The state assemblyman behind efforts to regulate digital currency businesses in California cited the $65m hack of Bitfinex this week as evidence of the need for tighter industry controls.

In a statement issued following his state's decision to temporarily shelve further regulatory deliberations this year, he said that more time was needed to strike a balance between giving virtual currency businesses a firm foundation and ensuring consumers are protected.

Assemblyman Matt Dababneh said in the statement:

"Today, a user of virtual currency has no protection from loss, and businesses that use, transmit or store virtual currency live in an ecosystem of regulatory uncertainty. Potential harm to consumers is not some remote possibility, but has already happened."

Dababneh first proposed the bill last year shortly after becoming chairman of the state’s Banking and Finance Committee, and a revised version was once again introduced this year amid resistance from industry advocates.

In remarks, Dababneh credited conversations with "virtual currency experts, consumer organizations" as a deciding factor in the determination to suspend the proposed legislation until January of next year.

California’s regulatory effort follows New York's implementation of the so-called BitLicense, its controversial industry-specific licensing regime. That law, introduced in 2015, has been blamed for the departure of some digital currency startups from the state.

Overall, Dababneh sought to position the delayed bill as part of his state’s efforts to take a leadership position in the industry.

He concluded:

"Unfortunately, the current bill in print does not meet the objectives to create a lasting regulatory framework that protects consumers and allows this industry to thrive in our state."

Image via TimeWarnerCable

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Veteran WilmerHale counsel Elijah Alper will join Capital One in September, where his responsibilities will include specializing in FinTech and blockchain.

Alper has long been a notable voice in blockchain and digital currency industry, speaking out on pressing issues at industry events and authoring opinions in the developing subject area. At the firm, he also advised clients on bitcoin and digital currency matters.

In statements, Alper said the decision to leave WilmerHale after nearly seven years was not made lightly.

"It was a good opportunity to move in-house, and a difficult decision to leave WilmerHale," he told CoinDesk.

Capital One has been one of the more quiet financial firms regarding its blockchain work. To date, it has been active in the industry through its VC arm, participating in a $30m fundraising round for blockchain startup Chain last year.

Capital One did not immediately respond to requests for comment.

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There was a palpable distance onstage as discussion turned to The DAO.

At this week's Blockchain NY conference, the founder of a startup that forked the ethereum blockchain to build its infrastructure and the co-creator of the decentralized application network itself sat as far from each other as they could while debating the now-infamous project.

Launched in May and collapsing in June, The DAO was the first large-scale ethereum-based decentralized autonomous organization, a kind of digital economic entity intended to operate without central control.

But with more than $60m in investor digital currency eventually lost in the effort, the idea that the concept of a leaderless company governed by code lives on at all was a point of heated debate, and panelists expressed a wide range of conflicting sentiments on the issue.

Joe Lubin, co-creator of the ethereum protocol, argued that the The DAO collapse didn't prove the idea faulty so much as create a sense of urgency around smart contract security. He went so far as to call The DAO "a great event for our ecosystem".

He explained:

"It drew a ton of attention from hundreds and thousands and millions of people, and it drew a ton of attention from security researchers."

Lubin's company Consensys continues to develop different versions of two crucial components of The DAO — its leaderless governance mechanism and its crowdfunding tool.

Additional panelists included Preston Byrne, whose blockchain startup Eris Industries is building on a fork of ethereum blockchain; Matt Liston, founder of predictions market Gnosis; and digital asset portfolio manager Jake Dienelt. The panel was moderated by Chris Betz, of the Enterprise Data Management Council.

The idea of The DAO

Launched earlier this year, The DAO was built using open-source code written by ethereum startup Slock.it and designed as a sort of venture capital firm where members bought voting rights in the form of blockchain-based tokens.

Flaws in The DAO's code eventually led to a wide range of potential security exploits, issues that continue to frame much of the ongoing debate around what exactly happened leading up to the collapse, and what might be salvaged from the project, if anything.

Another panelist who like Lubin is working on a form of blockchain governance, agreed that the DAO concept isn't dead.

On the panel, Liston described the DAO collapse as a "wake-up call" to the importance of "figuring out the smart contract security code". Pushing aside concerns about the legal position of DAOs, Liston said the future framework of DAO regulation is "what we’re inventing now".

Matt Liston’s prediction market Gnosis is designed to be used to help groups of people make collective decisions by letting them vote not on what they want to happen, but what they think will happen.

