bring better pricing to the market place and lower costs for businesses and consumers. Lower risk to the American public by moving standardized derivatives to central clearinghouses.(11) Digital Asset Trade Repository To meet the above mentioned market transparency requirement, the Commodity Exchange Act stipulates the need for a digital asset trade repository to collect information on SWAPS in order to provide the public with the correct market information: “The term ‘digital asset trade repository’ means any person that collects and maintains information or records with respect to transactions or positions in, or the terms and conditions of, contracts of sale of digital assets in interstate commerce entered into by third parties (both on chain public distributed ledger transactions as well as off chain transactions) for the purpose of providing a centralized recordkeeping facility for any digital asset, but does not include a private or public distributed ledger or the operator of either such ledger unless such private or public distributed ledger or operator seeks to aggregate/include ‘off chain’ transactions as well.” (12) Interpretation Commodities Regulations: As of writing, only BTC and Ether (and their hard-forks) will be confirmed as commodities. All other cryptos could potentially be regulated as securities (what this means is explained next). The fact that novel technologies such as Bitcoin and Ether are to be subjected to a large body of law that developed around the trading of livestock and frozen concentrated orange juice could spell regulatory uncertainty for various business models in the industry. No “trading on margin” is allowed outside regulated entities, unless done by high-level investors called “eligible contract parties.” This could perhaps frustrate particular ideas about decentralized finance or OTC markets. Smart contracts that take longer than 24 hours to deliver could be considered futures contracts under the jurisdiction of the CFTC. That smart contracts can be labeled as futures contracts appears indeed to be the opinion of the CFTC.(13) <Securities Regulations_ In the US, securities are regulated by the 1933 Securities Act. Additionally, the 1934 Securities Exchange Act further regulates the trade of securities, and established the SEC to oversee these markets. Definition of “Security” Amended to Include Digital Asset Security: First and foremost, Section 3(a)(10) of the Securities Exchange Act will be amended to include a “digital asset security” (and exclude “digital assets”) in the definition of security: “(10) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, digital asset security*, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a “security”; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing;* but shall not include any fiat currency, commodity, digital asset*, or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.”* (14) Digital Asset Security Definition Next, the Digital Asset Bill (SEC. 101) defines what a digital asset security will be: “(A) IN GENERAL.—The term ‘digital asset security’ means a digital asset that: (i) Provides the holder of the digital asset with any of the following rights: (I) Equity or debt interest in the issuer. (II) Right to profits, interest, or dividend payments from the issuer. (III) Voting rights in the major corporate actions (which shall not include new block creations, hardforks, or protocol changes related to the digital asset) of the issuer. (IV) Liquidation rights in the event of the issuer’s liquidation. (ii) In the case of an issuer with a service, goods, or platform that is not wholly operational at the time of issuing such digital asset, with respect to any fundraising or capital formation activity (including initial coin offerings*) which is accomplished through the issuance of such a digital asset, issues such digital asset to a holder in return for money (including other digital assets) to fund the development of the proposed service, goods, or platform of the issuer.”* (15) What does it mean to be regulated as a security? Investing in securities in the US is regulated to: “protect interstate commerce, the national credit, the Federal taxing power, to protect and make more effective the national banking system and Federal Reserve System, and to insure the maintenance of fair and honest markets in such transactions.” (16) Regulations focus on both the issuing of securities (primary market), and subsequent trade of such securities (secondary market). The goal of securities laws is firstly to require issuers to fully disclose all material information that an investor would need in order to make up his or her mind about the potential investment. A regulated company must create a registration statement, which includes a prospectus, with copious amounts of information about the security, the company, the business, including audited financial statements. Next, the subsequent selling and trading in these securities is regulated, by restricting trade to market places over which the regulator has oversight. The Security Exchange Act section §78l(a) states: “It shall be unlawful for any member, broker, or dealer to effect any transaction in any security (other than an exempted security) on a national securities exchange unless a registration is effective as to such security for such exchange in accordance with the provisions of this chapter and the rules and regulations thereunder.” (17) Summary of Securities Regulations: Crypto projects will need to be regulated and provide clear financial information for investors to make an informed decision. Trading of securities will generally take place on regulated exchanges. Any new fundraising or capital formation activity (including ICOs) are likely to be securities. When a crypto is regulated as a security, the entire coin is subject to strict regulations. In the case of commodities, only specific use cases (futures) are regulated. It is a big difference. US Congress is taking a leap of faith. It needs identifiable persons to enforce a law upon. Who is going to be held accountable in a decentralized network? Many issuing companies have handed control over to network participants. Perhaps for this reason, Section 12(g) of the Securities Exchange Act of 1934 will be amended to allow the issuer to apply for “desecuritization.” (18) The question remains: who will apply for desecuritization once a network is decentralized? The investors? Weren’t they the ones supposed to be protected in the first place? <Changing the Nature of Money_ These regulations are not just about crypto. It is clearly part of a wider discussion on the future of money. As shown below, this bill not only changes the definition of money in the US, but also changes how money is created! As a first, in Section 5312(a)(3)(B) of title 31, US Code (Money and Finance) digital assets are included as a monetary instrument.(19) However, Section 5103, of title 31, US Code will be amended to specifically exclude digital assets and digital asset securities as legal tender.(20) And finally, it is determined that digital assets and digital asset securities will not be covered by Federal Deposit Insurance (FDIC or NCUA).(21) Introducing the Digital USD (or Central Bank Digital Currency/CBDC) After slamming the door on digital assets to be used as lawful money, the Federal Reserve Act is amended to provide the Federal Reserve Board with far reaching new powers; section 11 will be amended to say: “(d) To supervise and regulate through the Secretary of the Treasury the issue and retirement of Federal Reserve notes (both physical and digital), except for the cancellation and destruction, and accounting with respect to such cancellation and destruction, of notes unfit for circulation, and to prescribe rules and regulations (including appropriate technology) under which such notes may be delivered by the Secretary of the Treasury to the Federal Reserve agents applying therefor.” (22) In addition, Federal Reserve notes will in the future also be issued digitally; an amendment to section 16 confirms this: “Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. Notwithstanding any other provision of law, the Board of Governors of the Federal Reserve System is authorized to issue digital versions of Federal reserve notes in addition to current physical Federal reserve notes. Further, the Board of Governors of the Federal Reserve System, after consultation with the Secretary of the Treasury, is authorized to use distributed ledger technology for the creation, distribution and recordation of all transactions involving digital Federal reserve notes. The said notes shall be obligations of the United States and shall be considered legal tender and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.” (23) Interpretations on the Future of Money: The door is shut for the use of cryptos as legal tender. The Federal Reserve Board is to be authorized to create and distribute a ledger-based Federal reserve note that could be used for everyday transactions in USD. Digital federal reserve notes will make the “recordation” of all transactions possible. Did they use this word because “monitoring all transactions” would be too obvious? Recording all transactions without anyone looking at them makes no sense. These amendments significantly increase the power of the Federal Reserve. Contrary to what is widely understood, the Fed does not “print money.” It can only manage the money supply indirectly.(24) The private sector “creates” most of what we use as money by issuing credit. It is with the supply of credit by the private banks that the monetary supply is inflated. Conversely, with the reduced demand for credit, the money supply deflates. The Fed is not as powerful as it wants the market to believe, and the Federal Reserve Act restricts a lot of its actions. This amendment, however, could drastically expand the authority of the Fed, by allowing them to create and distribute a “digital USD” directly. It could change the entire structure of the financial system and potentially have far reaching consequences. The original idea behind the Federal Reserve was for private bank deposits to be combined to provide an emergency line of credit in times of economic stress.(25) But if the Digital Dollar is based on a blockchain, how can it also be based on reserves? And what mechanism will determine how funds (and how much) are added to the economy? And where and how will they be distributed? What about privacy and security? Will all this authority be handed over to a board of seven unelected bureaucrats? This amendment has the potential to change the way the Federal Reserve operates. This deserves a wider discussion by economists and financial experts outside the crypto-space as well. <International FATF Crypto Regulation Introduced in the US_ Those paying attention to international anti-money laundering legislation know that the following sections from the Digital Asset Bill originate from guidance issued by the FATF (Financial Action Task Force). FATF is an intra-governmental organization creating financial legislation. In March, the Paris based FATF issued draft guidance(26) (“FATF Guidance”) on a number of topics. And even though this guidance hasn’t been finalized, there are already a number of points directly included in the Digital Asset Bill. Banning the use of Stablecoins Subchapter I of chapter 51 of subtitle IV of title 31, United States Code, department of treasury regulation, will be amended, to read as follows: “(a) IN GENERAL.—Beginning on the date of the enactment of this section, no person may issue, use, or permit to be used a digital asset fiat-based stablecoin that is not approved by the Secretary of the Treasury under subsection (b).”(27) Criminalizing the use of privacy coins and anonymizing services (mixers, coinjoins) The bank secrecy act is going to be amended to sanction the use of anonymity-enhanced convertible virtual currencies and anonymizing services.(28) It is worth noting that willful violations of the bank secrecy act could give rise to a fine of not more than $250,000, or imprisoned for not more than five years, or both.(29) Introduction of the term Virtual Asset Service Provide (VASP) into US Law As a next step, the term Virtual Asset will be introduced into Section 5312(a) of title 31, United States Code. A Virtual Asset can be a digital asset, or “a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes;”(30) So far we have seen a number of definitions. To understand their relationship, the following image was made based on the definition of Virtual Asset according to Section 5312(a) of title 31, United States Code:(31) https://preview.redd.it/9h73a1z879o71.png?width=502&format=png&auto=webp&s=… Virtual Asset is a broad definition; it covers most activities involving cryptos. We can see in the Digital Asset Bill that entities that are facilitating transactions in Virtual Assets are to be called “virtual asset service providers,” or VASPS. Sec 301 of the Digital Asset Bill defines a VASP: “(A) means a person who— (i) exchanges between digital asset and fiat currencies (ii) exchanges between digital assets; (iii) transfers of digital assets; (iv) is responsible for the custody, safekeeping of a digital asset or an instrument that enables control over a digital asset; (v) issues or has the authority to redeem a digital asset; and (vi) provides financial services related to the offer or sale of a digital asset by a person who issues such digital asset; and (B) does not include any person who— (i) obtains a digital asset to purchase goods or services for themself; (ii) provides communication service or network access services used by a money transmitter; or (iii) develops, creates, or disseminates software designed to be used to issue a digital asset or facilitate financial activities associated with a digital asset.” (32) This definition comes directly from the FATF Guidance, with the only difference being that the US excludes the exchange between different forms of one virtual assets. On the other hand, section (v) is a new addition. The Big Picture: Global Regulation The logic behind this seems to be to first introduce a high-level definition (including coins regulated as commodities, securities, and everything in between). Next, any future global restrictions on the wider crypto-space can be applied at this level. >From the latest FATF Guidance, a number of possible additional restrictions can already be deducted. Things to look out for are the restriction of the use of “unhosted wallets,” the introduction of the “travel rule,” labeling those who engage in peer-to-peer transactions as a risk, and a whole host of other measures. (33) One additional aspect of VASP regulation mentioned in the FATF Guidance is also included in the Digital Asset Bill; VASPS engaged in services which are available in the United States and to United States persons, have to be regulated in the United States, even if the provider is located outside the United States. (34) Interpretation International Regulation in the US: International AML legislation, created by Paris-based FATF, is being introduced in the US. The FATF term “virtual asset service provider” (VASP) is introduced in the US. The definition is so broad that it covers practically all crypto projects. After first being in the FATF Guidance, the banning of stablecoins and anonymity-enhanced cryptos and the obligation for VASPs to be licensed in the country of their clients are included in the Digital Asset Bill. It is not hard to imagine that other restrictions for cryptos currently discussed by FATF, such as the travel rule and restricting unhosted wallets, will be introduced next. This is not a regulation you introduce to then never use. All VASPs with operating in the US or with US clients need to be regulated in the US. <Amendments in the Infrastructure Bill_ Last August saw public outcry over the US Infrastructure bill. It included a section on IRS reporting for crypto. Some highlights: Clarification of Definition of Broker It makes sense that the tax authorities use a wide definition to cover all possible economic activities in crypto. Section 80603 of the Infrastructure Bill amendments the Internal Revenue Code of 1986, provides that brokers need to report the activity of their clients to the IRS and adds the following to the definition of broker: “(D) any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” (35) Reporting of Digital Assets In addition, a unique wide definition of digital assets is added: “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.” (36) Effective Date Effective after December 31, 2023. So there is time. Interpretation Infrastructure Bill There was a lot of commotion about this bill. This was mainly due to the wide definitions used, which could cover all activities in the crypto space, including mining. In response, according to an article on Bloomberg, the U.S. treasury will shortly issue additional guidance, along the lines of the following: “Other firms key to the nearly $2 trillion crypto market — from developers and miners to hardware and software providers — won’t have any new requirements, so long as they don’t also act as brokers, according to a Treasury official” (37) At a glance, it appears that this bill is not as invasive as originally feared. It would also be impossible to enforce this legislation on miners due to the nature of the technology. In this case perhaps it would have been better if clear definitions were used of what is, and isn’t included. Moreover, comments from “anonymous sources at the treasury” do not provide real regulatory clarity. This industry too easily accepts the opinions of officials as decree. But we are all, including officials, subject to the law. Given that officials change over time, opinions and guidance are not the way forward; clear laws are needed. The commotion also distracted from the massive changes proposed in the Digital Asset Bill discussed in this post, which so far have been ignored by the industry... <Sources_ I added all 37 footnotes here, but the post become to long to post. For those who wish to check the footnotes, they can be found in the PDF version here: https://decentralizedlegalsystem.com/wp-content/uploads/2021/09/Review-US-D… <TL;DR_ Next to the widely discussed infrastructure bill, another bill is pushed through US Congress: the “Digital Asset Market Structure and Investor Protection Act.” Both are not law yet and non of this is likely to take effect in 2021 (this cycle). And bills can be amended. But stricter regulations are coming for crypto in the US. Bitcoin, Ether, and their hard-forks, are to be regulated as commodities. Smart-contracts taking longer to deliver than 24 hours are considered futures contracts and regulated as such. Futures contracts are subjected to many existing regulations, including to the Dodd-Frank Act and in certain cases filing obligations with a CFTC digital asset trade repository. Every other project and future ICO is potentially a security. This remains to be determined by a joined ruling of the CFTC and SEC, which will likely be issued somewhere in 2022 (270 days after this bill is passed). Issuers of securities are likely required to provide transparency and financial information to investors. Trade is generally restricted to regulated exchanges. In addition, international anti-money laundering legislation is introduced in the US; Stablecoins, privacycoins, and mixers are prohibited. The high-level term VASP is introduced for likely further future regulation. Every US based VASP (or with US clients) has to be regulated (KYC) in the US. VASP regulation covers a large part of crypto projects. Finally, cryptos are specifically excluded as legal tender, and the Federal Reserve Board is authorized to create and distribute a distributed ledger based digital reserve note (CBDC), with "recordation" of all transactions. https://old.reddit.com/r/CryptoCurrency/comments/pqm1ba/new_us_crypto_regul…

