Editors Note: Original text fromBabbitt Information (ID: bitcoin8btc ),authorCai Weide, reprinted by Odaily with authorization.
Editors Note: Original text from
Babbitt Information (ID: bitcoin8btc )
,author
Cai Weide
, reprinted by Odaily with authorization.
On February 8, 2019, Hester Peirce, Commissioner of the U.S. Securities and Exchange Commission (SEC Commissioner), delivered a speech at the University of Missouri School of Law on the theme of Protecting the Market with Innovation: First Principles of Optimal Regulation [1]. It mentions the view of the supervisory unit on the decentralized (decentralization) that is often declared in the digital token market and the blockchain field. This article will summarize and analyze Hester Peirces speech on regulation related to the blockchain industry (including the token market).
The full text will interpret the speech from three perspectives:
3. Reinterpretation of US Securities Law.
Hester Peirce
In 2018, the United States became the leader of the worlds digital tokens, and its every move affects the worlds token market, as well as the views of other governments around the world. Now there are three major factors affecting digital tokens: technology, market, and regulations, among which regulations are the most important factor. I believe that readers can learn about the latest thinking of US regulators from this article, which can be used for reference or preparation.
Before deciphering the speech, lets understand the background of the speaker, Hester Peirce. Hester Peirce is one of four current SEC commissioners appointed by the president with the consent of the Senate. She is known as the Crypto Mom because of her friendly attitude towards digital tokens. She also publicly opposed the delay in the issuance of digital token ETFs a while ago, and this speech also showed this attitude.
The author Cai Weide is a full-time innovative talent in the National Thousand Talents Program of the Organization Department of the Central Committee of the Communist Party of China in 2014, a doctoral supervisor of Beihang Thousand Talents, and an honorary lifelong professor of Arizona State University.
Regulatory dilemmas in the age of innovation
Paul Volcker
First of all, she said that society is now forcing regulators to accept changes in the market, because everyone likes innovation, so she hopes that regulators will change quickly. But it is really difficult for regulatory agencies to change, because regulatory agencies cannot clearly see the future. If they introduce some new regulations, regulatory agencies themselves do not know what consequences these regulations will bring. This is what they are worried about. Regulators dont know where the new technology will go, and if new regulations are introduced, how these regulations will affect the market and new technologies.
As an important leader of the SEC, she believes that regulators should protect both investors and the capital market at the same time, so she believes that these innovations should continue to develop, because it may take years for a new technology to assess the impact of the new technology on the market. To paraphrase a Chinese saying, let the bullets fly for a while.
She mentioned Paul Volcker, the former director of the Federal Reserve in the United States, who said that the biggest financial innovation he has seen in his life is the automatic teller machine, that is, the ATM machine. Volcker believes that many mechanisms have financial innovations, but he has not seen any benefits to society from these financial innovations. Volcker is an important person who evaluated the 2008 world financial crisis. What Volcker said should refer to the occurrence of the world economic crisis that year, which was the disaster caused by some so-called financial innovations on Wall Street. At the beginning, these financial innovations brought a lot of wealth to financial institutions, but after a few years of crisis, when the regulators found out, it was too late to save them. Volcker is very dissatisfied with these so-called financial innovations. Therefore, one dilemma of regulation is the uncertainty of regulatory impact.
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secondary title
Understanding of the term decentralization
The same regulatory conundrum exists in the blockchain and digital token space. Few regulators in the world know what is the best way to regulate. For example, whether existing regulations should be used or a new regulatory framework should be introduced, there is no consensus on these global regulators.
One of the reasons why digital tokens are difficult to regulate is decentralization. The word has been translated as decentralization in the industry before, but in fact most dictionaries translate decentralization. Peirce believes that decentralized architecture is not a new idea, and humans have been doing it for a long time. And the current financial system is a decentralized structure, that is, many people and many organizations conduct decentralized activities in the market.
What Peirce talked about can be considered as a small decentralized structure of the market, and another is a large decentralized structure of society, that is, the separation of powers mechanism in the United States. Divide the legislative, judicial, and executive powers, and no one can completely control the whole society. This is the decentralized mechanism, which we call the traditional decentralized mechanism, to distinguish it from the blockchain decentralized mechanism described later.
