Transfer of Digital Currencies – The Dream and its Collapse
Regulatory resistance and legal proceedings by the US Securities and Exchange Commission (SEC) are hindering the realization of one of the greatest promises of blockchain technology – the transfer of cryptographic currencies and assets between users without an intermediary.
A mere four months after Facebook announced its intention to launch a cryptographic currency, the Libra, came the announcement of PayPal, Visa, Mastercard, and other partners’ withdrawal from the project. The Libra currency was designed to be a stable coin, backed by a variety of currencies. It was to maintain a fixed value that enabled access to financial services without financial intermediaries.
The timing of these giant companies’ departures was not coincidental. The Libra Council, comprised of a number of major financial and technological players, was to convene in October to sign an official treaty regulating the companies’ obligations in the project. Yet, after seeing the increased resistance to the project by central banks and regulators in Europe and the United States, the companies withdrew from the project before the launch date.
Their concern gained more validity following another recent move by the SEC. On October 11, 2019, at the SEC’s request, a federal court temporarily halted the launch of the Gram currency, which was to be issued by the popular messaging app Telegram, because of the SEC’s allegation it was a security that would be sold to American investors in violation of securities laws. This surprising step was taken before the currency was to be launched at the end of October, and after the funds for the project had already been raised in early 2018. This SEC action was in addition to another federal suit it brought against the app Kik based upon similar claims.
In addition, the United States’ three major financial regulatory bodies, the SEC, the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN), recently made a joint announcement on behalf of the heads of these agencies. The announcement reminded different players in the cryptographic currency industry that they must comply with American banking and securities laws, according to the nature of the “service” or “product” offered by them in the United States, and regardless of the description of the service. This warning, coupled with the steps described above, was designed to clarify to different players in the industry that regulators set the rules of the game.