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Cryptocurrency: War On Crypto - Govts Planning Global Coordinated Regulation
by grarpamp 28 Oct '22

28 Oct '22

The worlds’ wealthiest nations are aiming for cryptos, restricting, amongst others, the following: Peer-to-Peer Transactions; Stablecoins; Private wallets (cold storage, phone and desktop apps); Privacy (privacy coins, mixers, Decentralized exchanges, use of TOR and I2P); Former ICOs and Future Projects (DeFi, NFT, smart contacts, second layer solutions, and much more). In addition, these new regulations intend to: Force those active in crypto to be licensed and regulated as banks (responsible for KYC and transaction tracking); Create full transparency for ALL transactions; Exclude and freeze assets of persons, activities, and countries labeled a “risk;” Force the inclusion of user information with all transactions; Revoke the license of those who don’t comply. In short: they want to change the way the space can operate. As you’ll discover, the regulation rolled out aim to create a system of complete transparency and control. At the same time, regulatory clarity could pave the way for the next stage of adoption. What Can You Get from This Due Diligence For years, we wondered if governments would “ban Bitcoin.” As it turns out, they will not. Instead, they intent to simply absorb cryptos into the existing regulated financial system. This due diligence is based on new international regulations. This DD reveals exactly what the coming regulations mean for cryptos, who is behind them, and how they will be implemented. Next, this DD highlights the most revealing and stunning clauses. And finally, it summarizes which activities are likely to thrive and which are bound to suffer, so that you can prepare yourself. Why Now? In 2018, the news that Facebook was creating a crypto currency shocked international regulators. Until then, they didn’t see cryptos as a risk to the stability of the global financial system. However, Libra, the coin Facebook proposed, was a so-called stablecoin; it maintains its value relative to fiat currencies such as the USD. They quickly realized what would happen when a company with a billion users creates an instant payment system that is cheaper, faster and more user-friendly than the current financial system. This topic was discussed at the highest levels of government; the G20, an international forum for the governments and central bank governors from 19 countries and the European Union. They engaged an organization called the Financial Action Task Force (FATF). This organization has passed similar legislation for banking and financial service providers around the world. They are responsible for the fact that all crypto-currency exchanges where fiat is exchanged for cryptos have the same KYC and anti-money laundering requirements as banks. Now, they are going to use this framework to focus on the elements of the industry currently outside their control, and declare what is, and isn’t acceptable. New Guidance on Bitcoin and Cryptos The latest draft guidance of the FATF, to be implemented in July 2021, is called “Guidance for a risk-based approach to virtual assets and VASPs” (GVA) [1]. This DD is based on this GVA. As you will learn, they have a deep understanding of what is happening in the space. Moreover, they take the expansive view that “most arrangements currently in operation,” including “self-categorized P2P platforms” may have a “party involved at some stage of the product’s development and launch” who will be covered by this new legislation. (GVA, p29) Why do the FATF regulations have global reach? Since FATF isn’t an official government agency of any country, they cannot create law. They issue what is known as “soft-laws”: recommendations and guidance. Only when this guidance is implemented in the laws of the countries, they become “hard-laws” with real power. In theory, they are thus subjected to the formal law-making process of law-giving countries. However, countries that don’t participate are placed on a list of “non-cooperative jurisdictions.” They then face restricted access to the financial system and ostracism from the international community. For this reason, almost all nations implement these recommendations. It also must be said that national governments, especially in the Western world, highly value this kind of international cooperation and the power it gives them. Many such treaties are passed into law with little opposition or delay. Once these treaties are accepted, they become part of a body of law called international law, a type of law in many cases superseding national laws. Unknown to the general public, international law is increasingly being used as a backdoor for passing invasive regulations such as these. It must be noted that people working for this Paris-based organization are faceless bureaucrats who have not been elected, their procedures and budget are not subjected to democratic oversight, and they are almost impossible to remove from power. Like most international organizations, they fall under the Vienna Conference on Diplomatic Intercourse and Immunities.[2] As such, they enjoy immunity for their actions, are exempt from administrative burdens in the countries they are active, such as taxes, and free from most COVID travel restrictions. When will this “Guidance” be Implemented? The GVA was published in March to be subjected to public consultation. This gives it the appearance of the public having a say in the implementation of it, but when you read it carefully they will consider feedback only on “relevant issues” they themselves selected. Other feedback might be considered in the next review in 12 months (by then, most current recommendations will likely have been passed into law). In other words, this will be it, with minor adjustments. June 2021 FATF previewed all feedback and July 2021 these new “recommendations” would become official. However, last Friday, June 25, FATF postponed the finalization of the recommendations to October 2021. From that day forwards, we can expect these recommendations to start being implemented in our national legal systems, and as such, start affecting our lives. This process has been successfully used in the banking system and tax systems―it is now coming for crypto. It is worth noting that individual countries might decide on even more specific or explicit prohibitions on top of this. It is also worth noting that these regulations do not apply to central bank-issued digital currencies. How Will Cryptos Be Regulated? Before we can understand how FATF proposes to regulate cryptos, we must learn what they mean when they talk about a Virtual Asset: “A virtual asset is a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes. Virtual assets do not include digital representations of fiat currencies, securities and other financial assets that are already covered elsewhere in the FATF Recommendations.” (GVA, p98) Cryptos will not be outright banned. They will be regulated via an indirect method; those who facilitate virtual asset transactions, are designated as a Virtual Asset Service Provider, or VASP. Next, all VASPs will be subjected to similar regulation as banks. The definition of VASP is so wide that most current projects in the crypto space are covered by it. Definition of a VASP: *“*VASP: Virtual asset service provider means any natural or legal person who [...] as a business conducts one or more of the following activities or operations for or on behalf of another natural or legal person: exchange between virtual assets and fiat currencies; exchange between one or more forms of virtual assets; transfer of virtual assets (In this context of virtual assets, transfer means to conduct a transaction on behalf of another natural or legal person that moves a virtual asset from one virtual asset address or account to another.); safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.” (GVA, p18) Many Organizations and Individuals Will Be Designated as VASPs: A VASP is any natural or legal person, and “the obligations in the FATF Standards stem from the underlying financial services offered without regard to an entity’s operational model, technological tools, ledger design, or any other operating feature.” (GVA, p21) The expansiveness of these definitions represents a conscious choice by the FATF. “Despite changing terminology and innovative business models developed in this sector, the FATF envisions very few VA arrangements will form and operate without a VASP involved at some stage.” (GVA, p29) For those wondering if they are a VASP, the following general questions can help guide the answer: “who profits from the use of the service or asset; who established and can change the rules; who can make decisions affecting operations; who generated and drove the creation and launch of a product or service; who possesses and controls the data on its operations; and who could shut down the product or service. Individual situations will vary and this list offers only some examples.” (GVA, p30) What Are VASPs Obliged to Do? All VASPs will be forced to implement KYC legislation and monitor transactions. They become fully regulated entities who need to obtain a license. Individuals can also be labeled a VASP. The real kicker is that all activities not part of the regulated system are labeled as “high-risk.” And as such, those performing such activities become high-risk persons, which could have repercussions for accessing the wider financial system. It is important to understand that most peer-to-peer activities themselves will not be banned (although individual countries may do so on their own accord). However, transactions with a “high-risk” background will be tainted and scrutinized. Exchanges risk losing their license if they deal with them, and many will simply choose not to allow them. It might get to a point where proceeds from certain peer-to-peer transactions or private wallets are no longer usable in the financial system, at least not without extensive due diligence. New Government Organizations for Overseeing the Crypto Market Every country should assign a “competent authority” to monitor the crypto space and communicate with competent authorities in other countries: “VASPs should be supervised or monitored by a competent authority, not a self-regulatory body (SRB), which should conduct risk-based supervision or monitoring.” (GVA, p45) This can be an existing regulatory body, such as a central bank or a tax authority, or a specialist VASP supervisor. (GVA, p91) What Activities Will Be Regulated? This chapter highlights crypto activities, currently considered completely normal, and details how they are to be regulated. Peer-to-Peer transactions: transactions without the involvement of a VASP. They are not subjected to regulation, but are a “risk.” That’s why the FATF recommends increased monitoring and restriction of this kind of activity, and possibly reject licensing VASPs that engage in it. Stablecoins: are considered a major risk because they think they are more likely to reach mass adoption. They may be targeted at the level of the central developer or governance body, which will be held accountable for the implementation of these recommendations across their ecosystem. Unhosted Wallets: Commonly used private wallets are called: “unhosted wallets.” As mentioned, the FATF suggests denying licensing VASPs “if they allow transactions to/from non-obliged entities (i.e., private / unhosted wallets).” (GVA, p37) VASPS should also “treat such VA transfers as higher risk transactions that require enhanced scrutiny and limitations.” (GVA, p60) Client Information to Collect by VASPs: all VASPs should collect information on their clients such as the customer’s name and further identifiers such as physical address, date of birth, and a unique national identifier number (e.g., national identity number or passport number). VASPs should conduct ongoing due diligence on the business relationship and the customer’s financial activities. Travel Rule: FATF recommends applying traditional bank wire transfer requirements on crypto currency transactions; this is called the travel rule. It