Daily Archives: April 17, 2022

Lawmakers in Australia want to regulate decentralized autonomous organizations (DAOs). In this three-part series, Oleksii Konashevych discusses the risks of stifling the emerging phenomenon of DAOs and possible solutions.

Crypto anarchy is unlikely to be the future that the majority of people support. Company regulation, in its essence, has a lot of positive aspects or at least, a good intention, albeit one often embodied in a red tape that stifles business. Nevertheless, nowadays, corporation rules and regulations are formalized to the extent that they could be put in the machine code. So, the role of the government is to establish mandatory standards for those DAOs that would like to operate in the Australian market.

Non-digital

There are cases when a written legal text is necessary. These are situations where the legal interaction goes beyond the program’s code and requires integration with the real world. In this case, there must be formal legal documents and a liable person responsible for delivering business promises to consumers and investors.

There can be two types of events in a blockchain network: 1. Internal. For example, the transfer of a token in exchange for a cryptocurrency payment. It can be completely automated because both elements — the token and the cryptocurrency — are internal digital elements of the system. 2. External. But if something is external to the network, it will require human interaction and interaction with the real world.

For instance, if a businessman issues tokens pegged to a flock of sheep, this legal condition must be written somewhere in a human language, as sheep are not digital objects, the legal condition is not a part of the network. Therefore, the digital rights of investors (let’s call it so) can and should be automated in a DAO. Hence, they don’t require any written legal terms. Non-digital rights and obligations must be intermediated by a liable person and described in a legal document. And I would say that many DAOs will have both: the digital on-chain part and the off-chain part.

Related: DAO regulation in Australia: Issues and solutions, Part 1

Let me show one example. Suppose it is promised that token investors can vote and the voting is electronic on the blockchain, and the smart contract automatically executes the decision in a decentralized manner. In that case, it will not need any human assistance and does not require a formalized legal document. This does not mean it will not be described in a human language. This means the description will not prevail over the machine code on the blockchain.

As a lawmaker, I would adopt rules that would reduce the ways of misinforming DAO investors. A businessman may not promise DAO investors something that is not encoded in the smart contract. To do so must be interpreted as a deception.

When the digital world touches reality and cannot operate autonomously, all those cases will require a complete, legally binding disclosure.

Blockchain immutability

There is a common fallacy about the issue of immutability. In a blockchain, you cannot retroactively change passed transactions and the deployed code of a smart contract. That’s right, but you don’t need to. The system must be properly designed.

Instead of changing the existing records, you need to be able to add new records. All transactions are strictly chronological (because no one can change the order of blocks), so if any legal circumstances change, you don’t change the past, you add a new record to your application. And in the sequence of records, only the latest will reflect the current state of affairs. In this way, you can resolve legal disputes and correct mere mistakes. And I explained how to properly design legal relationships in the video below.

In my academic papers as well as in this video, I also described the issue of an “emergency brake” — the need to reset the system if something goes wrong. The proposed technical standard will allow the redesign of an application on blockchain and introduce new rules to a DAO.

Related: DAO regulation in Australia: Issues and solutions, Part 2

A sustainable DAO solution will need to rely on third parties in governance to some extent as well as in day-to-day operation. And there are many situations when undeniably we need a trusted third party. For example, how will a person transfer an inheritance after death? You won’t develop a mature application on a blockchain, the question is how to make intermediaries accountable, whether it is a state registrar or an authorized professional (lawyer, custodian, broker, etc.). Their operations will require regulations and technical standards.

I should note one important thing. Transactions with cryptocurrency, as a native unit of a blockchain, are immutable, and there is nothing you can do about it. This is not addressable or at least, it is not that easy without compromising the technology. Everything I said about the proper design is about crypto tokens, smart contracts, DApps and DAOs, which reside on top of a cryptocurrency.

To step into the era of the digital economy, governments need to rethink their role and approaches to regulation. The DAO portrays the struggle to create a fundamental shift from old-fashioned bureaucracy and red tape to automated procedures facilitated by smart laws and smart contracts, generally known as the paradigm of Code is Law. Such a shift requires questioning established institutions: the role of public registries, licensing and other ways of conventional regulation.