The decentralization mechanism brought by the blockchain is not exactly the same as the traditional decentralization mechanism. What Satoshi Nakamoto wanted was a decentralized mechanism with an unstructured but very simple architecture. There is no central coordinator in the mechanism. In Satoshi Nakamotos ideal, the blockchain system is a software that automatically generates a consensus and keeps accounts. In the future, it will develop into a situation where no one controls it, and everything is automatically controlled by the software. (Remarks: In fact, even the Bitcoin system software is still frequently updated today, and the community is very active. This kind of unmanned control situation may only be seen on systems that have been abandoned, such as zombie chains. These zombie chains The coins are almost worthless and do not need supervision.)
Peirce emphasized that some decentralized digital token projects are actually not consistent with the decentralized mechanism they claim, because their approach is exactly the same as that of traditional startups: a group of people gather together to become a center to build a companies, and then they sell their securities, which they call digital tokens. They deliberately do not register their shares on the securities market, but appear as digital tokens. And their approach is still a centralized approach, the purpose of which is to avoid the supervision of the US SEC.
This point of view has always been emphasized by the author in the past. According to the statistical analysis of Taishan sandbox big data, most of the digital token software in the world is controlled by about 200 people. This is a very centralized community. [5]
There are many digital token projects. What is said in the white paper is actually quite different from what was done later. Some gaps may be due to the fact that they did not think about it well at the beginning, but more of them are outright scams (outright scam), and the gap between what is written in the white paper and the actual situation is very large. The term she uses - a complete scam is the same as that used by the British regulator FCA years ago, and according to FCA data, 8 out of 10 projects are outright scams. This means that the situation is very serious, and the token market is already full of fakes. [6]
secondary title
Reinterpretation of American Securities Law
For the supervision of tokens, the common practice is to use the existing securities law to analyze the behavior of each token through the Howey Test established by the Howey case of the Supreme Court to see whether its token issuance behavior can be classified as a securities law. Under the securities issuance, to determine whether to supervise. [3] However, Peirce believes that although the Howey Test is meaningful, there are still inconsistencies between the issuance of tokens and the issuance of securities, which also makes the current securities law unable to explain all problems. For example, the tokens issued do not necessarily belong to or be controlled by a company, and the traditional tasks performed by the issuer may be completed by some people who are not affiliated. And when using the Howey Test, for one of the inspection points: Whether the investor is participating in an activity whose profit is entirely derived from the labor of others, what is completely derived from the labor of others? There are also different interpretations of the securities law itself. Some courts interpret it as mostly derived from the labor of others. This also creates some ambiguity in the application of the securities law to the field of token issuance.
She mentioned that in the DAO incident in 2017 (hundreds of millions of dollars were hacked), the US SEC determined after investigation that the tokens of the DAO were actually securities, so they were regulated by the securities law (although the project party believes that they are not securities). This means that when a major event occurs, the SEC will not be ambiguous and make judgments.
Regarding the ambiguity arising from the application of the current securities law, there is also an advantage that the relevant units have not been clarified quickly. Peirce sees this as a transitional period that can also be viewed on a positive note. This transitional period leaves time for many blockchain projects to develop and mature. When the projects mature, or when the entire industry becomes more mature, it will also help regulators to issue effective policies to provide a basis. She also mentioned that as a regulatory unit, the fact does not necessarily have to be actively supervised, and the industry should be allowed to produce its own norms. If a project is not good, investors will abandon the project, and the market itself will There is a process of survival of the fittest.
discuss
Give the market a certain degree of freedom, which partly reflects the attitude of the regulators. But this freedom is limited, but when market players engage in excessive behavior, regulators will also actively intervene. For example, in October last year, an Iranian company wanted to issue tokens in the United States. According to the requirements of the securities law, it submitted relevant disclosure documents of the company, so it claimed that the company was certified by the SEC and approved by the SEC. The company was punished by the SEC. As a regulatory unit, the SEC maintains a moderately neutral and cautious attitude and will not endorse any private unit.
The problem with this is that the market is very sensitive. A company was punished by the SEC. In addition to its own tokens falling like a waterfall, even unrelated bitcoins also fell. When Bitcoin fell, the chain reaction of the entire currency market followed. . This is what happened at the end of 2018: a series of unrelated SEC penalties drove the currency market down. The attitude of the SEC is that the bullets can fly for a while, but illegal activities will never be allowed to run rampant.