Liston described the DAO concept:

"It’s the evolution of the corporation, not a slightly different corporation."

The reality of The DAO

But more than once through the debate, Dienelt rolled his eyes in apparent disbelief.

An early architect at blockchain capital markets startup itBit, Dienelt took issue with the notion that some have proposed that the draining of ether wasn't an attack at all.

Leading up to hack, many of those involved adopted the mantra "the code is law." Following that reasoning, Dienelt argued that the perpetrator "didn’t do anything wrong".

"They followed the code and they took the money," he said.

But later, when pushed on whether the event could be described as an attack at all, he clarified.

"It was an attack. But he was the only person in the world who read the terms of service," he said.

Perhaps the harshest skeptic though to the future prospects of DAOs was Byrne.

Byrne said that in 2014 his company had constructed its own DAO but unlike The DAO, his project included a "manual override" feature — also known as a backdoor, a way to stop the DAO from executing its purpose if something went wrong.

The dangers of The DAO

Byrne objected to the idea proposed by Liston that the legal framework under which DAOs fall is being created in parallel to the distributed organizations themselves.

In addition to being Eris Industries COO, Byrne is its general counsel, and he previously served as a securities and derivatives lawyer at Norton Rose Fulbright, an international law firm.

To Byrne, DAO-like software might one day be used to run a corporation, "but it isn’t a corporation," he said.

So in addition to creating a backdoor during his own DAO test, Byrne says he incorporated the entity as a US corporation. Byrne further dismissed the idea the collapse of the DAO might have been beneficial by raising awareness of potential threats.

In the end, automating governance doesn’t make it legal to issue digital tokens as a form of voting rights in the first place, he said.

He concluded:

"In our perspective DAOs are in-elegant and entirely unconvincing ways to commit securities fraud."

Image via Michael del Castillo for CoinDesk

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The Bank of England is on the hunt for an economist to spearhead its research into a central bank-issued digital currency.

According to the job listing, the research lead would play a driving role in its bid to issue a digitized, blockchain-based version of the UK pound – an idea the Bank of England has been exploring since as early as last year.

Tthe central bank is looking for someone to lead the effort and examine whether "universal access" to this kind of electronic money would be "desirable" for users.

The listing explains:

"The job holder will be responsible for owning the research agenda, conducting their own research and galvanizing research on these questions by experts inside the Bank and in academia. The job holder will also be responsible for drawing conclusions from the research on the impact of a CBDC on monetary and financial stability and making policy recommendations to Governors."

But there are also signs that search is taking longer than perhaps expected. As Bloomberg notes, the UK central bank previously listed this position over the summer, suggesting either a dearth of quality candidates or a high standard for research hires.

However, the Bank of England may have time on its side.

Recent statements from the central bank’s senior leadership and other elements of the UK government indicate the undertaking is likely years away from any launch.

Bank of England via Shutterstock

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Jacek Czarnecki is an attorney at Warsaw-based law firm Wardynski & Partners, where he specializes in areas including FinTech, digital currencies and blockchain.

In this opinion piece, Czarnecki discusses recent proposals for EU digital currency regulation, arguing suggestions made by the European Banking Authority are more positive than they initially appeared.

The European Commission's proposal to regulate digital currency exchanges and custodial wallets has a bit of a bad rep.

Announced in July, the executive branch of the European Union is advising that wallet providers be brought under the scope of its anti-money laundering (AML) and countering terrorist financing (CTF) regulations, and doing so has raised many controversies.

Perhaps most notable have been the European Commission's proposed definition of "virtual currencies" and its alleged proposal to build a database of users. Both have stoked concerns in the industry.

New topics can be expected to emerge in the course of legislative process, but the most recent voice to complicate the discussion is the European Banking Authority (EBA). The regulatory agency recently published its opinion on the proposal, and some its suggestions haven't been greeted favorably.

In the past, the EBA has issued a warning to consumers on risks related to digital currencies and a formal opinion on how it believes regulation should be approached.

It's perhaps the latter document that bears revisiting, as it was here that the EBA proposed bringing select digital currency businesses under the AML and CTF rules, an idea now embraced by the Commission.

EBA knows the matter

What is worth noting is that, despite the criticisms for the organization, the EBA has its finger on the pulse.