Some countries have already stepped into the race of regulating innovations and having good intentions is not enough, because they end up with red-tape, which is one of the reasons why DAOs appeared in the first place.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

The feeling in the crypto and decentralized finance space has been shifting and evolving. The industry is also becoming more scrutinized and, inevitably, more organized. Some weeks ago, United States President Joe Biden signed an Executive Order to expedite and focus regulatory oversight of the $3-trillion industry. 

The order will spur the government to examine the risks and benefits of cryptocurrencies, with a particular focus on consumer protection, financial stability, illicit activity, U.S. competitiveness, financial inclusion and responsible innovation. While the results of this order have yet to unfold, this moment helps to set the table for more clarity, predictability, security and stability for decentralized finance (DeFi).

Like with any industry, clarity on how DeFi and crypto should operate is important. Regulatory oversight by the U.S. government will be ultimately helpful and should be welcomed by participants and organizations in the DeFi community.

Related: Powers On… Biden accepts blockchain technology, recognizes its benefits and pushes for adoption

Meanwhile, there are plenty of signs that the DeFi and crypto ecosystem is teeming with talent, creativity, energy — and capital hungry to participate. Denver recently hosted one of the largest Ethereum conferences and hackathons of the pandemic era. Over nine days in February, ETHDenver welcomed more than 12,000 people to the in-person event to share ideas, build and reveal new protocols, curate investments and socialize.

Word got around town during the conference that a group of brilliant youngsters in their late teens and early 20s had set up a hacker house in Denver. Some of the most talented, smartest and youngest hackers in the world were there welcoming venture capitalists to visit. The price of admission for a chat on the ground was $3,000 a pop. Events like ETHDenver and impending regulatory involvement and oversight reveal a path for an energetic, meaningful and proactive year ahead in the crypto industry.

Talent meets creativity meets money

Denver included an interesting and eclectic ecosystem of players, investors and builders. The culture and industry are strengthening and deepening. When thirsty venture capitalists (VC) are paying $3,000 just to talk to the smartest 19-year-olds in the country, it’s a bold sign of life in the industry. Denver showed us that the space is much less fringe than it used to be.

These young people, in some cases, are leaving top schools to join DeFi teams or to develop protocols and products, and there is plenty of investment capital to provide a runway for big ideas, tools and decentralized applications.

Related: Inside the blockchain developers’ mind: Building truly free-to-use DApps

Meanwhile, members of the first wave of crypto have evolved into a so-called old guard, providing stability, cautiousness and experience to help usher in projects, decentralized autonomous organizations and protocols. The VCs, gigabrains and old guard continue to be supported and energized by the legions of crypto troops whose enthusiasm for investing, discussion and participating in the space continues to provide the lifeblood for DeFi.

There is a mixing going on that’s creating a healthier ecosystem with bright ideas, expertise, money and enthusiasm that will provide longevity for the industry as Web3 matures and evolves.

The battle for talent escalates

One common discussion point in Denver was that everyone is hiring and struggling to maintain a pipeline of talented, experienced and engaged developers, engineers and technical experts. We can expect that trend to continue as the mainstream world becomes increasingly interested in crypto and DeFi.

It’s likely that Web2 talent from the likes of Facebook, Apple, Amazon, Netflix and Google will increasingly be pulled into Web3 — and that’s a good thing.

There is plenty of experience and know-how in traditional technology companies that can and should help build DeFi protocols, services and systems, thereby decentralizing finance. Not everyone will be open to the risk or uncertainty of the crypto space, but that sense of risk is reducing as Web3 organizations continue to receive large investments that provide plenty of runway and breathing room to generate stability and comfort.

Web3 is starting to show its relevance, and it looks like we are turning a corner toward more stable talent recruitment and retention.