includes the obligation to obtain, hold, and transmit required originator and beneficiary information associated with VA transfers in order to identify and report suspicious transactions, take freezing actions, and prohibit transactions with designated persons and entities. Information accompanying all qualifying transfers should always contain: “the name of the originator; the originator account number where such an account is used to process the transaction; the originator’s address, or national identity number, or customer identification number, or date and place of birth; the name of the beneficiary; and the beneficiary account number where such an account is used to process the transaction.” (GVA, p53) Instant transfer of ID information tied to transactions: Obliged entities should submit the required information simultaneously with the batch VA transfer, although the required information need not be recorded on the blockchain or other Distributed Ledged Technology (DLT) platform itself. Categorize Clients and Activities According to their level of Risk: VA and VASP activity will be subject to a “Risk-Based Approach.” In practice, this means that each client and activity is categorized by their risk level. Risk levels are determined based on a variety of factors. Persons or activities considered a risk can see enhanced due diligence and even their ability to use VASPs reduced. Ongoing Transaction Monitoring: Every customer is assigned a risk profile. Based on this profile, customer transactions will be monitored to determine whether those transactions are consistent with the VASP’s information about the customer and the nature and purpose of the business relationship. Transactions tight to Digital IDs: In the future, VA transactions might need to be subject to digital identity regulations, also being developed by the FATF. Freezing of Assets: Cryptos can be frozen when the holder is suspect of a crime, as part of other investigations, when the VA is related to terrorist financing, and when related to financial sanctions. The freezing of VAs will happen regardless of the property laws of national legal frameworks, and it will not be necessary that a person be convicted of a crime. Anonymity-Enhanced Cryptocurrencies (AECs) and Privacy Tools: The GVA specifically targets tools intended to improve privacy, such as: anonymity-enhanced cryptocurrencies (AECs) such as Monero, mixers and tumblers, decentralized platforms and exchanges, use of the Internet Protocol (IP) anonymizers such as The Onion Router (TOR), the Invisible Internet Project (I2P) and other darknets, which may further obfuscate transactions or activities. This includes “new illicit financing typologies” [Author: DeFI?], and the increasing use of virtual-to-virtual layering schemes that attempt to further obfuscate transactions in a comparatively easy, cheap, and secure manner” [Author: Lighting, Schnorr, Taproot?]. (GVA, p6) And if a VASP “cannot manage and mitigate the risks posed by engaging in such activities, then the VASP should not be permitted to engage in such activities.” (GVA, p51) Obligations to get a License for all VASPs: The GVA intends to subject all VASPs to a licensing scheme: “at a minimum, VASPs should be required to be licensed or registered in the jurisdiction(s) where they are created.” (GVA, p40) Moreover, each jurisdiction might require licensing for those servicing clients in their jurisdiction. It bears repeating that a natural person can also be designated as being a VASP and be required to obtain a license to work on a crypto project. Moreover, the competent authorities get to determine who can and cannot become a VASP, and monitor the Internet for unlicensed activities by engaging in “chain analysis, webscraping for advertising and solicitations, feedback from the general public, information from reporting institutions (STRs), non public information such as applications, law enforcement and intelligence reports.” (GVA, p41) Bitcoin ATMs: “Providers of kiosks—often called “ATMs,” bitcoin teller machines,” “bitcoin ATMs,” or “vending machines”—may also fall into the above definitions. Decentralized Exchanges: According to the GVA, the concept of a decentralized exchange doesn’t exist, since these regulations are technology neutral. As such, those running the exchange can be held liable for implementing these regulations. Multisig Contracts: In case of partial control of keys, like a multisig or any kind of shared transaction, the providers of such services could be subjected to this regulation as well. Regulation of Future Developments: Countries should identify and assess the money laundering and terrorist financing risks relating to the development of new products and business practices. The result might be that the development of new projects need some sort of approval process. International Cooperation of Competent Authorities: And finally, the FATF Recommendations encourages competent authorities to provide the fullest range of international co-operation with other competent authorities. What Will Not Be Regulated? Some good news is that what makes crypto, crypto, remains unregulated; peer-to-peer transactions themselves, small transactions and ecommerce, open source development, and cold storage will remain lawful. Specifically exempt are persons facilitating the technical process, such as miners and nodes (called validators), and those that host, facilitate and develop the network. In addition, small transactions under 1.000 USD/EUR are exempt, although basic identity information will be recorded when done through a VASP. What Will Be the Outcome of These Regulations? This regulation, like many of its kind, will have (un)intended consequences. The stated goal of increased transparency in the space might very well be achieved, reveling the proceeds of certain crimes. However, a secondary goal is clear for those understanding these kinds of open-ended legislation; controlling what can and cannot be done with crypto in the real world by labeling certain activities and undesired persons as “high risk.” It will be increasingly difficult to deal with proceeds from the “wrong” activities, especially for people from high-risk countries, engaged in high-risk activities, or just being considered a high-risk person. In addition, it will become expensive and technologically challenging to comply with this legislation. Small companies with unique business models might find it impossible to survive. Only the large regulated entities might remain in existence. This is a common result of regulation that is welcomed by regulators; a few large companies are easier to regulate than one thousand small ones. In some cases, the large participants welcome regulations as well, as it reduces competition. The same happened in the banking sector, for example. Other downsides are that such regulations smother many otherwise beneficial technological projects in the crib and criminalize perfectly legal activities and the innocent citizen performing them. The loss of privacy will also increase security risks, especially for those living in dangerous countries. The Crypto World at a Crossroads: It is hard to determine how specific projects and the crypto space in general are going to be affected; especially since this is not the final guidance. Each national government will have a slightly different interpretation of these regulations, as well as existing laws and precedent in their own country. In addition, individual VASPs will interpret these regulations according to the viewpoint of their legal departments, as well. Cryptos will become a regulatory minefield. A natural consequence of these regulations is that projects and participants in the crypto space will be divided into two categories: those who do/can meet these regulations, and those who do/cannot. Potential Winners First will be those that will fully comply with these regulations. In terms of participants, these will be the big exchanges and onramps, banks, and institutional investors. A lot of participants exclusively use exchanges (VASPs) already for their coins anyway, and for them nothing changes. In fact, additional regulations might help institutional adoption, an idea supported by the fact that the Bank of International Settlements issued new guidance for banks on the prudential treatment of crypto assets.[3] Crypto assets which might succeed in such an environment are projects that have focused on transparency and KYC from the start, or those who are already established too decentralized and operate without any historic VASPs. Potential Losers: Next, there are the activities that are specifically targeted by this regulation; peer-to-peer transactions, privacy coins, decentralized exchanges, decentralized finance, and other peer-to-peer systems. It appears that such projects have only one option and that is to go fully decentralized. Which could actually make them attractive for some. It is worth repeating that in principle, peer-to-peer systems are not against the law. Those participating in them should however accept that part of their assets and proceeds exist outside the regulated financial system, and that by engaging in them they might be labeled a “risk.” Finally, there will be projects that fall in between: they are either too centralized to become fully decentralized and considered too “high-risk” to be licensed. Such projects will experience significant headwind. Think about the aforementioned stablecoins, certain decentralized finance applications, certain self-hosted wallets (especially when facilitating exchange functions), and future ICOs. Current projects that are still too centralized are a big question mark. Especially those who have leading individuals still in control of “road-maps,” or those relying on “governing councils.” Those persons might suddenly be designated a VASP and forced to monitor the individuals and transactions on their network (a big downside as compared to the projects already decentralized). TLDR; Governments at the highest levels (G20) commissioned an organization called FATF to come up with international regulations for cryptos. They are using international law frameworks that supersede national legislation and will force every country in the world to comply. Their main goal is to keep crypto activity restricted to licensed and regulated service providers. A long list of ordinary crypto activities are now labeled a “risk.” Engaging in them will result in increased scrutiny and possible difficulties accessing the wider financial system. It remains to be seen how this will affect the crypto world. Over time, it could likely split the crypto space in fully regulated (semi) centralized, and unregulated decentralized projects. The winners will likely be the projects that thrive in either of those; the losers likely those fitting in neither... NOTE: I uploaded this DD first on /r/bitcoin last week, and was asked to post it here. The recommendations were supposed to be finalized in July, but last Friday it was announced that they will now be finalized and implemented with priority by October 2021. Sources: PDF Version, with exact explanations of how the different activities will be regulated: https://decentralizedlegalsystem.com/wp-content/uploads/2021/06/FATF-Global… Feel free to forward this PDF to whomever you think should read this information. [1] FATF, “Draft updated Guidance for a risk-based approach to virtual assets and VASPs,” (Paris, March 2021), http://www.fatf-gafi.org/media/fatf/documents/recommendations/March%202021%… [2] UN, “United Nations Conference on Diplomatic Intercourse and Immunities,” (Vienna, 2 March - 14 April 1961), accessed on June 10, 2021, https://legal.un.org/ilc/texts/instruments/english/conventions/9_1_1961.pdf [3] BIS, “Consultative Document - Prudential treatment of cryptoasset exposures,” (Basel Committee on Banking Supervision, Basel, June 2021), https://www.bis.org/bcbs/publ/d519.pdf Last Friday FATF announced the recommendations will be finalized by October 2021: https://www.fatf-gafi.org/publications/fatfgeneral/documents/outcomes-fatf-… https://old.reddit.com/r/CryptoCurrency/comments/o9fd7l/governments_plannin…

