Ensuring Responsible Development of Digital Assets


A. Illicit Finance Risks

1. Treasury has comprehensively defined the illicit financing risks associated with digital assets. However, lack of action has extended over many years. Since 2017, when most cryptocurrency issues were already known, little has been accomplished. United States dollar must remain the planet's main currency, requiring the Federal Reserve to further its interactions with all other central banks, including in countries politically at odds with the United States. Perhaps each of the twelve Federal Reserve regional banks could extend their territories as they concentrate in particular relationships with selected foreign central banks.

2. Future technological innovations in digital assets might present new illicit finance risks, rather than mitigate illicit finance risks. In 2021 and 2022 sheer number of blockchain hacks and frauds continues increasing to fresh all time highs. Distributed Ledger Technologies are designed to protect irreversibly delinquent transactions. Malicious actors will always protect their advantage to steal average users funds. Major international diplomatic and law enforcement coordination is required immediately. All sovereign countries face the common threat of anonymous lawlessness that benefits no reasonable citizens.

3. Non-fungible tokens represent most extensive illicit finance risks. Adequate price discovery for such assets seems nonexistent. It is unwise to dismantle existing mercantile registries or notary publics if the trend of hypertokenization continues. Medical records, wills and other documents supposed to be safeguarded in blockchains are prone to be irreversibly stolen or modified by smart contract counterparties, as it already happens with hard earned wealth. We might quickly discover identification of wallet addresses, but we fail miserably in matching them with actual human beings who make a delinquent living by hiding.

4. Anonimity, lack of physical office addresses, and irreversible transactions are the illicit finance risks related to decentralized finance (DeFi) and peer-to-peer payment technologies. It is significant that Binance centralized platform acknowledges this risk to whoever wishes to transfer tokens into its own Binance Smart Chain. It is not unreasonable to conclude that established crypto market makers depend on continued losses of unaware or unexperienced new traders to be recycled or money laundered into established platforms, to ensure a constant influx of unlawful liquidity for the sake of crypto space hyper growth.

B. AML/CFT Regulation and Supervision

1. Instead of creating additional steps, the United States government should concentrate in enforcing existing applicable steps to more effectively deter, detect, and disrupt the misuse of digital assets and digital asset service providers by criminals. SEC, CFTC, FDIC, OFAC, Department of Justice and other regulators should apply jurisprudence and legal precedents, dating back from previous centuries, to continue enforcing a rule of law that is increasingly dismissed by misreadings of libertarian principles. Human behavior remains unchanged despite technological advances. There is no reason to believe our species has evolved so much.

2. Specific areas related to AML/CFT and sanctions obligations with respect to digital assets require additional clarity. President Biden's willingness to work with regimes of Russia or Venezuela, in specific cases of climate change or release of political prisoners, illustrates areas of dialogue in otherwise unsolvable relationships. All countries to various degrees recognize the threat to self determination, if we continue allowing anonymous malicious actors to take over the global financial system. Country-specific, step by step procedures must be designed to cherry pick challenges where international cooperation becomes possible.

3. Existing regulatory obligations are fit for purpose as it relates to digital assets. Registration requirements set forth by Section 5 of Securities Act of 1933 are as straightforward as customarily permitted by language used almost a century ago. Similarly, the United States Constitution has stood the test of time. Ripple Labs spends billions of dollars attempting to discredit a law that has well served global financial systems over an extended period of time. It is also necessary that centralized and decentralized platforms, which are not exempt, separate their exchange and broker activities, according to Securities Exchange Act of 1934.

4. A regulatory change to help better mitigate illicit financing risks associated with digital assets, would be to explicitly categorize all tokens listed on Coinmarketcap as either commodities or securities. Ethereum, in particular, must be reassessed due to its recent switch from proof of work to proof of stake validation mechanism. If bitcoin is a commodity, miners must be subject to the same reporting requirements as suppliers of physical commodities.

Z. Side Bullets

Widespread October cryptocurrency fraud reflects values of delinquency and opaqueness in the entire industry. Use case for cryptocurrencies remains negligible. Population living in inflation ridden countries already transact in US dollars for most use cases.

Central banks worldwide have the challenge of ensuring positive real interest rate for the long term, and restricting increase of money supply as stiffly as bitcoin does. They must succeed if we are to get rid of fraud and no use case wasteful investments.

International Monetary Fund (IMF) predicts 6.5% economic growth for Venezuela during 2023, featuring best performance in the Americas. Emigration patterns may lag while immigration and foreign investment get hastily encouraged into the media-battered country.

Rubén Rivero

Caracas, Venezuela

Alborada. Fotografía Mónica B. Valbuena L. 40 Grados Bajo El Sol