The Exchanges

Q the very minimum share with us the taxonomy for what we're looking at here? Because I hear this list of names and I'm just like, it's like alphabet soup, you know, it's, I don't know what's going on. So like, how would you break it down at a super high level? What's the big thing to know for where each of these are at and how they might be involved?

A Well, so just taking treasury, I mean, FinCEN, the Financial Crimes Enforcement Network, They're trying to assure the integrity of the financial system against nefarious actors. That's their broadly stated mission. So monitoring the financial systems like banks and all other kind of financial services companies for suspicious activity. OFAC, the Office of Foreign Assets Control, you know, the United States maintains a list of people and countries or nation states that is sanctioned, and so OFAC makes sure that transactions aren't going on in the financial services realm with those countries or individuals I'm sure you all unfortunately know what the IRS is, but yet very important of what the IRS is going to do with cryptocurrency. I mean, really, it's quite hard for people who have cryptocurrency gains to figure out what is the right thing? What are they supposed to do? The OCC, Robin just alluded to the fact that you need 50 different money transmission licenses to do business as a cryptocurrency exchange in those states. OCC is trying to come up with a federal fintech charter. So that only one license would be needed. So far, that hasn't gone anywhere. Do you want to cover any others?

AI assessment note: “FinCEN, the Financial Crimes Enforcement Network, They're trying to assure the integrity”

Q the very minimum share with us the taxonomy for what we're looking at here? Because I hear this list of names and I'm just like, it's like alphabet soup, you know, it's, I don't know what's going on. So like, how would you break it down at a super high level? What's the big thing to know for where each of these are at and how they might be involved?

A Well, so just taking treasury, I mean, FinCEN, the Financial Crimes Enforcement Network, They're trying to assure the integrity of the financial system against nefarious actors. That's their broadly stated mission. So monitoring the financial systems like banks and all other kind of financial services companies for suspicious activity. OFAC, the Office of Foreign Assets Control, you know, the United States maintains a list of people and countries or nation states that is sanctioned, and so OFAC makes sure that transactions aren't going on in the financial services realm with those countries or individuals I'm sure you all unfortunately know what the IRS is, but yet very important of what the IRS is going to do with cryptocurrency. I mean, really, it's quite hard for people who have cryptocurrency gains to figure out what is the right thing? What are they supposed to do? The OCC, Robin just alluded to the fact that you need 50 different money transmission licenses to do business as a cryptocurrency exchange in those states. OCC is trying to come up with a federal fintech charter. So that only one license would be needed. So far, that hasn't gone anywhere. Do you want to cover any others?

AI assessment note: “just taking treasury, I mean, FinCEN... OFAC... IRS... The OCC”

Q I'm an entrepreneur and I hear that, I think it's great because I'm like, great, they're thinking about it, they're really exploring it, but I'm kind of impatient to build something. What would your advice be for someone trying to come into the space who wants to build something? Should they wait where there's a gray area? How should they kind of approach it? What's your big takeaway on that?

A Well, I don't think they should wait, but I think they should have common sense and good judgment, and one of the red flags I see sometimes is, you know, and they'll publicly state, oh, we're moving offshore so that we don't have to comply with these laws that we can't figure out, but then they're going to serve U.S. customers anyway, and you know, the kind of problem with that approach is that extraterritorial jurisdiction, most countries have it, not just the U.S., so if you're servicing Hundreds of thousands of U.S. consumers. The fact that you relocate is not going to save you from having to comply with these laws. At the same time, I think that, you know, there is a real question of there is gray area. Look, I think you have to use your best efforts to be informed about what laws might apply to you and how they might apply to you, and be able to demonstrate how you used your best efforts to comply with those laws. If, you know, for example, you find out that the Bank Secrecy Act requires you to have a compliance program, Do your best to create your best compliance program you can. It doesn't have to be perfect, but you can't just say, well, I didn't know what that would look like, so we didn't do one at all. Just try, and I think that those cases where people are demonstrating best efforts are not going to be the vehicles that the government regulators are going to want to…

AI assessment note: “Well, I don't think they should wait, but I think they should have common sense”

Q I'm an entrepreneur and I hear that, I think it's great because I'm like, great, they're thinking about it, they're really exploring it, but I'm kind of impatient to build something. What would your advice be for someone trying to come into the space who wants to build something? Should they wait where there's a gray area? How should they kind of approach it? What's your big takeaway on that?