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Cryptocurrency: Decentralized Law and the Crypto Sovereign
by grarpamp 28 Oct '22

28 Oct '22

https://decentralizedlegalsystem.com/ https://decentralizedlegalsystem.com/wp-content/uploads/2018/11/The-Decentr… Whitepaper In 2017, the world saw a dramatic increase in the use of Crypto-Currencies. Aside from their original use case for borderless transactions, a number of “decentralized” projects emerged focusing on the legal world. These projects can be divided into four main categories: Smart Contracts, Decentralized Jurisdictions, Decentralized Arbitration and Decentralized Companies. The main observation in this Whitepaper is that almost all of these projects lack a Legal Framework and therefore have little “force” in the real world. To resolve this issue, this paper presents the Decentralized Legal System, the first enforceable Legal Framework for Decentralized Legal Applications. In addition, this paper proposes an open source process for creating Decentralized Law, and envisions a world governed by Decentralized Law. Summary of Chapters Chapter one explains that law and justice are somewhat fluid concepts and that their meaning changes over time. Law was first thought to be universal and imposed by a Creator. During the enlightenment era, the idea that rulers/governments alone impose law became more dominant. A number of developments however – both in theory and in practice – demonstrate that law making isn’t the sole domain of governments. This is especially apparent when we consider international and private law. The conclusion is that the law allows for decentralized innovation. Chapter two explains what Decentralized Systems are. The origins, workings and use cases of Crypto-Currencies are described in detail, as well as the process that resulted in the development of Decentralized Legal Applications. Chapter three discusses the legality of four specific categories of Decentralized Legal Applications: Smart Contracts have a wide range of possible applications. Their binary outcomes however restrict their use in the more fluid legal world. They should firstly be considered as technological innovations usable for relatively simple and repetitive tasks. Although they can be used in more complex situations, they need to be supplemented by a Human Language Contract and a Legal Framework. Decentralized Jurisdictions. Like many other aspects of our Legal System, the concept of jurisdiction relies on physical locations in the real world. By nature, a Decentralized System isn’t tied to a physical location. The only option left is to create jurisdictions by consensus. Decentralized Arbitration, as currently proposed, lacks a Legal Framework and force in the legal world. However, an enforceable framework for International Arbitration already exists and can be used for Decentralized Legal Applications. Decentralized Companies. Legal personality is essential to own property, engage in contracts or limit liability. Decentralized Corporations lack the Legal Framework needed to obtain legal personality. Decentralized Autonomous Organizations (DOA’s) do not remotely resemble legal persons. Both can therefore not be expected to perform many of the functions regularly attributed to them. Chapter four summarizes the differences between the Crypto-Space and the Law. Legal Systems are based on ideas and best practices dating back thousands of years. They are subject to changing opinions and ideologies. Their definitions are debated and their outcomes are uncertain. Decentralized Technologies on the other hand, are based on hard sciences like mathematics and cryptography. These systems are both transparent and open source, and result in predictable outcomes. This discrepancy cannot be fixed by technological developments alone. Furthermore, it is noted that many legal issues discussed in the Crypto-Space are in fact not new and that the law already provides a lot of room for innovation and bottom-up law creation. Moreover, decentralization appears to be a logical continuation of a the centuries-old process of dismantling power structures in favor of individual rights. Chapter five presents Decentralized Legal Frameworks for the four categories of Decentralized Legal Applications mentioned in chapter two. Firstly, it proposes the creation of jurisdictions by consensus: so called Consensus Jurisdictions. It then explains a simple method for merging Decentralized Arbitration with existing International Arbitration frameworks. A Smart Contract Block is presented as a simple solution for merging Smart Contracts, Human Language Contracts and a Legal Framework. It continues by proposing two ways to register Decentralized Corporations so they can be recognized as legal entities. Chapter six presents the Decentralized Legal System; a system not enforced by an individual or elite group of powerful individuals organized in a government, but accepted by a public and open source process. A system that exists in cyberspace, but has force in the real world. This framework can govern all four types of Legal Applications. Next, an open source process for developing decentralized governing laws is presented that is similar to Bitcoin Improvement Proposals. Four methods for publication and acceptance of Decentralized Law are then discussed after that. A Legal Wiki is presented as the ideal technology for publishing Decentralized Law, along with a rule-based algorithm for making amendments and keeping laws simple and understandable. Chapter seven explains how Decentralized Law could govern the interaction of large groups people. The concept of Legal Reflexivity is introduced to explain how Decentralized Law could become an important foundation for Centralized Law. Finally, the idea of a world run by Decentralized Law is explored. Goal The Decentralized Legal System merges revolutionary Decentralized Technologies with the tried and tested Legal System developed by trial and error over the last two millennia. It is in fact a workable new system grounded in the best of both worlds. This paper explains important concepts of law, and what Decentralized Systems and Decentralized Legal Applications are. The Decentralized Legal System is just a logical conclusion. The Decentralized Legal System allows people to freely collaborate with the backing of an enforceable Legal Framework. This system is completely private and voluntary. It is the hope of the author that the theories discussed in this paper will be used as a framework for decentralized projects in the near future, and progress into other realms of governance as well. After the decentralization of money, the world is now ready for decentralizing law. A number of important observations are included on the shortcomings of current Decentralized Legal Applications. Frameworks are suggested for their improvement. This should provide guidance for those working on the hundreds of projects in this area. Limitations This Whitepaper is purely theoretical. The goal is to help the Crypto-Community. This is not an ICO. The ideas set forth in this paper will hopefully result in practical solutions and real-world applications. Included are observations that could be considered critical towards current developments and beliefs in the Crypto-Community. This paper is not in any way a call to restrict decentralized developments by clinging on to what is “legal.” New technological developments will always be trailed by governing laws for the same reason that the car was created before a driver’s license was needed. This paper thus aims to explore the areas were Decentralized Law could flourish in short notice. Many in the Crypto-Community are somewhat anarchistic in nature and reject the current Legal System with the idea of building something new. But when you reject the Legal System, you also reject its protection. This Whitepaper acknowledges the existing legal structure and its dependence on both governments and physical locations. However, like all other Decentralized Systems, it has the potential for innovation and disruption. This paper is extensive, in some cases elaborating on basic concepts of either the law or Blockchain. This ensures that people with a legal background and those coming from the Crypto-Community, as well as the general public, are able to understand this paper. What is Decentralized Law? This article answers the question: what is Decentralized Law. This is a summary of twelve lessons on Decentralized Law. By the time you finished this article, you have a deep understanding of our legal system, where most current projects go wrong, and how private decentralized legal systems can be created with power in the real world. This is not just theory. This system is practical, and can be implemented right away. This project is unique because it merges the current legal world with the decentralized one. This has not been done before in this way. Keep reading if you are interested in how private law systems can be created—it is actually simple. This article summarizes the main relevant building blocks. For more details and footnotes, there is a link to each individual lesson. This article is divided into three parts: Part I – The Existing Legal System Part II – Decentralized Legal Applications Part III – Decentralized Legal Frameworks and Governing Laws Part I – The Existing Legal System Who Creates Our Laws? Most people would answer: the government. Obviously, this answer is true. But this is not the entire picture… There are four sources for the laws governing our lives. These are the following: Natural Law Governments (Positive Law) International Organizations (International Law) Private Law Once we understand how these four sources create law, we understand what Decentralized Law can and can’t do. Decentralized Law Source Overview Natural Law – Laws of Nature and God Natural law (Latin: ius naturale, lex naturalis) is a philosophy asserting that certain rights are inherent to human nature. These laws are endowed by nature (or God) and can be understood and observed through human reason. Natural law is implied to be universal—the same for everyone on earth. It exists independently of government, legislature or society at large. In a sense, natural law is fully decentralized. In the Middle Ages, the Catholic philosopher Thomas Aquinas revived natural law, and over the years this led to an increasing popularity of the idea of natural laws and natural (human) rights. This let to widely influential legal documents. The most famous examples? The United States’ Declaration of Independence and Bill of Rights, and the Universal Declaration of Human Rights. Although the study and influence of natural law are interesting, it doesn’t offer a simple or practical roadmap to Decentralized Law. Positive Law – Law by Government During the era of enlightenment, natural law was challenged. Some argued that humans alone constructed laws and that they were enforced by the government. This became known as Legal Positivism. Early Legal Positivists in the 19th century argued that law merely reflects relations of power and obedience between a sovereign and its subjects. As of today, the idea that national governments make laws is hardly ever challenged. It is unlikely that governments will give up their law-making powers. Nor is there need for this. The following two sections reveal that an erosion of the power of governments is already underway, and that there is still enough freedom for individuals to start creating their own laws. If you want to know more about the four sources of law, make sure to visit Lesson 1 – Who can Create Law. International Law Early forms of international law were mainly to regulate the interactions between nations at war. Over the years, developments like international trade, economic cooperation, wars and subsequent peace treaties, and many multinational governing bodies have led to what is known as international law. International law describes the body of rules and principles that determine the rights and duties of states, primarily in respect of their dealings with other states and the citizens of other states. It also determines what a state is and within what geographical territory they exist. How is International Law created? No central authority exists to enforce international law. There is no constitution and no world government that creates it. There are three ways of creating international law: A) International conventions and Agreements. B) International custom, as evidence of a general practice accepted as law. C) The general principles of law recognized by civilized nations. The first method is straightforward; States sign treaties with one or multiple other states. This creates a body of law that governs their interactions. However, the second and third methods involve the words “accepted” and “recognized” respectively. This implies that international law is accepted over time due to consensus. There are a lot of famous organizations that create international law, such as the United Nations and the European Union. And there are other organizations that focus on specific areas of economic cooperation, including the World Trade Organization and the International Maritime Organization. Hard Laws vs Soft Laws The majority of international organizations, such as the OECD, generally only create rules that are qualified as “soft laws.” Soft laws are rules that do not have any legally binding force, or whose binding force is weaker than the binding force of traditional national laws. The latter are often referred to as “hard laws.” In order for soft laws to have effect, States must implement them in domestic laws or treaties to become hard laws. They usually do so without delay. International Law vs Private Affairs The influence of international law is increasing with every treaty. And there are developments in the creation, enforcement and reach of international law that influence the crypto-space. This becomes clear when we look at the actions of the OECD and FATF. These organizations are responsible for legislation known as KYC (Know Your Customer) and AML (Anti Money Laundering). Their policies are implemented around the world almost universally. As a result, multinational organizations now regulate (and in many cases restrict) the interaction between individuals and private organizations. These developments alter the basic concept of international law because they are neither based on treaties, nor acceptance. No, they are enforced in a top-down fashion. Moreover, they expand the scope of international law by getting involved in the rights and duties of private parties. International law = Decentralized One could argue that international law is already decentralized. It requires no central authority to be effective. This also means that it, for the most part, is followed voluntarily. This leads to an important conclusion: There is no need for the involvement of national governments to create law. Once a piece of legislation or a practice becomes accepted and recognized, it eventually becomes part of international law, one of the highest and most influential forms of law in existence. Given that a group of unelected bureaucrats can create worldwide-accepted regulations why can’t the crypto-community do the same? This question is answered in the next section. If you want to learn more about international law, and how it works, make sure to visit Lesson 2 0 – How is International Law Created? How Private Parties Can Create Law The Romans first created the distinction between Public Law—governing the relationship between individuals and the State—and Private Law—governing relationships between individuals. Private law deals with such aspects of relationships between individuals that are of no direct concern to the state. There is a variety of areas where private individuals and organizations create their own laws to govern their actions. Examples are copy-right laws, Lex Mercatoria (a private legal system for international trade), and globally active sports organizations such as the FIFA. Private Law by Contract Besides these broad forms of widely followed laws, there is a more exclusive form of private law: law by contract. There is a lot of freedom to engage in contracts, they offer flexibility in determining the governing laws, and they are enforceable around the world, especially when subjected to arbitration. International arbitration Arbitration is a private court system for resolving disputes. Parties who arbitrate have decided to resolve their disputes outside any traditional judicial system. In most instances, arbitration delivers a final and binding decision, producing an award that is enforceable in a national court. An arbitration agreement creates a unique body of private law. Those involved consent to be subjected to this body of law by signing the agreement. They can choose those who rules on any dispute, and they can even choose their own governing laws. And thanks to the New York Convention (1958), arbitration awards are enforceable in almost any country in the world. Building block of Decentralized Law There is absolutely no reasons why the community should wait for the government to come up with legislation. Private law already streamlines the interactions of (large) groups of individuals around the world. Moreover, forms of private governing laws already exist, and private court systems are created by contract. The use of decentralized private law is limited to what isn’t regulated, but this still leaves massive areas open to disruption and innovation. Private law (by contract) forms the ideal building block for Decentralized Law. If you are interested in Private Law, make sure to visit Lesson 3 – How Private Parties can Create Law. Part II – Decentralized Legal Applications Decentralized Legal Applications The invention of Bitcoin revolutionized the idea of digital money. But innovation didn’t stop there. A number of people saw use for these technologies in other areas―including in the area of law. Not Just Money Bitcoin is not a like a traditional currency that is sent from one account to another. In fact, Bitcoins always “sit” on the blockchain. What changes hands is the ability to spend them based on their unique access keys. Moreover, the execution of a Bitcoin payment happens based on a script. This script can be programmed. Due to this fact, systems can be created that spend currency not based on human actions, but on computer code. This allows for systems to be built that can make transactions automatically without a central server, system supervisors, or security systems. There are endless applications for this; self executing (smart) contracts, token systems used for crowd-funding, arbitration systems, financial contracts, and even new systems of governance. Four Main Decentralized Legal Apps As far as legal projects are concerned, they can be divided into four main categories: Decentralized jurisdictions Decentralized arbitration Smart contracts Decentralized companies Below, each development is covered in detail. Problems when Merging Decentralized Systems and Law Two categories of thinking errors persists with those creating applications: Differences between law and technology aren’t understood Absence of a legal framework Differences between Law and Technology Legal systems are based on ideas and best practices dating thousands of years. They are subject to ever-changing opinions and ideologies. Their outcomes and definitions are uncertain. Legal systems evolve slowly in a non-linear fashion over time and their development and workings are not transparent. Decentralized technologies are based on hard science, mathematics and cryptography. They are formed by peer-to-peer networks and run by consensus. They provide a cryptographically secure framework that can be trusted to provide a predictable binary outcome. The systems and their development are transparent, open source and can be inspected by anyone. We must acknowledge that the development of a legal