Related: Web3: Onboarding the next billion users — The road ahead

A bear market provides space for top builders

Anyone who has been paying attention to the TradFi and DeFi markets in recent weeks and months recognizes there has been whipsaw volatility in prices and tokens. Entire markets have been up and down for plenty of reasons and could stay that way for the next year or more. This scenario is likely one of the many reasons why the U.S. government is keen to assess (and regulate) the industry.

But true builders in crypto don’t retreat in bear markets — they thrive. A bear crypto market can be more productive, especially for teams focused on good ideas and creativity. Bull markets tend to be more consumer- or trader-centric, and the noise can often drown out or blunt meaningful progress.

Good ideas within the developer community tend to rise to the surface during bear markets, earning more air time, visibility, reflection and development. The DeFi space is growing more academic both in team construction and recruitment, and that brainpower will be critical as it focuses on new ideas and solutions to existing problems.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

The Ministry of Finance (MinFin) of Russia finalized a draft bill named “On Digital Currency” and has sent it to the Russian government for approval to be passed as law. The draft of the federal law clarifies regulations related to the trading and mining of cryptocurrencies. 

On Apr. 8, Russia’s finance ministry announced the amendment and finalization of an impending crypto bill, which provides regulatory clarity related to the circulation, issuance, trading, mining and other activities within the crypto market. 

While unconfirmed reports of Russia legalizing cryptocurrency surfaced early Apr 16, the thriving crypto community on Twitter welcomed the announcement with arms wide open. 

BREAKING: The Russian government and central bank have just reached an agreement on cryptocurrencies, according to Russia’s Kommersant.

Both organizations will treat bitcoin and crypto assets as currencies.

— Pomp 🌪 (@APompliano) February 9, 2022

Binance CEO Changpeng Zhao was also one of the first to acknowledge the move, given the numerous sanctions currently levied against the nation. 

As the dust settled, Crypto Twitter soon realized that they’ve been celebrating just a little too early and soon, CZ and others deleted the tweets cheering for crypto’s legal status in Russia.

The buzz around Russia legalizing crypto was sparked by a report from local Russian daily newspaper Kommersant, who reportedly got their hands on the authentic final version of the draft law. According to the local media, the bill recommended accepting digital currency “as a means of payment that is not the monetary unit of the Russian Federation,” which is yet to be passed as law by the Russian government.

While MinFin finalized and shared the draft bill with the Russian government, an official announcement regarding its approval as the law is still awaited with no known timeline. 

Kommersant’s report also highlighted that the bill recommends building a regulatory framework for crypto-related activities while sharing the groundwork for registered operators.

On Apr. 14, Sergei Katyrin, President of Russia’s Chamber of Commerce and Industry, recommended collaborating with African countries for conducting cross-border settlements in crypto and central bank digital currencies (CBDCs). In the announcement related to the finalized bill, the ministry disclosed to have clarified crypto regulations while considering the viewpoint of all other departments of the Russian government.

Related: Russia‘s energy chief says it would accept Bitcoin for oil and gas

In an ongoing to counter the international sanctions and the resultant inflation, president of the Russian Gas Society Pavel Zavalny hinted at the possibility of accepting Bitcoin (BTC) as payment for exporting oil and gas. 

Explosive.

Russia is now demanding that Europe pay for gas in rubles.

Europe gets 40% of its gas from Russia. That’s 200-800 million euros per day.

Putin is basically saying: you want to play sanctions? Either pay up in rubles or freeze.

— Richard Medhurst (@richimedhurst) March 23, 2022

As Cointelegraph reported, Zavalny recommended taking payments in Russian rubles, Chinese yuan, Turkish lira, or even Bitcoin (BTC) from “friendly countries.” However, “unfriendly countries” could pay for their oil in rubles or gold.

The Central Bank of Brazil has confirmed that the institution will run a pilot test regarding the implementation of its proposed central bank digital currency (CBDC), the digital real. Roberto Campos Neto, president of the bank, also stated that this new test will include a fixed supply of the mentioned token, and detailed this pilot will be executed during the last six months of this year.

