Emerging Issues Affecting Blockchain and Cryptocurrency | Epstein Becker & Green

Last week, blockchain analytics firm Chainalysis held its annual conference, Links 2023, in New York City, where private and public sector leaders met to discuss emerging issues affecting the blockchain, cryptocurrency and digital asset space. The conference featured presentations from notable public and private sector leaders, including public regulators, enforcement agencies that investigate and assist in prosecuting virtual asset fraud, and executives from financial institutions.

Throughout the conference, similar themes of concern affecting the cryptocurrency space emerged, including:

• the lack of government regulation of cryptocurrencies, particularly in the United States;
• increased threats to the security of bitcoin ATMs;
• increased cyber attacks and hacks resulting in billions of dollars worth of money being stolen without recourse;
• increased risk to consumers through the use of cryptocurrency scams such as “pig slaughtering”; and
• using cryptocurrency to finance illegal and illegal activities, such as financing terrorist organizations, human trafficking or drug trafficking.

A highlight of the conference was a fireside chat with Christy Goldsmith Romero, a commissioner of the Commodity Futures Trading Commission (“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 about the CFTC’s cryptocurrency mission, which is focused on ensuring that there are safeguards in place to prevent illegal and fraudulent economic activity as well as protecting 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 that have been tapped to potentially lead the efforts of regulatory oversight in this area . Commissioner Romero emphasized that both the CFTC and the SEC “have the same client – the United States government” – and that the many regulators, including state regulators, in this area work together to fulfill their shared mission of protecting American consumers and ensuring that is market integrity in this area as it continues to grow.

Commissioner Romero also commented that cryptocurrency is still a fairly new and emerging industry that is developing incredibly quickly. She noted that regulators are focused on solving problems as they arise, while also discussing ways to regulate and control problems before they occur. Each of these efforts will take time.

Commissioner Romero also outlined the CFTC’s priority areas in the cryptocurrency space:

• Improving cyber security by encouraging “good basic cyber hygiene” and preventing code from being exploited, not only for financial institutions, but also for healthcare and manufacturing;

• Maintain and improve cross-chain bridges – which enable the exchange of cryptocurrencies between blockchains to increase security between transactions; and

• Review and improve man-in-the-middle attack threats where an attacker infiltrates and potentially alters communications between user platforms.

Finally, Commissioner Romero emphasized that it is no longer sufficient to manage cyber risk – cyber risk must be eliminated to ensure consumer protection. She explained that the goal is to “grow the industry as a safe ecosystem,” and that the primary way to achieve that goal is for industry regulators to “put customers first.” The inescapable conclusion from these comments is that we can expect greater regulation of the crypto industry.

Epstein Becker & Green, PC will monitor developments as the blockchain, cryptocurrency and digital asset space continues to evolve.

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