system is not the same as the development of a technology. One cannot just create a piece of code an expect the legal world to adjust to it. Bridges have to be built. A Legal Framework One essential question for any legal system is: which laws govern the interactions with the system. As fundamental a question as it is, research for this projects showed that most projects simply ignore it. As a result, certain projects aim at creating new countries without defining what a country is. Others wish to create a new type of corporation but fail to understand that it is the establishment of a new person. Arbitration systems arise without governing laws or means to enforce rulings. Smart contracts are signed that aren’t binding or enforceable. In short, the vast majority of these projects lack a legal framework. What is a Legal Framework? A legal framework is a broad system of rules that governs and regulates decision making, agreements, and laws. It acts as a top-level umbrella, governing all beneath it. A more specific example would be the laws applicable when starting a business in Dubai. The main applicable legal framework is the UAE federal law no.2 on Commercial Companies. However, this law delegates some of it’s control to specific free zones. Free zones in Dubai are free to create their own laws regarding companies acting within the free zone (outside the free zones the federal law applies). The individual free zone companies in turn then sign a memorandum and articles of association (M&A) that govern the company. This framework looks like this: What is a Decentralized Legal Framework If you wish to learn about the different decentralized apps, and how they differ from the law, check out Lesson 4 on Decentralized Legal Apps Consensus Jurisdictions The concept of jurisdiction is important. After all, how does a system that only exists in cyberspace relate to the real world? “Jurisdiction” can have two meanings: the authority of a court to rule on a specific case, and the territory in which this authority is limited. Nowadays, it is States that have the right to enforce their laws and punish for non-compliance. The usual concept of jurisdiction in our legal system is tied to physical locations. This must be acknowledged when we want Decentralized Law to have any meaning in the real world. Luckily, there is a third form of jurisdiction that does not involve a territory; a court can have jurisdiction by consent (or contract). Consensus Jurisdictions We already saw in the section on arbitration that contracts can create a private body of law that binds the contracting parties. The question now is, why should there be a limit to the amount of people that sign a contract? Technology exists for a collective to sign a contract as if accepting the terms and conditions page of any website. This way, a jurisdiction by consensus can be created, where the participants have agreed to cooperate under a certain set of rules. Consensus Jurisdiction Enforcement If needed, such a system could even be enforced in the real world. After all, a framework for enforcing private contracts already exists: the New York Convention. Subjecting a Consensus Jurisdiction to this framework is surprisingly simple; it is just a matter of adding a clause to the Consensus Contract explaining that any disputes arising under it are subject to arbitration and said framework. The jurisdiction that arbitrators would have is restricted to whatever has been agreed upon. In addition, there are significant areas of public law that private contracts cannot “breach,” including family, criminal or tax law. Therefore, initial use cases are likely to be industry-specific collaborations with a set of guiding principles for relatively standardized recurring transactions. Examples could be found in areas such as decentralized organizations, ICO’s, international trading, e-commerce and international freelancing. A more detailed explanation of jurisdiction, the concept of the State, and how real world jurisdictions and cyberspace are linked can be found in Lesson 5 – Consensus Jurisdictions. Decentralized Arbitration Enforcement Framework One important question has to be answered: what if a dispute arises? After all, Decentralized Law only has value if it can be enforced. As discussed, international arbitration provides the ideal framework for the enforcement of private Decentralized Law: What is the decentralized law enforcement framework Important! The New York Convention requires contracting States to recognize and enforce arbitration awards made in other contracting States. This refers to a physical location. For this to work, a “Seat of Arbitration” is required in one of the participating States. Luckily, online arbitration already exist. An example is the service offered by the Hong Kong International Arbitration Centre, which offers a completely online arbitration procedure. Other Ideas on Enforcement of Rulings Some of those working on decentralized arbitration are of the opinion that governing laws and enforcement through existing legal systems are not needed. Those engaged in small transactions might not need the backing of a legacy legal system. But those performing large transactions or listed multinationals do. A logical solution would be a two step system, with fully decentralized arbitration first, and international arbitration only when the first step has not resulted in a favorable outcome. More on this discussion in Lesson 6 – Decentralized Arbitration Enforcement Framework. Smart Contract Considerations A primitive ancestor of a smart contract is a vending machine. It works by detecting the insertion of a quarter and then executes a sale. Smart contracts take this principle to the next level. They can handle complex transfers of property as long as they are controlled by a digital means. With the transfer of property, there are legal implications. Unfortunately, a smart contract cannot be considered a legal contract. Moreover, real world projects rarely result in binary outcomes. For example, the Ethereum whitepaper talks about a crop insurance that automatically pays out in case of a storm. But the harvest might only partially be ruined, or the crops might already be harvested once the storm hits. Smart contracts are to rigid to govern reality. They need to be merged with a normal contract. The Smart Contract Block A simple and way to create a bond between a legal contract and a smart contract is often overlooked; at the start of a human language contract―in the clause identifying the parties―a hash or link could be included corresponding with the appropriate smart contract. To simplify the human language contract, existing terms and conditions can act as a legal framework for the human language contract, which in turn is linked to a smart contract. This could be called a Smart Contract Block. what is a decentralized smart contract block One main benefit of this approach is standardization. Smart Contract Blocks could become reliable after being used and tested over time. With them, users can simply pick the “Block” most suitable for their transaction and fill in the details relevant for their transactions―like selecting an App in the Appstore! Widely used Blocks that contain a proven enforcement framework could become valuable assets when licensed by their creators. At the same time, they are much cheaper to use than uniquely drafted contracts for each transaction. More on Smart Contract Blocks and some practical examples are found in Lesson 7 – Smart Contract Blocks. Decentralized Companies There are two types of decentralized companies. A first example would be the decentralized corporation. A second example is the Decentralized Autonomous Organization (DAO). The Decentralized Corporation A few characteristics make the “corporation” unique. First of all, it is the creation of a fictional legal person, separate from its owners. As a result, a corporation has the right to own property, hire people, take on loans and engage in contracts. It can sue and be sued. A second important aspect of a corporation is that it limits the liability of the owners. It is thus a great way for investors to invest capital without risking bankruptcy and without the need to be part of day-to-day management. This division of roles and responsibilities is another important characteristic of corporations. The work done so far on decentralized corporations completely ignores all this. Moreover, it doesn’t address what is needed in order for a decentralized corporation to be recognized as one by the law. And in order for it to be recognized, it needs a physical place of registration. Decentralized Corporation Nexus Existing laws allows for two different kinds of registration for decentralized corporations: PE (Permanent Establishment) Registration Nexus Registration what is the decentralized corporation The Decentralized Autonomous Organization When looking at a Decentralized Autonomous Organization (DAO) from a legal perspective, it is clear that it is neither a corporation, nor any other type of existing legal personality. It doesn’t have a registered office and has no physical place of business or registration. There are no shareholders or managers. As a result, it cannot perform many of the tasks commonly attributed to it, like owning property or engaging in contracts. Moreover, participants in a DAO should take precautions if they want to be shielded from liability or taxes. For example, by accessing the DAO through a corporation. More details on the challenges and opportunities of decentralized organizations is found in Lesson 8 – Decentralized Corporations and the DAO Part III – Legal Frameworks and Governing Laws Definition Decentralized Law We have covered all the components that make up decentralized law. Before we continue, we must come up with a definition. We have to accept law in the broadest sense of the word. Having said that, only private law allows for practical decentralization. As a result, decentralized laws must be recognized by the participants since there is no central authority to enforce it. And finally, we learned that it has to be build on decentralized infrastructure and be controlled by distributed political structures. The definition of Decentralized Law is as follows: A set of voluntarily accepted private law systems of which the control is distributed both politically and technologically. For a detailed explanation of how this definition was reached please visit Lesson 9 – Decentralized Law Definition The Decentralized Legal System This section introduces the Decentralized Legal System (DLS), the first complete framework for Decentralized Law. It is a system not enforced by an individual or elite group of powerful individuals organized in a government, but accepted and created by a public and open source process. A system that exists in cyberspace, but has force in the real world. This framework can govern all four types of decentralized legal applications. >From a technology standpoint it can best be compared to WordPress. In this case the DLS works as the open source framework, the themes as the different jurisdictions and arbitration systems, and the plugins as the different smart contract blocks. And just as WordPress uses the existing infrastructure of the internet, the DLS can use the existing law enforcement infrastructure. And while the overall structure is similar for each WordPress website, each end product is unique. The DLS Framework what is the decentralized law framework The DLS consists of an: Enforcement Framework (green) A set of Governing Laws (blue) A set of Decentralized Legal Applications (orange) It is worth repeating that most of the components of the DLS already exist today. First of all, the enforcement and governing frameworks (blue and green layers) are already in place. Work on decentralized jurisdictions is currently being done, and it would be easy to transform them into consensus jurisdictions (as simple as it is to accept the terms and conditions of companies such as Google or Facebook). And finally, creating a contract to govern the use of a technology (smart contract) is also a piece of cake. The only challenge (and main benefit) comes from combining all of this in an easy to use (open source) system that any group of like-minded individuals can use to create bottom-up fair and transparent rules to govern their interactions. A more detailed explanation and a practical example are provided in Lesson 10 – The Decentralized Legal System. How to Create Decentralized Law In previous lessons, we saw the common practice of using English Law as governing law. However, these governing laws could be replaced (partially) by Decentralized Law. Decentralized Law would have to be proposed, created, codified, and accepted/implemented. Existing technologies could help with this. Using a BIP to Propose Law In order to create Decentralized Law, we must overcome two hurdles. The first is a model for the creation of laws and regulations. The second is a model to publish and accept these laws. A way to create laws could be taken from the best practices in decentralized open source software development proven effective by Bitcoin: the Bitcoin Improvement Proposal (BIP). Bitcoin is a fully decentralized system. As a result, no one developer is responsible for its mechanisms. Adjustments to the protocol start when someone makes a proposal for an amendment to its code, known as a BIP. The BIP is scrutinized and either accepted of rejected by the community. This process has worked well, and can be applied to law creation as well. what is decentralized law creation process Using Github to Create Law Github is an interesting tool that is used for open source processes, including BIPs. It is a website that allows software developers from around the world to cooperate on open source software development projects. It is based on software known as “Git.” Git is a version control system for tracking changes in computer files and coordinating work on those files by multiple people. It is primarily used for source code management in software development, but can be used to keep track of changes in any set of files. Given its success in the software community, this process could also be adapted to create law. Using a “Legal Wiki” to Codify Law The public Wiki is another existing technology that lends itself perfectly to the codification and publication of Decentralized Law. Wikis are extremely applicable here as they are both lightweight and easy to use, and familiar to the general public. They are perfect for hosting large bodies of text. In addition, it is easy to hyper-link to relevant clauses within the law, to important rulings or to higher laws. This makes them more accessible and usable compared to the current system consisting of random selections of constitutions, books, rulings and separate laws created over time. Publishing and Accepting Decentralized Law Next, the proposed legislation must become law. This can simply be achieved by publication and subsequent acceptance. Ideally, its publication is subject to acceptance. This way, only widely supported legislation may become a part of law as we saw in the BIP process. Some ideas on how to publish and accept Decentralized Law are: 1) Static Publication 2) Voting 3) On a Blockchain 4) Prediction Markets Amending Decentralized Law Laws change. Although they are written with the best intentions, they may become outdated as time passes. Decentralized Law could address this via the introduction of an amendment process guided by mathematical restrictions, called a Rule Based Legal Wiki. The rules could allow for periodical amendments to be made. A restriction could be placed on the amount characters or words that can be changed, such as the total amount of words is only allowed to increase by 10%. This stimulates writing clearly and removing unnecessary and difficult words. Such a process leads to orderly, accessible and simple legislation that can be understood by anyone. It also prevents out of control legislation by limiting what can be added. For more details on how Decentralized Law can be proposed, created and amended, view Lesson 11 – How to Create Decentralized Law. The Future Governed by Centralized Law As is clear, the ideas so far presented are based upon private law. The private arbitration framework based on private contracts is a good example of this as well as the creation of frameworks for specific industries and private Consensus Jurisdictions. Some may ask however, how does this relate to the world of law making at large? Public Law The creation of public law is the domain of governments. In most countries, this is subject to a democratic process. This process is generally founded on the principle of separation of powers. An alternative system could be an executive branch that manages the government, a judiciary branch that enforces justice, and a decentralized process for the creation of law. This process could be completely decentralized, or managed by legislators and involving the public at large. For some, this sounds radical. But remember that this is already happening. Legal Reflexivity Not only do public policies affect private affairs; private affairs also affect public policy. This process can be observed in the real world too. An example is the refugee crisis in Europe, where judges determine the cases of asylum seekers based on reports from NGOs; reports written in support of the plight of the asylum seekers. Once large groups of people create standards for their interaction it will influence the legal world. It doesn’t exist in a bubble. The Benefits of Decentralized Law Legislation created in this matter will be fair and readily followed as participants create it in a bottom-up fashion. There are lots of areas where Decentralized Law could step in and regulate the interaction of large groups of people. In fact, there is no use in waiting for government legislators to act. Politician simply don’t understand the crypto-spcae and just impose Anti Money Laundering legislation to pretend they are useful. The time is now for others to start working on functional frameworks of Decentralized Law. Once a new standard emerges, it is a safe and popular bet for governments to incorporate this in their legislation. As far as enforcement goes, judges are supposed to be independent and base their judgment on the law. For them, there should be no difference in how the law is created. They might even feel more comfortable in ruling based upon widely supported and accepted Decentralized Law than top-down enforced public law. The Future of Law? We have endured a long and hard battle for power with our rulers for the establishment of individual freedoms under laws that equally apply to everybody. However, as the creation of law still sits in the hands of government and is applied in a top-down manner, we are still subjected to centralized law. Using the Decentralized Legal System, we can immediately start creating bodies of private law based on consensus with force in the real world. In addition, these laws can supplement centralized law in areas where it falls short, and perhaps gradually start replacing some of its processes. These developments are in fact a very logical next step in the continuing trend of decentralizing power structures that has been going on for centuries. From gods to kings and from kings to States. The next target for decentralization might well be the State and their multinational organizations. It requires a shift in thinking, and will not happen overnight. But it is coming, and cannot be stopped. It can be assumed that not everybody in the government will welcome this idea. But neither did the king… Vires in Numeris! More details on legal reflexivity and how decentralized law can replace public law, visit Lesson 12 – The Future of Decentralized Law. Cite this article Thysse W., “What is Decentralized Law,” (Decentralized Law Lessons, December 28, 2019), available on: https://decentralizedlegalsystem.com/law/

