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Mondaq Article: Taking A Trip Around The Regulatory Block: U.S. Regulation Of Blockchain And Digital Assets

Published yesterday by Dennis O. Cohen and Rebecca Crance of Schnader Harrison Segal & Lewis LLP the authors write, “This article provides a brief overview of the U.S. regulatory agencies that certain blockchain companies and participants should expect to encounter, either because the regulators have publicly stated their intentions, or because they may determine after-the-fact that their mandate applies to blockchain transactions and operations.”

Here’s their introduction…

For now, most blockchain projects are inextricably linked to digital assets such as cryptocurrency, altcoins, tokens, or virtual currencies (there are important distinctions among such assets but no universal definitions; hereinafter such terms are used interchangeably). This association is often because (1) many blockchains are powered with bespoke tokens that act as environmental currencies; (2) certain tokens are intended to be decentralized currencies supported by a blockchain; or (3) the project itself is funded by pre-sales of such tokens, in public or private offerings commonly called ICOs. Other projects – such as exchanges, wallets, and funding – revolve around the purchase, sale, and management of tokens and ICOs.

Until recently, the majority of token funding happened outside of the United States, or within the United States but under the radar of market regulators. This is no longer the case. U.S. regulators have recognized the importance, and the permanence, of blockchain projects, and have determined that their own mandates apply to this field to protect the public from market risk, fraud, and theft. Meanwhile, blockchain proponents have realized that they cannot ignore the world’s largest economy, and the home to major universities, financial markets, infrastructure, governments, and private enterprise. Going forward, blockchain companies and U.S. regulators will have to find ways to live with each other, and to bring this technology to fruition in a safe and effective manner.

In short, U.S. regulatory agencies adapt over time to meet new market challenges. Regulators often have overlapping missions, differing political incentives, and wide variances in jurisdiction and powers. Blockchain and cryptocurrency practitioners no longer have the luxury (or burden) of operating in a vacuum, and must adjust quickly to a patchwork of regulation. The most successful projects going forward will be the most nimble, and the most prepared to assure regulators that they are in compliance and that they pose no threat to public welfare. For now, business leaders must assess the applicability of federal and state regulations including those concerning securities, commodities, anti-money laundering, wire fraud, broker-dealers, consumer fraud, and tax compliance.

The following government entities are some of the primary regulators that blockchain and digital asset practitioners are most likely to encounter.

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