Should Charges Against EtherDelta Founder Concern Crypto Developers?

Cryptoglobe recently reported on an announcement by the U.S. Securities and Exchange Commission (SEC) regarding the settlement of charges filed against Zachary Coburn, the founder of decentralized exchange EtherDelta. EtherDelta is a decentralized crypto exchange that provides a secondary market for Ethereum (ERC-20) tokens.

The SEC accused Coburn of running an unregistered national securities exchange by selling cryptocurrencies without filing the proper government paperwork. The SEC has stated that non-currency cryptoassets are securities and thus any crypto exchange selling such assets and offering its services to individuals within the United States must be registered with and under the regulation of the SEC, per the Securites Exchange Act of 1934.

Specifically, the SEC states that EtherDelta provided the infrastructure for the buying and selling of digital assets. The SEC even noted that EtherDelta’s services were baked right into the code because the "smart contract was coded to validate the order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade."

The crux of the claim, however, relies on the fact that EtherDelta seemed to directly “disobey” the orders of the SEC.

The Commission notes that:

All of the orders placed through EtherDelta's platform were traded after the Commission issued its 2017 DAO Report, which concluded that certain digital assets, such as DAO tokens, were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC's requirement that exchanges register or operate pursuant to an exemption.

In the end, Coburn did not admit guilt, but also chose not to fight the charges. Instead, the SEC wrote that he "consented to the order and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty." Further, the Commission states that if Coburn had fought, the penalty would have been much more harsh.

A Crossroads For Crypto?

What does this decision mean for innovators like Coburn who want to make the buying and selling of digital currencies and assets easier for the average person? More to the point, what does this ruling mean for those individuals who seek to develop decentralized technology?

Steven Peikin, Co-Director of the SEC's Enforcement Division remarkedL

We are witnessing a time of significant innovation in the securities markets with the use and application of distributed ledger technology.

However, the dispute is over who, if anyone, is in control of this still emerging technology. According to the SEC and Mr. Peikin, “this innovation necessitates the SEC's thoughtful oversight of digital markets and enforcement of existing laws."

Of course, if you are a crypto-enthusiast or proponent of decentralization you might be less inclined to share the view held by the SEC. A large portion of the crypto community profess a vision of a world where decentralization rules the day. A world without the need for central banking institutions or third parties to exchange value in a number of ways. Some of this crowd believes the philosophy of decentralization will not only help spread cryptocurrency around the world and remove the stranglehold of banks, but eventually, decentralize governance itself.

To these crypto-anarchists the struggle between regulation and standing up for decentralization is of utmost importance.

Others in the cryptospace see government regulation as inevitable or even beneficial. Ultimately, as long as the governments of the world are able to enforce their visions of how individuals should trade value, most people will comply for fear of suffering the consequences. Outside of the most purist programmers and developers, we are likely to see the vast majority of the crypto community comply with government edicts for the foreseeable future.

Global Task Force, U.S. Tax Agency, SEC Dominate Crypto Headlines

Regulations are ruling the crypto headlines so far this week. Over the past 24 hours, we’ve learnt the Financial Action Task Force (FATF) is reportedly set to finalize new international standards for regulating cryptocurrency firms next month. The commissioner of the Internal Revenue Service (IRS) has stated his agency has “made it a priority” to issue more comprehensive crypto tax guidance “soon.” Finally, the U.S. Securities Exchange Commission (SEC) announced it would delay, once again, its decision on the VanEck and SolidX Bitcoin exchange-traded fund (ETF) proposal.

At the time of writing, bitcoin (BTC) and ether (ETH) are trading at $7,945.4 and $252.9; a 0.54% and 0.83% jump over the past 24 hours, respectively. As for the MVIS CryptoCompare Digital Assets 10 Index, it is currently tracking at 3,822.7 (-0.6%).

Global Standards for Regulating Crypto Firms Next Month

According to reports from CoinDesk, the FATF is set to finalize new international standards for regulating cryptocurrency firms next month. These standards, they report, are widely expected to subject crypto exchanges, wallet providers, and other businesses to the “travel rule” – a colloquial term given to a rule found in the Bank Secrecy Act (BSA) that requires all financial institutions to pass on certain information to the next financial institution, in certain funds transmittals involving more than one financial institution.

Introduced in 1996 in the U.S., the “travel rule” is designed to help law enforcement agencies detect, investigate, and prosecute money laundering and other financial crimes by preserving an information trail about persons sending and receiving funds through funds transfer systems. The arrival of such international standards would go beyond the basic know-your-customer requirements that are widely enforced in the crypto space at present.

IRS Commissioner: More Detailed Crypto Tax Guidance ‘A Priority’

According to letter from IRS Commissioner Charles P. Rettig dated May 16, the agency has “made it a priority” to issue a more comprehensive tax guidance for cryptocurrencies. The Commissioner’s letter was written in response to a request from 21 Congressmen to provide clarity on tax treatment in relation to cryptocurrency holdings.

In 2014, the U.S. tax agency issued a guidance for cryptocurrency. In his May 16 response letter, Rettig revealed the IRS will “soon” issue more robust guidance. “I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions,” the Commissioner wrote.

SEC Delays Decision on VanEck SolidX Bitcoin ETF

The SEC announced the postponement of a decision regarding the VanEck SolidX bitcoin ETF proposal. The postponed ETF proposal was initially filed over a year ago. In January – amid the U.S. Government shutdown – it was withdrawn, only to be resubmitted later that month. On March 29, the commission delayed the joint proposal for the first time. The SEC must announce its decision – or, for the final possible time, postpone its decision – on the proposed bitcoin ETF no later than August 19.

Notably, the U.S. investor watchdog is seeking comments from the public in relation to the proposed VanEck SolidX bitcoin ETF. To guide commentary, they included fourteen questions in Monday’s filing. Comments must be submitted within the following 21 days, whilst rebuttals to said comments are due within the next 35 days.