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NAZI's had the backstab legend - Rambo had spat-on-vet-syndrome
by professor rat 28 Oct '22

28 Oct '22

Gramps, the MyPillow guy and Margorie Taylor-Green have got the 2020 POTUS election. Guys! - the best disinformation is mostly true!

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Cryptocurrency: War On Crypto - G20 OECD To Mandate Total Reporting Worldwide
by grarpamp 28 Oct '22

28 Oct '22

Not only is no-KYC mandatory, also are lunar anon DEX exchanges, as is adoption and migration to privacy coins over them as well as via P2P. If you don't fight back by rolling out, spreading and using privacy-enabled coins to the masses (whose numbers when then wielding private money are what makes winning possible), then all stored value and means of transacting will be killed, and the entirety of crypto will go to zero. The WAR on Bitcoin Privacy Intensifies. Automatic Reporting of ALL Trades and Transactions Soon Mandatory. Massive overreach of international regulators to force all service providers in the industry to: Record ALL crypto trades on exchanges, DEFI and DEXs; Record (large) purchases from private wallets; Record all transfers to cold storage and make lists with private wallet addresses; Send all this info annually to the (tax) authorities; And finally, the G20 forces governments to pass these rules into domestic law. The war on privacy continues. The aim: to tackle anonymous spending and exchanging of crypto. As you’ll discover, these new regulations force upon us a system of complete surveillance and control. https://www.oecd.org/tax/exchange-of-tax-information/public-comments-receiv… This report explains exactly what to expect from the latest developments launched in October 2022… Disclaimer: Given that this post is based on new international standards that have not yet been implemented in national legislation, and US proposed legislation, non of this information can be considered legal or financial advice. What is Going On? Last year, the crypto world was shaken to its core when the Financial Action Task Force (FATF), acting in behalf of the G20, released their guidance on virtual assets.1) This document laid out a set of rules regarding stablecoins, distinctions between private and hosted wallets, extensive KYC requirements, the tackling of privacy tools, and more.2) FATF has also provided a final definition of the type of service provider tasked with reporting on crypto: the Virtual Asset Service Provider, or VASP. Fast forward to today, and these rules are quickly being implemented across the world.3) But as usual, it didn’t stop there. Another international regulator, the OECD, is already building on this framework in an attempt to massively increase the grip of authorities on what happens in the industry. What is the OECD? The Organisation for Economic Co-operation and Development (OECD) is a Paris-based international organisation that works to “build better policies for better lives.” Its goal is to shape policies that foster prosperity, equality, opportunity and well-being for all.4) Together with governments, policy makers and citizens, the OECD works on finding solutions to a range of social, economic and environmental challenges. From improving economic performance and creating jobs, to fostering strong education and fighting international tax evasion. The organisation provides a unique forum and knowledge hub within which to discuss and develop public policies and international standard setting.5) This “international standard” setting is what we will look at next. Automated Exchange of Financial Information with Authorities Since 2014 In 2014, the OECD published the Standard for Automatic Exchange of Financial Account Information in Tax Matters.6) This publication created a “Common Reporting Standard” (CRS), which forces financial institutions to automatically exchange account information with the authorities of the country of residence of their account holders. The goal: to prevent persons from holding financial accounts in offshore jurisdictions and not reporting them back home. This is why all financial service providers request utility bills: they prove where you live, and hence where they have to report to. All financial institutions that are currently subjected to these regulations are forced to automatically report to the authorities the name, address, Tax Identification Number(s), date and place of birth, the account number, and the account value as of the end of the relevant calendar year (or other appropriate reporting period).7) Now, there is no more hiding of accounts held with a foreign financial institutions. The authorities enlisted all financial institutions as involuntary (but powerful) assistants in collecting facts and evidence needed for tax compliance. The Panama Papers; Just in Time to Boost Worldwide Implementation of Automated Reporting… After publishing their standards in 2014, the OECD needed to get countries and their financial institutions in line. By August 2015, the OECD had released the first version of a CRS Implementation Handbook.8) It provided practical guidance to assist government officials and financial institutions in implementing CRS. But while the standards set by the OECD came into force in 2016 in early-adopting states, by March of 2016 these standards were still far from being fully integrated into the global financial system.9) This was especially true in the offshore jurisdictions that were the main target. What was needed was a shift in conscience… On April 3rd, 2016, the International Consortium of Investigative Journalists published a giant leak of offshore financial records, better known as the Panama Papers.10) These revelations caused public outrage. The G5, the five largest Western European countries, were quick to jump on the bandwagon and call for more international cooperation to tackle “tax dodging and illicit finance.”11) The message did not fall on deaf ears; the next day, on April 15th, G20 Finance Ministers and Central Bank Governors met in Washington and issued the following Communiqué: “…we call on all relevant countries including all financial centers and jurisdictions*, which have not committed to implement the standard on* automatic exchange of information by 2017 or 2018 to do so without delay and to sign the Multilateral Convention. We expect that by the 2017 G20 Summit all countries and jurisdictions will upgrade their Global Forum rating to a satisfactory level. We mandate the OECD working with G20 countries to establish objective criteria by our July meeting to identify non-cooperative jurisdictions with respect to tax transparency. Defensive measures will be considered by G20 members against non-cooperative jurisdictions if progress as assessed by the Global Forum is not made.”12) Thus, within 12 days of the publication of the Panama Papers, the world’s 20 most powerful governments had collectively agreed to start pushing CRS reporting requirements aggressively, and to punish non-cooperative (offshore) jurisdictions—regardless of their local laws. This is how offshore finance was brought into the fold, and financial privacy died. Why Can the OECD Regulate Financial Institutions Around the World? Isn’t this a Task of Democracy? The OECD isn’t a government agency of any individual country. As such, it cannot create law. It issues what is known as “soft laws,” or “recommendations” and “guidance.” Only when this guidance is transposed into the laws of individual countries does it becomes “hard” law, with real world power. In theory, this process is subjected to the formal (democratic) law-making processes of the implementing countries. However, countries that don’t participate face restricted access to the financial system and ostracism from the international community. For this reason, almost all nations are compelled to implement these recommendations. It must also be said that national governments, especially in the Western world, highly value this kind of international cooperation, and the control it gives them without the need to deal with the “inconveniences” of democracy. They simply hide behind the fact that these are “international standards” which they have to follow because “everybody” does. Neither does it help that few of our representatives, journalists and fellow citizens seem to understand the impact of these treaties. Those in the legal industry who do understand the implications just look at it as “business as usual” and a new way to generate income. As such, most standards are passed into domestic law with little opposition or delay. International Standards Aim to Supersede National Law Once these treaties are accepted, they become part of a body of law called “international law,” which in many cases supersedes national laws. Unknown to the general public, international law is increasingly being used as a backdoor for passing invasive regulations such as those we are discussing here, and establishing a global bureaucracy with real power over our (financial) lives. It is also worth noting that the people working for this Paris-based institution have not been elected, their procedures and budget are not subjected to democratic oversight, and they are almost impossible to remove from power. Like most international organizations, their operations fall under the Vienna Conference on Diplomatic Intercourse and Immunities.13) As such, they enjoy immunity for their actions taken whilst in office, are exempt from administrative burdens (such as taxes and fines), and enjoy less stringent (COVID) travel restrictions. AUTOMATIC Exchange of Transaction Info For Crypto Last week, October 10th, the OECD published the “Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard.”14) This applies the tax reporting guidance of the existing CRS to crypto―and makes it FAR more invasive… The OECD first published a public consultation version of the document on 22nd March 2022.15) The deadline for feedback from the public was 29th April 2022. This gave the public just over a month to analyze a 101-page document, figure out what it meant for them and their clients in multiple jurisdictions, and formulate a public statement on company letterhead. This is not a sign that the OECD takes public input seriously. When comparing the two documents, there is no material difference between the public consultation and the final version in the section that matters most, the actual rules…16) Public consultations give these recommendations the appearance of being widely supported by “stakeholders.” It creates the illusion that the public has a say in the matter. It doesn’t. When you read the questions carefully, they only seek feedback on details, such as which intermediaries are to be included or excluded, which type of NFTs are to be in scope, what reporting thresholds there should be, and how much time should be reserved for implementation.17) Furthermore, if you read the commentaries submitted, which can be downloaded here, most respondents just talk their own book, trying to elicit amendments that perhaps exempt them from a specific reporting requirement, or trying to get a longer time-frame for implementation. In all fairness, there were also a number of industry insiders who highlighted the double standards created for the crypto industry, and how much of a burden the regulations would represent. In the end, none of this mattered. The regulations have been published and are now the new worldwide standard. What Are The New Guidelines for Crypto? As was the case with earlier regulations, Bitcoin will not be banned. Instead, the OECD builds on the approach set by FATF: to regulate the service providers who facilitate transactions. In this instance, the OECD developed a new global tax transparency framework which provides for the automatic exchange of tax info on transactions in a standardised manner. This is the “Crypto-Asset Reporting Framework” or “CARF.”18) As previously mentioned, automatic exchange of information used to contain only the details of the individual and the account value. New reporting obligations, however, apply to all transactions in an account. This is a major extension of the reporting obligations that currently exist for non-crypto financial services. Reporting of Transactions (and their Nature) by VASPS The OECD proposes that those providing crypto transaction services, for or on behalf of customers, are to report under the CARF. We are talking here about the reporting entities that are defined by FATF, i.e. “Virtual Asset Service Providers,” or “VASPs.”19) Before we look at the details of the information that is going to be exchanged, let us remind ourselves of what a VASP is: “VASP: Virtual asset service provider means any natural or legal person who is not covered elsewhere under the Recommendations, and as a business conducts one or more of the following activities or operations for or on behalf of another natural or legal person: i. exchange between virtual assets and fiat currencies;ii. exchange between one or more forms of virtual assets;iii. transfer of virtual assets;iv. safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; andv. participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.”20) As you can see, the definition of VASP is so wide that it covers many of projects currently operating in the crypto space. According to the OECD, reporting obligations also apply to companies facilitating Decentralized Finance and Decentralized Exchanges.21) What Kind of Individual Transactions Are to Be Reported? What needs to be reported? In particular, the following three types of transactions: Exchanges between Crypto Assets and Fiat Currencies; Exchanges between one or more form(s) of Crypto Assets; Transfers of Crypto Assets (including Reportable Retail Payment Transactions).22) Transactions will be reported by type of Crypto Asset, and will distinguish between outward and inward transactions. In order to enhance the usability of the data for tax administrations, the reporting is to be split out between Crypto-to-Crypto and Crypto Asset-to-fiat transactions. Reporting service providers will also be forced to label transfers (e.g. airdrops, income derived from staking or a loan), in instances where they have such knowledge.23) In short, the CARF mandates that information an all trades, including the type of coin, the amount of coins, the market value, and what was paid, be submitted. This info is then aggregated and automatically exchanged.24) The goal is to inform the tax authorities of how much you own and what kind of income you generated from your holdings. And if that is not enough, the OECD allows lawmakers the option to request lists of private wallet addresses of users.25) Reporting of Retail Transactions from Private Wallets On a final note, the OECD has come up with a trick to limit the opportunity for crypto users to spend their coins anonymously. The CARF also applies to merchant providers facilitating crypto payment for goods or services. In such instances, the merchant provider is required to treat the customer of their customer as its own customer, and report the value of the transaction to the tax authorities of the buyer.26) For now, this only applies to “large” purchases of over USD 50,000.