Last week, blockchain analysis firm, Chainalysis, held its annual conference, Links 2023, in New York City, where private and public sector leaders met to discuss emerging issues impacting the blockchain, cryptocurrency, and digital asset space. The conference featured presentations from notable public and private sector leaders, including government regulators, enforcement bodies who investigate and assist in prosecuting virtual asset fraud, and executives from financial institutions.
Throughout the conference similar themes of concern impacting the cryptocurrency space emerged, including:
- the lack of government regulation on cryptocurrencies, particularly in the United States;
- increased threats to the security of bitcoin ATMs;
- increased cyberattacks and hacks resulting in billions of dollars’ worth of moneys stolen without recourse;
- increased risks to consumers through use of cryptocurrency fraud scams such as “pig butchering”; and
- use of cryptocurrency to fund illegal and illicit activities, such as funding terrorist organizations, human trafficking or narcotics trafficking.
A highlight of the conference was a fireside chat with Christy Goldsmith Romero, a Commissioner of the Commodity Futures Trading Commission (the “CFTC”). Speaking just weeks after the CFTC filed a civil enforcement action against Binance Holdings and its CEO and former Chief Compliance Officer, Commissioner Romero spoke of the CFTC’s mission as it relates to cryptocurrency, which is focused on ensuring that there are guardrails in place to prevent illicit and fraudulent financial activity as well as to protect consumers who are active in the digital world.
Given the apparent uncertainty of regulatory authority over the cryptocurrency space in the United States, Commissioner Romero commented on the relationship between the CTFC and the United States Securities and Exchange Commission (“SEC”), the two major U.S. regulatory bodies which have been tapped to potentially lead the efforts of regulatory oversight in this space. Commissioner Romero stressed that both the CFTC and the SEC “have the same client – the U.S. government” – and that the multiple regulators, including state regulators, in this space are working together to fulfill their shared mission of protecting U.S. consumers, and ensuring that there’s market integrity in this space as it continues to grow.
Commissioner Romero also commented that cryptocurrency is still a fairly new, and emerging industry that is evolving incredibly quickly. She noted that regulators are focused on resolving issues as they emerge, while also discussing ways to regulate and control issues before they arise. Each and all of these efforts will take time.
Commissioner Romero also described the CFTC’s priority areas in the cryptocurrency space:
- Improving cybersecurity through encouraging “good basic cyber hygiene” and preventing code from being exploited, not only for financial institutions but also healthcare and manufacturing;
- Maintaining and improving cross-chain bridges – which enables the exchange of cryptocurrencies between blockchains to increase security between transactions; and
- Reviewing and improving threats of “man-in-the-middle” attacks where an attacker infiltrates and potentially alters communications between user platforms.
Finally, Commissioner Romero stressed that it is no longer sufficient to manage cyber risks – cyber risks need to be eliminated in order to ensure consumer protection. She explained that "the single biggest thing that the industry and regulators should be doing right now in the digital asset space is to put customers first." The inevitable conclusion from these remarks is that we can expect greater regulation for the crypto industry.
Epstein Becker & Green, P.C. will monitor developments as the blockchain, cryptocurrency and digital asset space continues to evolve.
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