Building on its first Decree No. 8 On the Development of the Digital Economy (December 2017), special economic zone the Belarus High Technologies Park (HTP) has announced the establishment of additional regulations for companies operating in the cryptocurrency and blockchain sector.
The regulatory framework aims to position Belarus as “one of the world’s most attractive destinations for cryptocurrency businesses” and was designed to provide a legal status for tokens and smart contracts, as well as activities related to cryptocurrency mining, buying, selling, storing, distributing and exchanging. Belarus legislators developed the framework in collaboration with Deloitte, Wenger & Vieli, and other advisory firms to make sure it’s aligned with global best practices, according to a press release.
Martin Hess, partner at Swiss law firm Wenger & Vieli, said the Belarus approach to cryptocurrency regulation has the benefit of speed and simplicity because it does not require an understanding of the whole Belarusian legislation, court and legal practice in order to start a business.
“The Belarus approach is different compared to other countries,” Hess said, though “it remains to be seen how the stand alone Belarus regulations will be interpreted and applied. The Belarus regulations will also be assessed in comparison to the relevant legislation for digital assets in other countries.”
“Today, it’s important to ensure that the regulations, their application and interpretation as well as their amendments and developments are equivalent to the legislation of other important jurisdictions such as US, China, European Union, Japan, Korea, Singapore and Switzerland,” he stressed.
Documents published by the HTP on November 30, 2018, define the requirements for various types of crypto-related activities including token promotion and consulting, cryptocurrency exchanges and initial coin offerings (ICOs).
In particular, the new regulatory framework includes:
- Tax exemptions: the Decree No. 8 framework offers tax free treatment of all crypto transactions and ICOs until 2023 for crypto companies set up and operating in Belarus.
- Advanced anti-money laundering laws: under Decree No. 8, Belarus has implemented anti-money laundering (AML) and know-your-customer (KYC) measures to combat fraud in crypto-related ventures. Additionally, cryptocurrency businesses found to be involved in money laundering will immediately be terminated by state authorities, with additional punishments for banks, payment services or any other financial service providers who may have facilitated such crimes.
- Strict data and customer protection regulations: the new regulations emphasize the protection of personal data, implementing structures that guarantee data protection to the same level as the General Data Protection Regulations (GDPR) in the European Union. Cryptocurrency businesses operating in Belarus are required to warn customers of the risks associated with their services, adhere to new advertising regulations, disclose any material information affecting customer security, and implement internal control systems for managing risk, cybersecurity and conflicts of interest, among other issues.
- Heightened business standards: all cryptocurrency businesses in Belarus must meet certain operational requirements, including disclosure of beneficial owners and their meeting reputation requirements, hiring qualified employees, meeting stringent financial stability standards and using technically secure information systems to conduct their businesses. Adherence to all of these standards must also be verified through an extensive audit by a big four accounting firm.
The HTP was founded in 2005 to stimulate IT innovation and attract foreign ventures through a favorable fiscal and legal system. In 2018, over 200 companies joined the HTP as residents, which currently include software engineering provider EPAM, instant messaging service Viber, photo and video filter app Masquerade, and World of Tanks developer Wargaming.
David Baron, chairman of the Belarus-US Business Council, expects more international and US tech and blockchain companies to come do business in Belarus following the establishment of Decree No. 8 and the new regulations.
“Many US IT companies already know Belarus as a place to set up their software development division but Decree No. 8 will position Belarus a top destination for cryptocurrency ventures and value-generating global IT product companies,” Baron said.
The United States Department of Homeland Security has announced its intention to develop a monitoring framework to effectively track Zcash and Monero transactions through enhanced forensic analytics capabilities. In a newly released document, the DHS reveals that it aims to achieve this by designing “a product to support the implementation of block chain based forensics, data analysis, and information sharing.”
Released on November 30, the agency’s Small Business Innovation Research (SBIR) FY19 Pre-Solicitation document has been made available to interested parties, giving them an opportunity to comment or request information about selected topic areas, one of which is ‘Blockchain Applications for Homeland Security Forensic Analytics’.
Uncle Sam Goes After Private Transactions
According to the document, blockchain monitoring frameworks geared toward Zcash and Monero are of special interest to the DHS because its existing Bitcoin-focused analytics capabilities “cover only a limited scope within the realm of cryptocurrencies.” The expansion into the privacy cryptocurrency area is intended to keep pace with newer blockchain implementations and demonstrate that the DHS possesses sufficient extensibility to deal with the threat posed by illegal hidden transactions.
An excerpt from the document reads:
“A key feature underlying these newer blockchain platforms that is frequently emphasized is the capability for anonymity and privacy protection. While these features are desirable, there is similarly a compelling interest in tracing and understanding transactions and actions on the blockchain of an illegal nature. To that end, this proposal calls for solutions that enable law enforcement investigations to perform forensic analysis on blockchain transactions.”
The proposal identifies 3 phases of research. The first involves designing a blockchain analysis ecosystem, building on and around Zcash and Monero to enable forensic analysis for homeland security and law enforcement applications using cryptocurrency. The second phase involves prototyping and demonstrating the blockchain forensic technologies already designed, while the third phase is the implementation of blockchain forensic analytics for government and commercial uses by assisting with law enforcement operations as well as anti-money laundering compliance.