[27] What About US Citizens and Green-Card Holders? The CRS has been implemented worldwide. All developed nations and all international financial centers have been included in the list, leaving few of the world’s financial highways untouched.28) Surprisingly, the United States is not on that list. The reason is that the US came up with their own automatic reporting framework even before the OECD did. It is called the Foreign Account Tax Compliance Act, or FATCA, and requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders.29) Up until now, FATCA did not directly apply to crypto. But the new 2023 budget proposal seeks to amend section 6038D(b) of the Internal Revenue Code to require reporting for a new third category, namely any account that holds digital assets maintained by a foreign digital asset exchange or other foreign digital asset service provider (a “foreign digital asset account”).30) There is also another US-specific reporting obligation, the Report of Foreign Bank and Financial Accounts. Regarding FBAR, FinCEN has issued Notice 2020-2, stating that it also intends to make reporting foreign virtual currency accounts mandatory.31) Moreover, US tax payers are already required to report their crypto transactions on their tax returns.32) The question is, will the United States also implement a CARF like system, as in the automatic reporting of all transactions? This question remains unanswered for now. But President Biden’s Executive Order from earlier this year clearly stated that the current administration is committed to these international standards, including those commissioned by the G20 and FATF, and that the US has a leading role in developing and adopting these international standards on digital assets.33) Despite all this, it is still unclear what the regulatory landscape in the US will look like. Regardless, US-based companies with clients in other countries (i.e. most of them) will have to implement these policies. It is hard to imagine the US government not wanting to have this information for itself, especially since the legal framework is largely in place. But we will have to wait and see. What Will Be the Outcome of These Regulations? The outcome of these new international standards will be full transparency towards tax authorities. The aim of these standards is to get automatic insight into all your trades, even laying the foundation to prevent you from spending coins anonymously with retailers that use a third party payment provider. This means in practice that although you can hold coins in your private wallet, you cannot easily spend or exchange them anonymously. In short: no more privacy when you use third party services. One might say this will be the death of third party services, because accepting online payments is as simple as installing a piece of code on your website and taking the payments yourself. But most companies do not have the capacity to run their own payment system, and are likely going to require payments through a regulated merchant. As long as there isn’t a Bitcoin standard, meaning accounting and payments regularly done in Bitcoin, there will be a need for fiat on- and off ramps. As such, even when you do business in crypto, your suppliers or clients are likely to make use of a service provider with reporting obligations. As a result, expect far more scrutiny on transactions; from exchanges, but also from the people and businesses you are dealing with in everyday crypto activity. Even if you do not need to report on certain transactions, they might be forced to do so. You might be okay with accepting direct peer-to-peer transactions, but could run into issues later when you are obliged to prove where the payments came from. Regulators Are Out of Control The reality is that these regulators are out of our control. Without (direct) democratic mandates or oversight they are flooding the world with regulation. Just like totalitarian regimes, they effectively force private parties to police each other. The service providers, forced into unpaid financial surveillance, carry the rising compliance costs. Obliged to make hard decisions as to whom they can take on as customers, they are likely to cut services to those they consider not worth the compliance costs, such as small or “high risk” businesses, and people in developing nations. The cost of compliance might become so great that at least some of them might want to facilitate transactions only with fully-vetted wallets tied to a digital ID, such as the EU is implementing.34) New Precedent: Centralized Surveillance of Individual Transactions This is a good example of regulations being built on top of one another, and raising the bar with each step. It should not come as a surprise if at some point regular financial service providers are forced into similar obligations to get in line with these new “international standards.” This step might be taken with the introduction of Central Bank Digital Currencies, currently being developed all around the world.35) Door Open to Further Monitoring and Restricting of Payments It is not hard to imagine that once all transactions are transparent, more actions can be taken as to which type of payments and type of persons are allowed or not. We can see this financial “cancel culture” already happening around the world.36) As a result of all this surveillance, it is not only privacy that is at risk right now; this starts to touch the very idea of maintaining a payment system where you can freely transact and engage in economic activity. Only a massive and radical decentralization movement away from third party service providers can prevent this dystopia. Stay tuned for a next report and a roadmap for just that… TLDR; Governments at the highest level (G20) commissioned an organization called the OECD to come up with international tax transparency rules for crypto. They are using international law frameworks that supersede national legislation and will demand that every country in the world complies. The OECD issued their guidance last week, Oct 10, 2022. They propose that Virtual Asset Service Providers are to be required to annually report, on your trades and transactions, to the tax authorities of your country of residence. Reporting on transaction information is a major extension of reporting obligations as they exist for regular financial institutions. The US is also looking to expand its own reporting frameworks. Sources: 1 FATF, “Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers,” (FATF, Paris, 28 October 2021), https://www.fatf-gafi.org/publications/fatfrecommendations/documents/guidan… 2 Thysse W., “FATF Global Crypto Regulations Summary – June 2021,” (Decentralized Legal System, June 22, 2021), available on: https://decentralizedlegalsystem.com/wp-content/uploads/2021/06/FATF-Global… 3 “Further EU and UK Developments in Financial Crime Regulation of Cryptoassets,” (Ropes & Gray, August 4, 2022), accessed on Oct 11, 2022, https://www.ropesgray.com/en/newsroom/alerts/2022/August/Further-EU-and-UK-… 4 “OECD – About,” (OECD), accessed on 3 Oct 2022, https://www.oecd.org/about/ 5 Ibid. 6 OECD, “Standard for Automatic Exchange of Financial Account Information in Tax Matters,” (OECD Publishing, Paris, July 2014), https://www.oecd-ilibrary.org/taxation/standard-for-automatic-exchange-of-f… 7 Ibid., page 26 8 OECD, “Standard for Automatic Exchange of Financial Information in Tax Matters – Implementation Handbook – Second Edition,” (OECD, Paris, April 2018), http://www.oecd.org/tax/exchange-of-tax-information/implementation-handbook…: 1st edition since replaced by a 2nd edition, which is now found at this link]. 9 KPGM, “The Common Reporting Standard: Are you ready?” (KPMG UK, March 2016,) https://assets.kpmg/content/dam/kpmg/pdf/2016/03/the-common-reporting-stand… 10 “Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption,” (The International Consortium of Investigative Journalists, April 3, 2013), accessed on Oct 3, 2022, https://www.occrp.org/en/panamapapers/overview/intro/ 11 HM Treasury, G5 letter to G20 counterparts regarding action on beneficial ownership, (G5, 14 April 2016), https://www.gov.uk/government/publications/g5-letter-to-g20-counterparts-re…: “The UK has initiated a ground-breaking deal to tackle tax dodging and illicit finance, alongside Germany, France, Italy and Spain. Ministers from each country have co-written a letter to G20 counterparts to urge further international cooperation.” 12 IMF, “Communiqué: G20 Finance Ministers and Central Bank Governors Meeting,” (Washington, April 15, 2016), https://www.imf.org/en/News/Articles/2015/09/28/04/51/cm041616 13 UN, “United Nations Conference on Diplomatic Intercourse and Immunities,” (Vienna, 2 March – 14 April 1961), accessed on June 10, 2021, https://legal.un.org/ilc/texts/instruments/english/conventions/9_1_1961.pdf 14 OECD, “Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard,” (Paris, 10 October 2022), https://www.oecd.org/tax/exchange-of-tax-information/crypto-asset-reporting… 15 OECD, “Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard – Public Consultation Document,” (Paris, 22 March 2022), https://www.oecd.org/tax/exchange-of-tax-information/public-consultation-do… 16 [Author note: for comparison, the actual regulations page 15, and the public consultation document page 10] 17 OECD (2022), Public Consultation Document, pages 8-10 and 62-63 18 OECD (2022), page 6 19 Ibid., page 11 20 FATF (2021), page 22 21 OECD (2022), page 10, and page 12 22, 23 Ibid., page 12 24 Ibid., page 15, Section II: Reporting requirements, A.3. 25 Ibid., page 32, Transfers to External Wallet Addresses 26 Ibid., page 13 27 Ibid., page 19 28 “CRS by jurisdiction,” (OECD), accessed on Oct 11, 2022, https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistan… 29 “Foreign Account Tax Compliance Act (FATCA),” (IRS), accessed on October 11, 2022, https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-… 30 Department of the Treasury, “General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals,” (Department of the Treasury, Washington, D.C., March 2022), https://home.treasury.gov/system/files/131/General-Explanations-FY2023.pdf, page 101 31 FinCEN, “Report of Foreign Bank and Financial Accounts (FBAR) Filing Requirement for Virtual Currency, FinCEN Notice 2020-2,” (FinCEN, Washington, December 18, 2020), https://www.fincen.gov/sites/default/files/shared/Notice-Virtual%20Currency… 32 IRS, “Form 1040 and 1040-SR Instructions,” (Department of the Treasury, Internal Revenue Service, 2021), https://www.irs.gov/pub/irs-pdf/i1040gi.pdf, page 17. 33 Joseph R. Biden Jr., “Executive Order on Ensuring Responsible Development of Digital Assets,” (White House, Washington D.C., March 9, 2022), accessed on Oct 11, 2022, https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/ex… 34 “eIDAS Regulation – eIDAS is a key enabler for secure cross-border transactions,” (European Commission, Brussel), accessed on 11 October 2022, https://digital-strategy.ec.europa.eu/en/policies/eidas-regulation 35 “Today’s Central Bank Digital Currencies Status,” (CBDC Tracker), accessed on Oct 11, 2022, https://cbdctracker.org/ 36 [author note: this week alone famous artist Kanye West saw his bank closed for this views, and Paypal contemplated fining their customers for spreading what they considered misinformation.] https://old.reddit.com/r/Bitcoin/comments/y6gwph/the_war_on_bitcoin_privacy… https://bitcoiner.guide/nokyconly/

