The internet “should be a place where government makes every effort … not to stand in the way, to do no harm,” said former President Clinton in 1997.
That was a precursor statement to the release of a seminal report by the U.S. government, called Global Framework for Electronic Commerce. Its central thesis was known as the “Do no harm” policy. It consisted of specific recommendations for not taxing, regulating, or restricting the (then) embryonic and key promise of the internet: global electronic commerce.
The report did not just prescribe a U.S. policy, but also called for all countries of the world to consider the same approach, because it was understood that electronic commerce had no boundaries, therefore its success was inter-dependent on global cooperation.
Although more than 20 years old, that report is a fascinating read as context for the regulatory drama that is unraveling around the blockchain, today.
Had it not been for that policy, the U.S. could have created new taxes for e-commerce, limited it with new regulations, imposed duties, restricted the type of information transmitted, controlled standards of developments and imposed licensing requirements on service providers. Rightfully, none of that happened.
Without a doubt, that position was the right call. What followed this period was a massive explosion of growth in the U.S. around internet infrastructure, technologies and applications, arguably a significant contributing factor to why the U.S. spurted to super-power in internet related businesses, ahead of other countries.
For context, here are some noteworthy highlights from the report.
“As use of the Internet expands, many companies and Internet users are concerned that some governments will impose extensive regulations on the Internet and electronic commerce.
Governments can have a profound effect on the growth of commerce on the Internet. By their actions, they can facilitate electronic trade or inhibit it. Knowing when to act and – at least as important – when not to act, will be crucial to the development of electronic commerce.
We should not assume, for example, that the regulatory frameworks established over the past sixty years for telecommunications, radio and television fit the Internet. Regulation should be imposed only as a necessary means to achieve an important goal on which there is a broad consensus. Existing laws and regulations that may hinder electronic commerce should be reviewed and revised or eliminated to reflect the needs of the new electronic age.”
Fast forward to 2019. Enter the blockchain.
Do or do not harm?
The analogies are striking, but the U.S. government and key regulatory bodies are lagging in decisive actions. They are not acknowledging that the blockchain shares similar characteristics to the internet and e-commerce of the mid-’90s.
Today, blockchain technology is still immature, so it needs to spread its wings further before being prematurely confined to a lower scope of impact.
Two years ago, in April 2016, then CFTC commissioner J. Christopher Giancarlo (now he is the chairman) gave an enlightening speech at the DTCC 2016 Symposium where he challenged regulators to heed the lessons of the internet and adopt a similar stance to the policy enumerated in the Global Framework for Electronic Commerce of 1997. He even suggested that regulators of all sides come together and agree on “uniform principles”, a brilliant idea.
Here are key passages from that speech:
“Regulators have a choice in this regard. I believe we can either follow a regulatory path that burdens the industry with multiple onerous regulatory frameworks or one where we come together and set forth uniform principles in an effort to encourage Distributed Ledger Technology investment and innovation. I favor the latter approach.
Similarly, “do no harm” is the right approach for DLT. Once again, the private sector must lead and regulators must avoid impeding innovation and investment and provide a predictable, consistent and straightforward legal environment. Protracted regulatory uncertainty or an uncoordinated regulatory approach must be avoided, as should rigid application of existing rules designed for a bygone technological era.”
Unfortunately, judging by what actually happened since that speech, Chairman Giancarlo’s calls either fell on deaf ears or were not taken seriously; and not from a lack of goodwill on his part.
Unsurprisingly, the largest headwinds have come from the Securities Exchange Commission (SEC), which has taken it upon itself to be the Grinch of blockchain regulation. They have stolen the lion’s share of the regulatory thunder, while throwing the baby out with the bath water.
Blockchain regulation is at risk of a “Do Harm” outcome, primarily based the SEC’s approach.
Ray of hope?
More recently, on Dec. 20, 2018, Congressmen Davidson and Soto introduced a new bill, the Token Taxonomy Act (H.R. 7356), “To amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to exclude digital tokens from the definition of a security, to direct the Securities and Exchange Commission to enact certain regulatory changes regarding digital units secured through public key cryptography…”
That bill introduces a ray of hope that could potentially put a stick in the spokes of the SEC’s foolish trajectory.
Instead of leading with hope, optimism and open-mindedness, the SEC has been instilling fear into the markets by issuing a series of mixed actions, publishing unclear statements and sending cryptic messages via occasional speeches. They have divided and conquered the blockchain industry by stringing its participants along, without sharing any form of original thinking.
The SEC is stuck in the old paradigm of trying to classify all special-purpose cryptocurrencies (aka tokens, and a key blockchain invention) as securities by default, while being nebulous on what actually is a non-security.
At the macro level, the opposite of what took place in 1997 is actually unraveling today. In 1997, the U.S. led the world in thought and in practice, pertaining to electronic commerce regulation. Today, other nations are taking the lead at adopting progressive policies and regulatory implementations for blockchain technologies.
For example, the Japanese Financial Services Authority (FSA) has already received 190 cryptocurrency exchange licensesapplications, and is currently reviewing them. Switzerland has published a well-defined token classification framework and continues to be a friendly jurisdiction for the “foundation” model to govern ICOs, having cracked the code on how to manage the process. Singapore, Gibraltar, Malta and Cayman Islands, although being smaller jurisdictions have also made positive strides, and are welcoming entrepreneurs with open arms.
This outburst of international activity is sending U.S. innovation overseas. Sadly, the U.S., known for the best tech startup ecosystem, finds itself handicapped and suffocated by unfriendly regulatory actions. These other jurisdictions have a legal advantage, but they cannot replicate the vibrancy and experience depths of the U.S. entrepreneurial environment.
