In a sign of the increasing maturity of the blockchain industry and its potential significance to the American economy, two bipartisan bills were introduced in the House of Representatives last week aimed at regulating and promoting virtual currencies, also known as cryptocurrencies.
Virtual currencies are a digital representation of value that does not have legal tender status and that functions as a medium of exchange, a unit of account, or a store of value. Some of the more popular cryptocurrencies are Bitcoin, Ethereum and XRP.
The background statement to the bills explains that it is the sense of Congress that virtual currency could have a significant effect on the economy, and regulation of them may be important to protect investors, deter bad actors, create market certainty, and ensure American competitiveness in an evolving global marketplace.
The first bill, known as the Virtual Currency Consumer Protection Act of 2018, is aimed at promoting fair and transparent virtual currency markets by examining the potential for price manipulation.
The bill itself does not set new regulations of virtual currency. Rather, it sets the stage by directing the U.S. Commodity Futures Trading Commission (“CFTC”) to prepare a report that includes, among other things, recommendations for any legislative changes needed to improve the ability of the CFTC and other relevant federal agencies to carry out monitoring and enforcement activities, prevent price manipulations of virtual currencies and protect virtual currency investors from price manipulation. The CFTC, in consultation with the heads of the Securities and Exchange Commission and other relevant federal agencies, would have one year from the date the bill is passed to issue the report.
The second bill, known as the U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2018, also directs the CFTC to produce a report with recommendations for legislative changes, but instead of focusing on consumer protection, the report and recommendations will focus on ways to promote American competitiveness. Part of this exercise will entail a comparative study between U.S. regulation of virtual currencies and regulations in other parts of the world. The CFTC will look at ways to promote competitiveness of the United States and United States businesses in this industry to encourage the growth of adoption of virtual currencies in segments of the commodity market that could benefit from virtual currencies and access to transparent markets in such currencies.
Perhaps the most significant part of the bills is the requirement for the CFTC to recommend an optional regulatory structure for virtual currency spot markets (commonly referred to as exchanges) that includes federal licensure, market supervision, consumer protections, and preemption of state money transmission licensing obligations for participating in spot markets. In doing so, the CFTC will also need to clarify the virtual currencies that qualify as commodities for both existing currencies and ones that may be created in the future.
Blockchain is the underlying technology that enables cryptocurrencies.
Interest in blockchain has grown dramatically over the last 12 months, triggering growth in investment in businesses operating in this area and marked engagement from all industry sectors, in particular energy and financial institutions. In light of these developments, Norton Rose Fulbright has produced a global legal and regulatory guide to blockchain and other distributed ledger technologies, in which we explore the legal and regulatory conditions that should be taken into account with any proposed deployment. See Chapter 4, accessible here, for a discussion of how digitizing the energy value chain through the use of blockchain has the potential to revolutionize the energy industry.