Bitcoin Forum

Hi All,

I have been posting for some time about the need to develop, as an industry, voluntary standards to evaluate cryptocurrencies, tokens, crypto service providers, etc.  My purpose in bringing this up to the community on here was to see if there would be some consensus around developing such standards.  I've received several statements supporting the need to do this with respect to ICO/ITOs, to help root out the fraud/scams, etc.  Also received much positive support regarding KYC/AML standardization because currently, handing over KYC information to ICOs that are failing at over 50% rate, is not the best approach.  At some point, unscrupulous actors will look at your identity as a marketable asset.  In other cases, hacks could obtain access to this highly personal information.

I also believe somewhat separate, but interrelated standards, applied to various segments of the crypto asset ecosystem (security standards, financial management standards, etc.) would be useful in demonstrating to regulators that the crypto asset field is doing something about the unique issues created by this new asset class.

Earlier this week, Gemini posted a proposal to go further, and create a self-regulatory organization for cryptocurrency.  It specifically excludes securities tokens from its scope, but their blog entry is here for your review:

A Proposal for a Self-Regulatory Organization for the U.S. Virtual Currency Industry
https://gemini.com/blog/a-proposal-for-a-self-regulatory-organization-for-the-u-s-virtual-currency-industry/ (https://gemini.com/blog/a-proposal-for-a-self-regulatory-organization-for-the-u-s-virtual-currency-industry/)

For your information, a self-regulatory organization, SRO, is an entity that is recognized by the SEC/CFTC as having some independent rulemaking authority over their members in self-regulating their scope of membership.  An example of this is FINRA, which regulates the equities market (and some of the futures markets as well I believe).  The thing you probably don't want is to be subject to FINRA's jurisdiction, so if SRO's are now on the table, the industry should strongly consider the creation of one or more SROs.

My question to this board is, what do you think of the proposal on Gemini's blog, or about SROs in general?  Do you believe it goes far enough?  Too far?

I am asking this question because I've been examining these aspects of the crypto asset community for some time and believed this bridge would eventually be reached.  I was hoping to get support for voluntary standards that would help to minimize the fraud in the space, but now it seems that things have become more urgent.

Please let me know your thoughts on here or you can PM me or contact on Telegram (https://t.me/BTRICorg).

Best regards,
Ben

The proposal is well-worthy and in favor of those potential investors who mostly go for ICO investments considering the dazzle served by project owners (whether in numbers or some ^too good to be true kinda projects^) - whereas the truth here is too dark to digest. What I'm scared as of here, is that - won't it bring in (possible) centralization into work where there remains no anonymity (as I think that the levied regulations will surely need owners to make full KYC mandatory for their investors) and what if some potential projects may not get approval even if they're original (as everything MAY BE governed)?

I believe that all the dev teams, that develope ICO projects have to be fully transparent and provide all the info about their background and experience(the info has to be verified by a third party,off course).I don`t think that same thing about ICO investors.They have the right to stay anonymous,if they want to.Every regulation entity is centralized,I don`t think that centrlization could be a problem here.Anyway,the governments won`t allow a self-regulatory crypto organization.

I agree with you.  I believe that there should be some form of standards placed on businesses and projects that want to exist in the crypto space.  I am personally against regulations, in terms of government-imposed rules and regulations, but they are coming, from all countries.  There's no effective way to prevent that, if nothing else, the litany of fraudulent ICO/ITOs has built the case for them, as has hacking/poor code (sometimes inexcusably poor).

So given the reality of regulations coming, the question then becomes how to best apply regulations.  In my view, regulations should be focused on businesses and projects, as opposed to people.  Standards on the soundness of cryptocurrency, for example, might have components such as: is it using a robust hashing algorithm?, has it been stress tested/hacker bountied against vulns?, is there sufficient control over who can commit to the codebase?  Standards on ICOs would include aspects about the underlying business.  I don't think it is appropriate to evaluate the potential of a project to actually be profitable, but certain standards aimed at reducing fraud should be done.  Crypto businesses need to have in place measures to ensure their code is security audited, that any penetration has a plan to quickly respond to and prevent further damage, and such.  There's more, but these are just what comes to me off the top of my head.

I believe that governments will allow SROs for cryptocurrency (specifically the U.S., they've actually stated it).  And actually, I believe there should be more than one.  Giving monopoly power to a single SRO is dangerous.  I've seen groups infiltrated by parties that don't have the best interest of their membership at heart, and it can do real damage.  For example, imagine a Visa without a Mastercard.  Visa would have significantly more ability to control aspects of the payment card market.  I believe that even this duopoly is problematic, but imagine if it was just one of those associations.

My organization is partly focused on creating voluntary standards for many of the same things that an SRO will be doing.  The difference is, under an SRO in some form they will have the effect of law.  SRO's are granted legal rulemaking authority in some areas, which is a little peculiar, but considering we have a private central bank, the Federal Reserve banks, I suppose it fits in with that model.  I have experience in dealing with SROs, though not in the financial services industry.  In my experience, they often become an exclusive club with the bar to entry so high that it effectively cuts off new businesses, and especially new revolutionary business concepts, from participation.  That is what I'd like to avoid.  Unfortunately, some of the larger businesses in crypto space may not be inclined.  I hope that's not the case, I really do.  But certainly, they have a financial interest in keeping the "club" exclusive, provided they're part of it.

So I am going to try to reach out to some that I believe would have an interest in bringing this project forward, even if parts of it eventually morph into an SRO due to the necessity of the situation.  It's proven difficult to reach key people, I've been working at it as much as possible.  I believe it has a great value to the community, I hope we can prevent a worse case where large financial interests outside of crypto get to write the rules.

