Will regulators keep closing each business related to crypto until cryptocurrencies become a shady asset that you can access only if you know “the right guy”? This question stays on every crypto owner’s lips while governments are becoming more confident and more aggressive against crypto brokers, exchanges, and miners.
The answer, unfortunately, is not so simple. Of course, the businesses that choose not to follow any rules or try to find “smart” tactics to bend the laws will rapidly meet a swift end. Regulators show no mercy in these cases. On the opposite side, there are founders which understood that the only way to run an honest and legal business is to comply with the local security and data confidentiality laws as well as associate themselves with the local banks, such as NEXXO or Coinbase.
What difficulties are crypto businesses currently faced with?
Cryptocurrencies are getting struck by authorities with stringent rules due to their similarity to stocks and bonds. It’s easier for governments to just put them in an existing bucket instead of acknowledging a new asset class and coming up with laws according to their functions. Especially when most of the ones in charge can’t fully understand the technology being a blockchain-based token.
All this started when US SEC Chairman Jay Clayton declared that most of the tokens are securities and the businesses that chose to raise money through an ICO without registering with the SEC could face legal trouble. While Bitcoin and Ethereum have been cleared out by William Hinman, the director of the SEC’s division of corporation finance (who also stated that these aren’t considered securities at the moment), there are still over 2,000 tokens which are the core of their issuance of project solutions.
- In 2018 alone, 340 cryptocurrency or blockchain companies were dissolved or liquidated in the UK.
- Bitmain, the largest crypto mining operation, shut down its development center in Israel.
- ConsenSys, a global community made to create and promote blockchain, laid off more than half of its employees.
- Basis, a project backed by Andreessen Horowitz, Bain Capital Ventures, and Stanley Druckenmiller, is closing its doors eight months after raising $133 million.
- The US SEC charged two crypto projects, AirFox and Paragon, with selling unregistered securities.
- According to Ari Nazir, the managing partner at Neural Capital, “There are about 100 more that the SEC is investigating actively.”
Cryptocurrency exchanges are not left out either. ZebPay was forced to close after the cryptocurrency ban in India. GateWay and Mr. Exchange, two Japanese crypto exchanges shut down in front of the investigations of the local Financial Services Agency (FSA). Even EtherDelta, a decentralized crypto exchange without a corporate owner, was charged by the SEC with operating an unregistered trading platform after CFTC Commissioner Brian Quintenz declared that developers could be held accountable if their software is used for illegal purposes, even if they aren’t running a business. A short time after, another decentralized exchange, 0x released a statement saying that they are going to abide by the law in their operations. Centralized or decentralized, laws are being applied.
What can we do to save crypto businesses?
It’s clear that while time passes, the only possible way to run a crypto-related business in this environment is to comply with local regulations. And this might become easier than you think. In the US, the Token Taxonomy Act has already been proposed by Warren Davidson, congressman of Ohio, and Darren Soto, a representative of Florida. The bill states that “securities laws do not apply to companies that use blockchain once they reach their goal of becoming a functional network.” If it will go through, running a crypto-related business under legality might become as easy as shipping a functional product, like any profitable business is supposed to, right?
We’ve seen Coinbase being a legal company and evolving into the first “unicorn” within the crypto space. Many are wondering why aren’t they listing more tokens, but if we’re looking into what’s required to do that legally you’ll immediately understand why. While they obtained licenses from several US states to trade Bitcoin, in order to add Ethereum and Litecoin they had to get approved by the New York State Department of Financial Services (DFS). Which they did. And what’s ruled in the past can’t change over time.
In 2017, the US Internal Revenue Services (IRS) required Coinbase to report information about all the registered account from 2013 to 2015. Which they didn’t. After being sued in court, they narrowed down that list to reporting only the accounts who traded more than $20,000 in a year and ended up giving away the data of 14,355 customers.
NEXXO is not only checking in with every local government in whatever region they are expanding into, but they are also actively working to comply with local central bank rules and regulations. The financial blockchain platform is offering services to local small businesses. With consumer cards, merchant Point-of-Sale (PoS) devices, e-commerce sources, and more, it’s clear that the only way for them to make these possible is to integrate with local banks and local banking networks, as well as with Mastercard, VISA, American Express, and other international financial services schemes.
All the institutions mentioned above are activating under their local governments’ laws and they are willing to collaborate only with companies that are willing to do that as well. That’s where NEXXO had to adapt and comply with all local government AML (Anti-Money Laundering), ATF (Anti-Terrorist Funding), and OFAC (US Treasury Office of Foreign Assets Control) regulations and they had to do so even better than a traditional financial business. They are collecting and storing their customers KYC (Know Your Customer) information on the blockchain, providing the world with an indisputable audit trail.
Furthermore, NEXXO uses a private and permissioned blockchain architecture for every local solution. No local governments would approve a financial platform that is servicing their local businesses in the open. Blockchain or not, other states and unauthorized participants can’t have access to such information. In the future, linking all intra-country blockchains onto a global blockchain could simplify other services, such as international transfers or remittances.
While most of the articles you can find out there are placing governments in a negative light when it comes to crypto (and making the SEC out to be the arch nemesis), having examples like NEXXO and Coinbase as legal crypto-related businesses should make you think that the majority is not always right. Whoever is willing to run their business by complying with the laws will have no problem functioning regardless of how strict regulators might become. The myth of banks not willing to associate themselves with businesses that are linked to cryptocurrency has already been broken. So what’s next?
Crypto Business Survival: Comply with Banks and Local Regulations was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.