US law firm Steptoe & Johnson LLP has filed a petition with the Commodity Futures Trading Commission (CFTC), calling on the agency to provide more clarity regarding the definition of "delivery" in blockchain-based transactions.
Signed by Steptoe partner Micah Green and senior policy advisor (and former CFTC commissioner) Michael Dunn, the petition centers around actions the agency took against Hong Kong-based bitcoin exchange Bitfinex in June. At the time, the company paid $75,000 amid allegations that it never properly delivered certain funds to traders.
While Bitfinex was fined, it also settled its charges with the CFTC. However, the petition takes issue with the fact that the exact changes Bitfinex implemented to come into compliance were not made public, and that as such, any clarity as to how it satisfied the CFTC’s definition of delivery was never disseminated to the wider market.
Green and Dunn wrote:
The petition goes on to argue that the definition of custody in a blockchain environment remains a gray area, one the authors assert is "harmful" to digital currency and blockchain startups.
For example, those backing the petition assert that the CFTC's ruling suggest Bitfinex ran into trouble by holding the private keys associated with bitcoins loaned to traders, an action the CFTC interpreted as meaning the bitcoins in question were never actually delivered.
Such wording, the petition contends, could lead to interpretations that custody and wallet control need to be directly linked in blockchain environments. Further, when combined with the long settlement times on public blockchains, these observers say, this might make certain business models based on prompt delivery more difficult to execute.
To better understand and address such concerns, the letter requests that the CFTC undertake a rulemaking process that would find it soliciting feedback from the wider community on how it could best determine a more formal definition.
"Given the novelty of both the cryptocurrency market and the use of blockchain technology, engaging the public through a notice-and-comment rulemaking process would help to inform the Commission about the relevant considerations in developing the elements of ‘actual delivery’ and the potential unintended consequences in rendering such an articulation," the notice reads.
More broadly, the filing again raises questions regarding definitions of custody that have long been cited as an issue with existing US state laws meant to cover blockchain-based digital currencies.
'Know the answers' visualization via Shutterstock
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.