Central Bank of Brazil Advances CBDC Project

The Central Bank of Brazil has offered details about the advancements it has made regarding its CBDC project, the digital real. Its president, Roberto Campos Neto, hinted at an unspecified test involving the usage of the currency during the final six months of this year. At an event, he declared:

This is a way to create currency digitization without creating a break in bank balance sheets. This project should have some kind of pilot in the second half of the year.

Campos Neto also gave hints about the way in which this currency will be used, saying it will be linked to the reserve transference system, a kind of fiat-based payments system. With this pilot program, Brazil could advance to the vanguard of countries that have CBDC programs in South America.

Campos Neto also offered his take regarding the state of the cryptocurrency market in Brazil. He explained that cryptocurrencies are viewed more as investment assets than as a payment method. However, this could change as more adoption is achieved globally and locally.

Path to a CBDC and Regulatory Panorama

The Central Bank of Brazil has been advancing with its digital real project since last year when it redacted the guidelines that a Brazilian CBDC would have to follow, and announced it was still studying and debating the possibility of the issuance of such a currency.

However, in March, the institution selected nine institutions out of 47 proposals that will be able to produce projects designed to present the opportunities that a hypothetical digital real might offer in different sectors.

Brazil has also been making advancements when it comes to legislating to approve a unified cryptocurrency legal framework. In this sense, deputies and senators have declared they will combine several proposals into one that will be presented to the Brazilian Congress. The rapporteurs of these initiatives expect this new hybrid proposal to be approved in the next months.

What do you think about the digital real pilot program? Tell us in the comments section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

Image Credits: Shutterstock, Pixabay, Wiki Commons

The CEO of Ripple Labs says that the lawsuit brought by the U.S. Securities and Exchange Commission (SEC) against him and his company over XRP “has gone exceedingly well.” He stressed: “This case is important, not just for Ripple, it’s important for the entire crypto industry in the United States.”

Ripple’s CEO Comments on SEC Lawsuit Over XRP

Ripple CEO Brad Garlinghouse discussed the SEC lawsuit over the sale of XRP during a fireside chat at the Paris Blockchain Week Summit Thursday.

The U.S. Securities and Exchange Commission sued Ripple, Garlinghouse, and co-founder Chris Larsen in December 2020 over the sale of XRP, which the securities watchdog said is an unregistered security offering. Ripple has disputed the SEC’s findings, insisting that XRP is not a security.

Garlinghouse shared:

The lawsuit has gone exceedingly well, and much better than I could have hoped when it began about 15 months ago.

However, he noted that “the wheels of justice move slowly.” In November last year, Garlinghouse said he expects the lawsuit to conclude this year. “We’re seeing pretty good progress despite a slow-moving judicial process,” he said at the time.

Earlier this week, a judge ruled that the SEC cannot edit the contents of emails purporting to show conflicts of interest regarding how the securities regulator dealt with XRP and other crypto tokens, including ether (ETH).

Ripple is growing despite the ongoing lawsuit, Garlinghouse noted. “We’re having record growth,” he remarked Thursday. In January, he said that Ripple’s valuation has risen to $15 billion, emphasizing that his company’s financial position is the strongest ever despite the lawsuit over XRP.

Garlinghouse further explained at the fireside chat that if Ripple loses the lawsuit against the SEC, then most tokens trading on cryptocurrency exchanges would be similarly deemed securities and will have to register with the regulator. “That’s cost, that’s friction,” the executive exclaimed, stressing:

If you determine XRP as a security of Ripple, we have to know every person that owns XRP … That’s an SEC requirement. You have to know all of your shareholders. It’s not possible.

“This case is important, not just for Ripple, it’s important for the entire crypto industry in the United States,” the executive opined, noting that there is a lot at stake if the SEC successfully classifies XRP as a security. “It would really be negative for crypto in the United States.”

Do you think Ripple will win the lawsuit against the SEC and XRP will not be considered a security in the U.S.? Let us know in the comments section below.

Kevin Helms

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.