The move signals a figurative touching of gloves as the US government prepares to take on censorship – resistant blockchain implementations as part of its efforts to make sure that cryptocurrencies are not used to enable money laundering ,tax evasion and terror financing. CCN reported in September that a group of US government agencies led by the IRS have awarded several contracts worth millions of dollars to blockchain monitoring firms like Chainalysis as part of this effort.
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Numerai never did a token sale, but people have its token and they are using it.
The numeraire (NMR) was launched in June 2017 as an early departure from the initial coin offering (ICO) template. Now, with the final upgrade of the company’s smart contract on ethereum, the maximum supply of tokens will drop from 21 million to 11 million, and the company will throw away the keys to the contract controlling its supply.
“We are going to be decentralized as fuck,” Numerai founder Richard Craib told CoinDesk in an interview.
Craib argues this has always been the plan, but the move dovetails nicely with comments by U.S. regulators suggesting widely-used tokens that no one company controls are viewed more favorably.
When CoinDesk asked Craib if the company has been in touch with the U.S. Securities and Exchange Commission about its business model, he declined to comment. Regardless, Craib seemed relieved that his company never opted to do an ICO. Rather, NMR tokens were distributed via airdrops and as payments to users of its platform.
“I think from a securities perspective the key question is whether or not the SEC will go after a company that only did an airdrop, rather than an ICO,” said Margaret Rosenfeld, the blockchain practice lead at law firm Smith Anderson.
How it works
Craib doesn’t dispute that Numerai has been centralized up till now.
Numerai started as a marketplace for data that its hedge fund could use to make investments. With the full debut of Erasure, its software on ethereum, Numerai will open up that marketplace to any fund that wants to incorporate other people’s work.
Numerai dates back to 2015. It was founded as a hedge fund that wanted to give data analysts a better way to sell good data analysis. To date, Numerai has been using its software to let data scientists crunch numbers for Numerai’s own benefit, but Erasure will let anyone making predictions prove their track record.
Today, even with only one customer, there are 25,000 stakes of NMR, according to the company, making it ethereum’s most-used token.
What’s striking about the recent decentralization announcement, though, is the company’s decision not only to turn the software over to NMR holders but to mint significantly fewer tokens than originally planned.
According to Craib, if Erasure is meant to bring in lots of new participants, then it’s important to cut off the new supply of NMR.
“We had to be sure those people didn’t have to trust Numerai not to mint a whole bunch of tokens.”
But there’s a lingering question: why move so quickly?
“Nothing we are doing now is a reactionary thing,” Craib told CoinDesk. He added that he believes the SEC’s priority has been to take on ICOs that went too far.
That said, we’ve already seen one project, Stream, decide to pull its ICO because the firm didn’t think it could do it legally, and then shut down entirely when it didn’t believe it could even do an airdrop.
Nevertheless, Craib seems confident that turning the protocol over to NMR holders will be enough.
Rosenfeld, the Smith Anderson lawyer, was not so sure. She said the SEC will look at everything the company has done with the token, not just what it’s doing once it has completely decentralized. The “taint of a security” doesn’t just go away in the eyes of the SEC, she said.
Still, she added: “[U.S. regulators] haven’t yet gone after a company that has just done an airdrop.”
So far, NMR payments have been issued to users by way of a weekly analysis tournament. Competing analysts had to use NMR to stake their work. It was a way of expressing confidence in their models. If their analysis proved right, bigger stakes got bigger NMR rewards.
If their work was bad enough, scientists could lose their stake, but lost stakes didn’t go back to Numerai, Craib explained. Lost stakes just got burnt.
On Erasure, users will be able to prove that they’ve made good predictions on a given dataset over time and sell those predictions to anyone who thinks their fund can make good use of it.
Similar to the existing system, analysts will need to stake their predictions to express confidence. Buyers can pay to destroy their stake if they get frustrated with a predictor.
Joshua Gans, an economist at the University of Toronto, doesn’t buy the staking approach on Erasure, but its community won’t have to stick to it. With the launch of Erasure, NMR will also become a governance token. Holders can vote to approve a better approach to managing spammy datasets if a better approach comes along.
What they won’t be able to do is vote to increase the token supply, as that smart contract will be shut down for good.
But wait, there’s more
With Erasure’s launch, the supply of NMR tokens will rise by almost half again.
How that happens could be a key question for regulators. The company is not revealing how that last lot of tokens (over 50 percent of the existing supply) will be distributed.
According to Numerai, there are currently about 7 million NMR in existence. CoinMarketCap pegs that number at 2.3 million. Craib says the difference is largely explained by the fact that the company locked up 3 million tokens for a decade in May, but that still leaves 1.7 million unaccounted for.
“I don’t really know where CoinMarketCap gets their information,” Craib wrote CoinDesk in an email.
In Erasure’s early days, “Numerai will be one of the biggest purchasers of data feeds, for the time being,” Craib projected, but he believes it is inevitable that other hedge funds will begin scouring it for predictions.
“It’s fundamentally going to be a token about users and usage,” he said.
Numerals image via Shutterstock