Important events tend to happen as Congress breaks for the holidays. Such is the case with the Crypto-Currency Act of 2020. Its most notable motivations was Facebook’s Project Libra.
For cryptocurrency investors, the most impactful aspect of the bill will likely be the definition of crypto asset classes:
- Crypto-Commodity
- Crypto-Security
- Crypto-Currency
In defining these terms, it’s probably best to end with cryptocurrencies. Congress seems to be only beginning to grasp the challenges of regulating this decentralized technology.
Crypto-Commodity
So, as a starting point, the committee’s definition of Crypto-Commodity follows that a digital asset deals with fungible economic goods and services that the market sees as irrespective of the provider and exists on a decentralized blockchain (cryptographic) ledger.
Crypto-Security
Where a commodity is of a particular thing, even if that thing is fungible, a security is concerned with a much broader asset class. As per Congressionally proposed definition, a Crypto-Security pertains to all (except qualifying synthetic derivatives) instruments of equity, debt, and their derivatives that exists on a decentralized blockchain (cryptographic) ledger.
To qualify as a synthetic derivative, a money services business must be in direct operation and registration with the Department of the Treasury, comply with the Bank Secrecy Act, as well as all other policies of the Foreign Assets Control and the Financial Crimes Enforcement Network as they pertain to anti-terrorism, anti-money laundering, and screening requirements.
Crypto-Currency
While this new security class might seem complex, there appears to be a precedent being set for more clear regulatory policy. As can be seen by the definition of Crypto-Currency however, much more work still needs to be done. The committee defined Crypto-Currency as representing currency (or synthetic derivatives) of the United States on a decentralized blockchain (cryptographic) ledger.
However, it also includes an asset type of representation (or synthetic derivatives) that are backed with a reserve digital asset and fully collateralized through a bank account. It uses stablecoins as an example.
The other type that was expressly mentioned were synthetic derivatives at the determination of smart contracts or decentralized oracles, as well as, such assets that are collateralized by crypto-commodities, crypto-securities, or other crypto-currencies.
Key Takeaway
While seemingly straightforward, few cryptocurrencies align themselves with any national interest. A few other definitions were included in the bill: Decentralized Oracle, Reserve-Backed Stablecoin, and Synthetic Stablecoin.
Source: https://bitcoinmagazine.com/articles/op-ed-u-cryptocurrency-regulation-faces-uncertainty-2020