A Well, I don't think they should wait, but I think they should have common sense and good judgment, and one of the red flags I see sometimes is, you know, and they'll publicly state, oh, we're moving offshore so that we don't have to comply with these laws that we can't figure out, but then they're going to serve U.S. customers anyway, and you know, the kind of problem with that approach is that extraterritorial jurisdiction, most countries have it, not just the U.S., so if you're servicing Hundreds of thousands of U.S. consumers. The fact that you relocate is not going to save you from having to comply with these laws. At the same time, I think that, you know, there is a real question of there is gray area. Look, I think you have to use your best efforts to be informed about what laws might apply to you and how they might apply to you, and be able to demonstrate how you used your best efforts to comply with those laws. If, you know, for example, you find out that the Bank Secrecy Act requires you to have a compliance program, Do your best to create your best compliance program you can. It doesn't have to be perfect, but you can't just say, well, I didn't know what that would look like, so we didn't do one at all. Just try, and I think that those cases where people are demonstrating best efforts are not going to be the vehicles that the government regulators are going to want to…

AI assessment note: “Well, I don't think they should wait, but I think they should have common sense”

Q What are we seeing in terms of legal actions against some of the things that are out there? I mean, what proportion of the activity is it really?

A Well, I think right now we're actually seeing a relatively small proportion. I don't know, Robin, what your view is, but mine is And I can tell you that a lot of things are still under seal. That's kind of a first principle, Sonal, is, you know, people would ask, well, when is the government going to do something about XYZ? They're clearly breaking the law. The government wasn't able to say, oh, we, we've indicted that case. It's under seal. We're just waiting to extradite the suspect or take down the site. So what you have often is things are under seal brewing. So that could be happening now. We have this also not just in cryptocurrency, but a great example is the Theranos case. You know, that news broke in 2015, yet it was only in 2018. Now, where we just saw the SEC had a case under seal, an action, they were working out a settlement agreement. So I think there are things in the space that we're not yet aware of, the public's not yet aware of, that will be coming. That said, I think it's a relatively small percentage, a very small percentage of the overall activity Because as you all know, a lot of the overall activity is lawful. It's great. It's terrific. Very innovative.

AI assessment note: “I think right now we're actually seeing a relatively small proportion.”

Q slide up here, which has a lot of other agencies on it. We don't have time to go into this because that would take the entire day, let alone this session we have on stage. But can you help us understand, because we're reading about the SEC saying this, they're doing this, this organization's doing this. What is the SEC's position? And also where do these other players come in?

A I'll start just by saying the other thing is a lot of times you see these agencies teaming up together. So we've seen this recently in this space when the BTCE exchange was indicted by the Justice Department last summer. FinCEN, which is up on the screen, a treasury agency, came in and assessed in conjunction with the DOJ criminal case a one hundred and ten million dollar penalty. We just saw this also in the case of the Carta ICO, that the SEC brought thirty two million dollar civil fraud enforcement action And DOJ, the U.S. Attorney's Office, teamed up by bringing a criminal companion case. So we see these agencies working together a lot also. And we talk all about the SEC today in 2018, and I think one of the reasons is what agency was putting out guidance in 2017? The SEC. However, if you would have talked to the community in 2013, the agency everyone was very focused on was FinCEN. Which is the Financial Crimes Enforcement Network, part of the Treasury Department. FinCEN was the first U.S. government agency to put out guidance saying virtual currency is going to be subject to what are called money service business laws and the Bank Secrecy Act. So the point is that the different regulators can change over time depending on who's putting out warnings or who's putting out guidance.

AI assessment note: “So the point is that the different regulators can change over time depending on who's putting out warnings”

Q How long do you guys think it'll be for us to get from that point where there's a separate, dedicated, siloed working group, and then kind of it immerses, I mean, it merges into everything else. Do we have a prediction on how many years it might take?

A I don't want to slap a number of years on it, but I think you're still a few years away from that, at least. The one thing we are seeing is that it's no longer siloed, like the very purpose of these working groups are to go out into the broader organization. Because, you know, one thing folks don't even realize is these organizations are behemoth, right? You have the Justice Department, Department is a 110,000 employees. You've got double that almost at the Department of Homeland Security, the SEC, 4000. I mean, you're talking about thousands and thousands of people. These are big organizations. So these working groups, they're already kind of going out within their organization and saying, no, Bitcoin's not illegal. We're actually in the government doing a pilot program with it. They're doing a lot of interesting pilot programs.

AI assessment note: “I think you're still a few years away from that, at least.”

Q of layers of meaning behind it. But in this world, in a crypto network, you can have users and miners and developers and designers. You can have a platform that's, you know, building games and applications. You can also have a platform for exchanges. There's all these different things. Where do you see the pulse check on where they're sort of at in kind of coming along on that front?

