The regulatory process: if you're not at the table, you're on the menu

Wednesday 30 December 2015

Crypto businesses and communities need to engage with regulators - because these guys otherwise don’t know what they’re talking about.

This post is a summary of an in-depth article from, about the recent call by ESMA (the European Securities and Markets Authority, the equivalent of the US Securities and Exchange Commission) for evidence regarding ‘Investment using virtual currency or distributed ledger technology’


Crypto is far down the food chain for many traditional financial organisations

In summary, the response from the crypto world was pretty thin, which is both surprising and worrying. Left to their own devices, ESMA and the other organisations that submitted responses proved more than capable of making a number of inaccurate conclusions and missing critical pieces of evidence. ESMA received 18 responses, only two of which were on behalf of cryptocurrencies. There was no response from bitcoin, Ethereum, or other major cryptocurrencies.

As an example of incompleteness and other inaccuracies, take the following extract of the ESMA response from Intesa Sanpaolo (a banking group based in Italy):

We would like to point out that, unlike Bitcoin’s Proof of Work method (which, as stated in O1, we regard as the only effective one, at least at the moment, because of the computational power dedicated to it), other decentralized double-spending prevention algorithms, like NXT’s Proof of Stake (PoS) presented in paragraph n.17, are still not validated from both a theoretical and an empirical point of view:

    • There is an ongoing debate over the “Nothing at Stake” problem affecting every system which doesn’t use any consumption of resources external to the system for the validation;
    • Every single existing PoS scheme... is actually relying on some kind of centralization in validation checkpoints, in “currency” ownership or in nodes distribution.

This is either simply inaccurate (it is highly debatable whether checkpoints can be considered a form of centralisation, and bitcoin is arguably more centralised than many other cryptocurrencies); or ignores swathes of research that point to the contrary (the security of proof-of-stake). 

It's clear that we cannot leave external organisations to make valid points with regard to cryptocurrency - and that's only to be expected. They are not experts and have no vested interest in making sure they get this stuff right. We are and do, and this is why crypto businesses and communities must engage fully with the regulatory process: if you’re not at the table, you’re on the menu.

To read the full article, take a look at

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