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Cryptocurrency: Great Resistance: Story of Bitcoin
by grarpamp 27 Oct '22

27 Oct '22

A lyrical interlude... https://www.youtube.com/watch?v=bIuMdj_FE_E Great Resistance: Story of Bitcoin

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Re: Your Freedom of Information Law Request FOIL-2022-089773-018375
by Gunnar Larson 27 Oct '22

27 Oct '22

Thank you. Gunnar Gunnar Larson xNY.io - Bank.org 646-454-9107 On Thu, Oct 27, 2022, 12:42 PM <Carmen.Garrett(a)dfs.ny.gov> wrote: > > Good Afternoon: > > Attached, please find correspondence from the New York State Department of > Financial Services pertaining to your FOIL request. > > Thank you. > > Tracking Number:FOIL-2022-089773-018375 >

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Million Matt March
by professor rat 27 Oct '22

27 Oct '22

In 2001 I published a recipe for crypto-anarchy - ’ Everyone an anarchist " Fast forward over the illegal aggressive invasion of SW Asia. In 2008, Satoshi Nakamoto published a method for everyone to run a database, thus inventing “crypto.” Matt Helm https://www.bloomberg.com/features/2022-the-crypto-story/?leadSource=uverify wall Repost old cypherpunk lists - honor thy Matt and Vader

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