A group of congressmen put forward a new cryptocurrency bill named the Cryptocurrency Act 2020, this week. The new legislation aims to grant additional clarification on digital asset regulations. The bill has some wide-sweeping rules that, if enacted into law, could restructure the whole crypto sphere moving forward.

The Cryptocurrency Act 2020 was presented by U.S. Representative Paul Gosar (R-AZ). The representative stated that he desired to assign regulatory clarity to the market. Currently, much of the crypto space is questionable in terms of regulations. Customers and lawmakers are in dispute over what agencies are accountable for regulations of what sorts of cryptocurrencies.

The new legislation starts with a categorization of cryptocurrencies into three main groups. These groups are used to decide what agency is liable for the formulation of regulations and enforcement.

Cryptocurrency

The first class defined in the new bill are cryptocurrencies. Cryptos include Litecoin, Bitcoin, and any other cryptocurrencies that don’t fall under the current securities regulations. The bill codifies these tokens as any crypto that “includes representations of United States currency or synthetic derivatives leaning on a blockchain or decentralized cryptographic ledger.”

The bill also asserts that any “synthetic derivatives determined by decentralized oracles or smart contracts” fall into this category. Interestingly, this categorization fixes reserve-backed digital assets such as stablecoins straight into the cryptocurrency category.

Crypto-Commodities

The next class of cryptocurrency explained in the new bill are Crypto-Commodities. These tokens are “economic goods or services that markets consider with no concern for who produced the goods or services.” 

A vital character of these tokens is the fact that they hold some form of substantial fungibility. Fungible assets are interchangeable such as the U.S. dollar. Any two dollars are equal in value. Subsequently, these assets must remain on a blockchain or decentralized cryptographic ledger to fall into this classification.

Crypto-Securities

The final type of coin specified in the bill is crypto-securities. These tokens are any coin that abandons the Howey Test. This class of crypto can include equity, tokenized debt, and derivative instruments that live on a blockchain. Security tokens are amongst the newest type of cryptocurrency. Thee tokens endeavor to bring integrated compliance into the market.

Interestingly, the bill distinguishes between security tokens that involve a “synthetic derivative both operated and registered with the Department of the Treasury as a money services business in compliance with the Bank Secrecy Act.” 

Moreover, these coins must comply with the strict anti-terrorism, anti-money laundering, and screening requirements of the ‘Office of Foreign Assets Control,’ as well as the ‘Financial Crimes Enforcement Network.’

Federal Digital Asset Regulators in Cryptocurrency Act of 2020

Apart from an endeavor to clarify the market, the Cryptocurrency Act 2020 sets out what government agencies are accountable for each class of token. If passed, these agencies will obtain regulatory authority over the assets in their jurisdiction. 

Furthermore, these agencies will be liable for informing the public on the appropriate licenses, certifications, or registrations required to engage in the markets.

The three regulatory bodies specified in the bill involve the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN). These groups would get the sole authority over their digital asset types.

FinCEN

The new approach would set those tokens considered as cryptocurrencies under the regulations of the Financial Crimes Enforcement Network (FinCEN). For its part, FinCEN must have a public record of all licenses, certifications, and registrations required to create, issue, or trade digital assets.

Additionally, FinCEN would need to cooperate with the Secretary of the Treasury to enforce AML and KYC protocols in the market. Fundamentally, regulators want to develop a way to track all crypto transactions. This final task could substantiate to be a real choir as many cryptocurrencies have privacy features, which would make this task almost impracticable.

SEC

The bill keeps security tokens under the vigilant eye of the Securities and Exchange Commission (SEC). The SEC lately began cracking down on what they considered criminal securities offerings from the 2017 ICO craze. Presently, the SEC indicted multiple firms such as Paragon and, most recently, the startup Blockchain of Things Inc. Currently, the SEC believes jurisdiction over any tokens that abandon the Howey Test.

CFTC Crypto-Commodities

The Commodity Futures Trading Commission would obtain the jurisdiction of the crypto-commodities class. The group will need to strengthen the framework for these tokens from the ground up if the legislation passes. Analysts think crypto-commodities are to see substantial growth over the next few years.

People in the crypto community consider that the new legislation is a measure to combat Facebook’s developing digital asset, Libra. Ever since Facebook declared its goals to produce a stablecoin that will work on its network, legislators have been in a rush to configure some form of framework to hold the company’s potentially game-changing product.

In the past, multiple representatives called for Libra to see categorization under securities. Earlier in the year, a group of bipartisan U.S. Senators proposed a bill that would place all stablecoins into the securities category. The bill – the Token Taxonomy Act of 2019 would firmly place Facebook’s latest crypto under the regulatory supervision of the SEC.

Cryptocurrency Act of 2020

This latest development showcases just how far cryptocurrencies have come in the last decade. Now, administrators are struggling to develop some way to keep control of these decentralized currencies. Sooner or later, you may find that the technology operates in a manner that makes enforcement of these regulations nearly impossible. For now, the crypto community watches and waits as lawmakers struggle for options.