Best regards,
Ben

Think about it. If the project developers will be needed to provide all their info and remain completely transparent from their end, why wouldn't the government ask the same for the ICO investors as well?
There will be 2 things that may be considered here:
- The taxes that these ICO investors may evade by hiding their finances.
- The sources from which they managed the funds to invest in it (as such KYC might help find culprits if a situation arises where money-laundering comes into action).

@OP, I am not against your project, but then I believe that each country (and in major cases, even some states) are needed to have one or more SROs prone to getting the job done of checking the authenticity of projects related locally in their specified areas.

Hi Stedsm,

I don't know the legality of SROs in other countries, I know they can be granted legal status in the U.S. to create regulations to enforce portions of the Securities Act and the Exchange Act.

I agree with you, there need to be multiple SROs, and they also need to look at different things differently.  I.e. a cryptocurrency should not be evaluated in the same way as a token, etc.  There are some common elements but many differences.

I think a set of standards that are voluntarily applied to projects of all types is the logical first step.  Some of these standards may be adopted by SROs, some may be adopted by regulators, who knows?  Open standards that are subject to ongoing review and revision, IETF style.

I am very concerned that going down the SRO pathway without multiple organizations will cause market concentration and consolidation.  I've seen it happen elsewhere.  The other concern is, in the U.S., that FINRA will try to add it to their belt and/or infiltrate SRO(s).  I've seen this happen too.

Best regards,
Ben

The problem that I see here once again, is that there is a possibility of manipulation of such SROs by using the power these governments hold with them. I mean, if we consider many governments' current stance over cryptocurrencies (and mostly ICOs), they're yet to rule the markets their way and regulation is what'll probably put the ball in their court. There is a 90% chance they will do it.  The only thing I'm worried about, is that - they may only form the whole community which will work under their cues and they will be the ones who will steer the whole organization their way, making it centralization-driven.

This will likely be manipulated by the governments, any point of centralization will be tested. Ripple will be among the first order of business, most likely.

Totally against the idea.Cryptos nowadays are heading towards a path that they're not intended to be.Why would you want to centralise so much ? KYC/Standard procedures will heavily centralise the structure and that is not what cryptos are developed for.It's sad to see anonymity being fucked in the arsehole with all these ICO/exchanges.
Your standards established will rule out the fraudulent ICO's along with the one's which have great potential.I will never support such protocol which tries to build a small government around an "suppose to be" anonymous world.

It's ironic how they will be building another government to escape from an existing government.

I'll be honest and say right off that this is probably out of my depth - got little understanding of how regulation would or should work with these, but am aware of several bodies already attempting self-regulatory models, all related to cryptocurrency and/or blockchain, depending on their definitions. We've got Croatia's UBIK just last month, I think also one in Gibraltar - both EU centric. We've got China-based "Int Digital Asset Exchange Council" (idaxc.org) who made clear some motives for self-regulation at the last World Economic Forum (not as well as it could have been, in my regulation-illiterate opinion!).

But to be honest, I'm with Patatas here, even if only for the simple reason that I'm not comfortable with all these players trying to take charge. I think we really need to rethink a lot of the things we're doing. Do we really need to comply with a structure we don't agree with?

Hi Patatas,

I don't support centralization of these innovations in any way, shape, or form.  I believe that standards that are fully open in their development and review should be the direction to go in here.  I've seen SROs destroy industries exactly as you say, either by infiltration by "bad actors", or by defining the standards so high that only the "elite" can participate.  A central place where all standards are published and easily available to anyone is no more centralized than, for example, bitcointalk or the Bitcoin wiki.  This could be a GitHub repo, for example, and I don't view that as "supporting centralization".

I was supporting voluntary standards for such things as code quality to prevent hacks (browser-side JavaScript?), soundness of technical protocol (is their hashing algo easily crackable?), and policies to minimize harm (if someone hacks in the middle of the night, will someone be able to pull the plug and prevent further damage?).  I believe these are common-sense things, and publishing an open standard for these things will help increase the confidence in crypto assets.

What I'm saying is that now things have gotten more serious, the concept of SROs in the U.S. market has been broached (in the article I linked in the OP), and regulators have responded with supportive statements.  So now you have a situation where it is likely that SROs are going to come into play.  This changes things a bit.  What I conceived of as "voluntary standards", in some form, is likely to become mandated.  I don't like that, but it's the direction we're now headed.  And given that, there's a need to defend against this by shaping how it happens.  Otherwise, things will be shaped by it.

Given the prospect of SROs being formed to regulate the U.S. market, I believe one or more open SROs should exist.  More is better.  This is a defensive move.  If nothing is done, it's likely that one or more SROs will be established that are more closed than I believe this new emerging field should be.  Maybe I'm wrong, but I don't see a monolithic SRO as best serving the wider interests.  It's more likely they'll only serve those that fund them.  Perfect example, FINRA.

I've really tried to communicate this message but if no one else wants to seriously consider the need for such a thing, there's really nothing more I can do.  My organization is trying to do good things for this field, this is because I believe strongly in the potential of these technologies and want to be a part of increasing their utilization.  Especially Bitcoin, it's the hugest paradigm shift, the highest "hanging fruit".  But other things can also benefit from decentralization.  Anywhere there's a gatekeeper, there's a need to overcome that gatekeeper.

Best regards,
Ben

The handling of the personal data is my biggest concern. Let's say for example that you want to invest in some Crypto

Currency ICO related to the Adult entertainment industry, but you do not want people to know about it. We know centralized

institutions gets hacked or sensitive information leaked, so it is likely that your sensitive information could end up in the

wrong hands. This information can even be used against you, if someone can find a reason to blackmail you.  >:(