The SEC could use a history lesson by reviewing the Global Framework for Electronic Commerce and its impact. By his own admission, incoming chairman Clayton noted he wasn’t asked about the blockchain during his confirmation hearings in March 2017, using that point to remind us of the topic’s novelty as the excuse for the SEC’s slow inertia with it. Meanwhile, the SEC continues to paint the sector with a broad brush, while not showing flexibility for change.
In contrast, the CFTC, which has had a markedly more advanced knowledge of the topic, is still trying to learn more, and recently published an RFI asking 25 questions about ethereum, the second most significant cryptocurrency after bitcoin.
When will the U.S. assert its global leadership in blockchain? Time is running out.
South Korea’s ‘Bit-Island’ Jeju Announces New Blockchain Initiative
South Korea’s “Bit-Island” Jeju announced the Blockchain Hub City Development Research Service on Aug. 13.
An island with blockchain ambitions
Local news outlet JejuDomin reported on Aug. 14 that Jeju announced the Blockchain Hub City Development Research Service on Aug. 13. Furthermore, the author of the report stated that cloud services provider Tilon will carry the research. Per the report, the budget meant to cover the costs of the project amounts to 175 million won (nearly $145,000).
In April local news outlet BusinessKorea reported that Busan — South Korea’s second most populous city — has been picked over Jeju as the preferred location for South Korea’s blockchain regulation-free zone.
The island that does not surrender
Jeju previously hoped to become the local initial coin offering (ICO) hub, after being granted the status of regulation-free zone. Still, the latest developments show that the island is still fighting for relevance in the blockchain and cryptocurrency industry.
As part of the project, parties involved will reportedly analyze and investigate advanced use cases for blockchain technology and derived services, and also develop a blockchain service model suitable for Jeju Island. Future strategy director of Jeju Island Noh Hee-seop commented on the development:
“We expect that this research service will contribute to the establishment of Jeju as a blockchain hub city that maximizes the potential of blockchain technology, the core technology of the 4th Industrial Revolution.”
After first banning ICOs in September 2017, South Korean state financial regulator the Financial Services Commission announced that it will not lift its ban on ICOs in the country at the end of January.
Busan looks to release local crypto
As Cointelegraph reported in July, Busan city authorities are seeking to develop a blockchain-based digital currency project in collaboration with BNK Busan Bank, a subsidiary of local holding company BNK Financial Group.
Court Allows Blockchain.com’s Trademark Lawsuit Against Paymium to Proceed
The New York Federal Court denied the motion to dismiss the ruling in the trademark infringement action by cryptocurrency wallet and exchange operator Blockchain.com against fintech startup Paymium and its CEO Pierre Noizat over the use of domain “blockchain.io”.
According to the court documents published on Aug. 7, the lawsuit, originally filed by Blockchain.com in September 2018, claimed that Paymium and its Blockchain.io platform not only infringed on the trademark, but also were involved in alleged unfair competition and false advertising.
Blockchain versus Blockchain
In February 2019, Paymium moved a motion “to dismiss the amended complaint for failure to state a claim upon which relief can be granted […] and for lack of personal jurisdiction over Pierre Noizat.”
In its turn, Blockchain.com successfully managed to argue that their marks were not inherently descriptive and acquired secondary meaning, and that Blockchain.com and Blockchain.io marks were substantially similar enough for the case to proceed.
The New York Federal Court denied the trademark infringement part of the Paymium’s motion and allowed the suit to continue.
You don’t mess with the SEC
The court also found Paymium’s advertising claims that the “filing has been accepted and [it is] now registered with the SEC!” to be false, so this part stays in the lawsuit too.
In reality, the only thing the startup registered at that time with the U.S. Securities and Exchange Commission was a Form D. Blockchain.com argued that “the filing of a Form D does not mean that a security is ‘registered’ or that it has been in any way scrutinized or approved by the SEC.” The court agreed.
At the same time, all claims against Pierre Noizat were dismissed due to the actual lack of personal jurisdiction. The court also argued that the advertising of “hack-free status and atomic swaps” was not false.
Recently, Cointelegraph reported that IT giant Oracle sued blockchain startup CryptoOracle alleging trademark infringement and cybersquatting in the Northern District of California.
IT Giant Oracle Sues Blockchain Startup for Taking Its Name
Software development behemoth Oracle is suing blockchain startup CryptoOracle, alleging trademark infringement and cybersquatting.
Cybersquatting and trademark infringement
Technology market news outlet Computer Reseller News (CRN) reported on Aug. 15 that Oracle sued CryptoOracle alleging trademark infringement and cybersquatting in the Northern District of California.
Wikipedia states that cybersquatting “is registering, trafficking in, or using an Internet domain name with bad faith intent to profit from the goodwill of a trademark belonging to someone else.”
The complaint filed by the tech giant reportedly claims that the startup’s name has been chosen “to trade on Oracle’s reputation as an innovator and leader within the technology industry, and to evoke among consumers the goodwill that Oracle has built in its own famous brand.”
CryptoOracle is an advisory firm focused on the cryptocurrency space, which also sells tickets to industry events that it organizes, such as CryptoMondays. Oracle, on the other hand, is the software development giant behind Java that also happens to provide blockchain services.
Oracle also works on blockchain
For instance — as Cointelegraph reported in February — Oracle is expanding features on its enterprise-grade Oracle Blockchain Platform. The startup has been featured multiple times on CNBC, and one such interview is why the IT giant decided to take legal action.
Oracle reportedly first sent a cease and desist letter CryptoOracle filed for trademark rights to its name. Now, Oracle is asking a federal judge to order the startup to withdraw that trademark application, stop using its name and remove the branding from all web domains that reference it. Lastly, Oracle’s attorney also reportedly claims that the firm has the right to recover the startup’s profits.