A Well, I think they're really relying on the cryptocurrency community, the industries, the companies, some of the trade groups, and like groups like Coin Center to come in and do that education. It's really critical. And then on the government side, too, come in and say, here are all these kinds of laws. You know, they're not giving legal advice, of course, but it's a two-way street. And so I think that's really important. I remember talking to some folks in D.C. last year, and they said, we had just figured out Bitcoin, and then along comes Ethereum, and now it's, you know, happening. Altcoins and altcoins and, you know, we can't keep up with this. So they really are relying on the community and the industry.

AI assessment note: “I remember talking to some folks in D.C. last year... we can't keep up”

Q slide up here, which has a lot of other agencies on it. We don't have time to go into this because that would take the entire day, let alone this session we have on stage. But can you help us understand, because we're reading about the SEC saying this, they're doing this, this organization's doing this. What is the SEC's position? And also where do these other players come in?

A I'll start just by saying the other thing is a lot of times you see these agencies teaming up together. So we've seen this recently in this space when the BTCE exchange was indicted by the Justice Department last summer. FinCEN, which is up on the screen, a treasury agency, came in and assessed in conjunction with the DOJ criminal case a one hundred and ten million dollar penalty. We just saw this also in the case of the Carta ICO, that the SEC brought thirty two million dollar civil fraud enforcement action And DOJ, the U.S. Attorney's Office, teamed up by bringing a criminal companion case. So we see these agencies working together a lot also. And we talk all about the SEC today in 2018, and I think one of the reasons is what agency was putting out guidance in 2017? The SEC. However, if you would have talked to the community in 2013, the agency everyone was very focused on was FinCEN. Which is the Financial Crimes Enforcement Network, part of the Treasury Department. FinCEN was the first U.S. government agency to put out guidance saying virtual currency is going to be subject to what are called money service business laws and the Bank Secrecy Act. So the point is that the different regulators can change over time depending on who's putting out warnings or who's putting out guidance.

AI assessment note: “a lot of times you see these agencies teaming up together.”

Q What are we seeing in terms of legal actions against some of the things that are out there? I mean, what proportion of the activity is it really?

A Well, I think right now we're actually seeing a relatively small proportion. I don't know, Robin, what your view is, but mine is And I can tell you that a lot of things are still under seal. That's kind of a first principle, Sonal, is, you know, people would ask, well, when is the government going to do something about XYZ? They're clearly breaking the law. The government wasn't able to say, oh, we, we've indicted that case. It's under seal. We're just waiting to extradite the suspect or take down the site. So what you have often is things are under seal brewing. So that could be happening now. We have this also not just in cryptocurrency, but a great example is the Theranos case. You know, that news broke in 2015, yet it was only in 2018. Now, where we just saw the SEC had a case under seal, an action, they were working out a settlement agreement. So I think there are things in the space that we're not yet aware of, the public's not yet aware of, that will be coming. That said, I think it's a relatively small percentage, a very small percentage of the overall activity Because as you all know, a lot of the overall activity is lawful. It's great. It's terrific. Very innovative.

AI assessment note: “we're actually seeing a relatively small proportion”

Q How long do you guys think it'll be for us to get from that point where there's a separate, dedicated, siloed working group, and then kind of it immerses, I mean, it merges into everything else. Do we have a prediction on how many years it might take?

A I don't want to slap a number of years on it, but I think you're still a few years away from that, at least. The one thing we are seeing is that it's no longer siloed, like the very purpose of these working groups are to go out into the broader organization. Because, you know, one thing folks don't even realize is these organizations are behemoth, right? You have the Justice Department, Department is a 110,000 employees. You've got double that almost at the Department of Homeland Security, the SEC, 4000. I mean, you're talking about thousands and thousands of people. These are big organizations. So these working groups, they're already kind of going out within their organization and saying, no, Bitcoin's not illegal. We're actually in the government doing a pilot program with it. They're doing a lot of interesting pilot programs.

AI assessment note: “I think you're still a few years away from that, at least.”

Q of layers of meaning behind it. But in this world, in a crypto network, you can have users and miners and developers and designers. You can have a platform that's, you know, building games and applications. You can also have a platform for exchanges. There's all these different things. Where do you see the pulse check on where they're sort of at in kind of coming along on that front?

A Well, I think they're really relying on the cryptocurrency community, the industries, the companies, some of the trade groups, and like groups like Coin Center to come in and do that education. It's really critical. And then on the government side, too, come in and say, here are all these kinds of laws. You know, they're not giving legal advice, of course, but it's a two-way street. And so I think that's really important. I remember talking to some folks in D.C. last year, and they said, we had just figured out Bitcoin, and then along comes Ethereum, and now it's, you know, happening. Altcoins and altcoins and, you know, we can't keep up with this. So they really are relying on the community and the industry.

AI assessment note: “we had just figured out Bitcoin, and then along comes Ethereum”