What’s more, its comments reveal an understanding of the issues related to digital currency. This is evidenced in EBA’s finding that the use of the word "currency" suggests an analogy with existing fiat currencies, which might not be always the case.

It thus seems that EBA is aware that some tokens developed on blockchains do not necessarily have monetary nature. As I argued in a previous piece, this is one of the problems with the definition of "virtual currency" proposed by the European Commission.

I am not going to argue that all EBA proposals are all praiseworthy.

However, in my opinion they can make the European Commission's proposal a better regulation – for EU member states, affected firms and the whole EU digital currency and blockchain industry.

Longer transposition period

First of all, the EBA advocated more time for member states to implement, and authorities and market players to apply, new regulations.

According to the European Commission’s proposal, new regulations should be implemented by the EU member states by 1st January 2017.

Less than four months is simply not enough to finish the legislative procedures at both the EU and state level, and comply by the firms with the new regulations. This proposal should be much welcomed.

On regulatory frameworks for digital currencies, the EBA also wants digital currency to remain outside the PSD2 (EU's new payment services regulation), an idea that is absolutely worth supporting.

PSD2 would not be appropriate to govern digital assets based on public blockchains other than those of purely monetary applications.

As I mentioned, the EBA has suggested that it is aware of the emergence of other digital assets based on blockchain technology, and that this makes application of payment services laws inappropriate.

Proposal clarification

In fact, much of the EBA's opinion is devoted to pointing out unclear parts of the European Commission' proposal.

For example, the EBA wants the status of digital currency businesses to be clarified, and it is proposing to define in the AMLD the subjective scope of the proposed new regulations (that is, not only what is regulated, but also who). This is good for the industry, because it could bring further clarification as to who is regulated.

Did EBA propose state-by- state registration? Contrary to what has been already written, the EBA is not advocating for this approach.

It is the European Commission who proposed to require member states to ensure that exchange platforms and custodian wallet providers are licensed or registered in the proposed new wording of Article 47(1).

On the contrary, it is EBA that has noted that this might be a problem.

The EBA made it perfectly clear that it is aware that there are no passporting rights under the AMLD, and that such requirement might result in a state-by-state registration regime.

The EBA also suggested that a new sectoral financial directive devoted only to digital currency issues (that might include a passporting regime) would not necessarily be a good idea.

Therefore, it is not clear what regime the Commission does envision in its "licensing or registration" proposal.

The EBA's statement reads:

"Take a decision whether either a licensing or a registration regime is most suitable and conducive to the aim of deterring terrorist financing across the EU or, should this not be achievable, at least provide clarity about the features that a national registration or authorization regime should have."

The EBA is thus not advocating registration or licensing in each member state, but simply wants the Commission to clarify its vague proposal to impose mandatory registration or licensing.

In conclusion, the EBA proposal should not be criticized in advance, as it is in many respects better that the Commission’s proposal.

The legislative process in the EU is underway and each sensible voice, including those of EU institutions like EBA, is needed.

Euro image via Shutterstock

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

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The Australian Securities Exchange (ASX) announced today that it has completed the first version of a potential distributed ledger-based replacement for its existing settlement system.

Presentation documents published today by ASX reveal that a "working solution for subset of use cases" has been developed by the exchange in partnership with New York-based Digital Asset Holdings. A blockchain startup led by former JPMorgan exec Blythe Masters, ASX has invested more than $17m in the startup to date.

The process, ASX said, involved working with regulatory bodies in Australia as well as relevant exchange stakeholders. ASX is now weighing how to go about replacing its existing settlement system, known as CHESS, and blockchain tech is being looked as a one possible overhaul path.

ASX CEO Dominic Stevens said in a speech today that the exchange has "begun work on the next stage of this journey", according to Computerworld.

Next steps include building "an industrial strength platform" that iterates on the working solution and continuing to engage with stakeholders.

Deputy CEO Peter Hiom reportedly told presentation attendees:

"What we do change is the way that data is authenticated, authorized, accessed and stored. It is this that creates the single source of truth that could remove complexity and deliver significant benefits to the industry."

The decision of whether to use the technology as an commercial-grade replacement will be made in fiscal year 2018, the firm added.

ASX also said that it has spent AUD$50.2m ($38.5m) on technology over the past fiscal year, though the exchange did not break down how much of this amount was spent on its distributed ledger work.

Image Credit: Passion Images / Shutterstock.com

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