All in all, as a regulatory unit, the SECs goal has always been to provide a safe and efficient market, protect investors, and encourage innovation at the same time.
secondary title
The blockchain world is based on law, not personal preference: Peirce, the mother of tokens, is friendly to digital tokens, but mainly loyal to the law, because it encourages innovation, takes a moderate approach, and is still based on the law.
references
[1] Hester Peirce."Regulation: A Viewfrom Inside the Machine",Feb 2019.
https://www.sec.gov/news/speech/peirce-regulation-view-inside-machine
Decentralization is a traditional concept without the idea of decentralization: Regarding the concept of decentralization, the mother of tokens believes that this is an idea that has existed for a long time, and it is not an idea that blockchain has just begun. Moreover, Satoshi Nakamoto did not mention the term decentralization in his article at all, which was a concept added by others later. In China, this concept has also been politically colored and turned into decentralization, which tends to oppose any centralized management or organization. Let everyone restore the truth, no longer decentralize, discuss in a decentralized manner, and respect this concept that has long existed. [2] Before the blockchain came out, this concept has been discussed in management for a long time, and it is not a concept that was born in the era of blockchain."The community is starting to mature and become less antagonistic: the medias mostly positive coverage of Peirces conversations is a sign of progress. We can compare the reaction when the chief scientist of the United Kingdom released a blockchain report in 2016. Within two weeks after the report came out, reports at home and abroad were very negative, and even criticized the highest scientific institution of the British government in a way of laughing and scolding, for example, The chief scientist of the UK is a primary school student in this respect, and he doesnt know what is Decentralized, they are the center to be removed. This opposite phenomenon disappeared after 3 years. At that time, the United Kingdom was the worlds leading blockchain country, and the UK was also the first country in the world to list blockchain as a national strategy. Therefore, the chief scientist of the United Kingdom was the most credible unit in the world on blockchain at that time, and their report was very positive on blockchain, possibly the most positive report on blockchain in the world at that time. Such a positive report was so ridiculed that it can be seen in the atmosphere of opposition.”",2019.1.28.
https://mp.weixin.qq.com/s/ImXKf7h3p9U9o2CsJiwhXA
Let the bullet fly a little longer is not let the bullet fly back: I hope readers dont think that the SEC let the bullet fly a little longer will bring the token market back to the way it was before. When the SEC introduced the securities law in 2018 to manage digital tokens (security tokens), the original era began to end the journey. As Peirce said this is just a transitional period, why is this a transitional period? Because the direction ahead already exists, if not, it is not a transitional period. Dont think that the direction has not been set yet, the previous era will completely pass away. She just said that the details are not very clear, but supervision is very clear and definite, and it is impossible to return to the previous no supervision situation. What will pass will pass."The market will adjust itself, and the era of security tokens is coming: As Peirce said, the market has its own adjustment mechanism. When the SEC issued security tokens, a large number of securities lawyers, securities companies, and exchanges in the United States began to prepare legally qualified securities. The era of tokens. New exchanges (such as Bakkt) have been preparing for a long time (even Li Ka-shing of Hong Kong has invested in this company), registered companies are preparing to register security tokens (such as Overstock), project parties have begun to prepare security token financing, and funds have begun to invest in related enterprise. [4] The era of security tokens has come. Will investors invest in legal and compliant security tokens, or will they invest in digital tokens that are not recognized by the SEC? Will securities companies recommend legal and compliant securities tokens, or will they recommend digital tokens that are not recognized by the SEC? The market will let everyone see clearly.references",2018.11.28.
https://mp.weixin.qq.com/s/UfHckkYqQEj42W6Kywi_0Q
[2] Cai Weide."Blockchain is decentralized not decentralized",2018.10.30.
https://mp.weixin.qq.com/s/UR8400Z--YJbGMkoLM5l7A
[3] Cai Weide, Lin Jiayi."Opening of DeepHash column｜",2018.12.5.
https://mp.weixin.qq.com/s/gqaqkl3FiBjOqRUfmiZPWQ
Cai Weide: American digital new economic empire and Chinas blockchain dream"“[4] Cai Weide et al.”",2019.1.23.
https://mp.weixin.qq.com/s/wv7GhpwJ5tCsdgFVjzXmWA
