Bitcoin

December 4, 2015

Regu la t ion & Compl iance Around the World

Mexico Ci ty

@ J uan L l ano s

anonymity t ransmiss ion of money or value

cash or monetar y equivalent value that subst i tu tes for currency

B i t c o i n R e g u l a t e d B e f o r e B o r n

2015 Juan Llanos

Agenda

2015 Juan Llanos

1. Regulation today 2. Compliance 3. Enforcement 4. Regulation tomorrow

Agenda

2015 Juan Llanos

1. Regulation today2. Compliance 3. Enforcement 4. Regulation tomorrow

VALUE

PROPERTY

POWER

2015 Juan Llanos

R i s k M a n a g e m e n t 1 0 1

NEGLIGENCE

IMPRUDENCE

MALPRACTICE

ABUSE

LOSS

2015 Juan Llanos

2015 Juan Llanos

2015 Juan Llanos

2015 Juan Llanos

Agenda

2015 Juan Llanos

1. Regulation today 2. Compliance3. Enforcement 4. Regulation tomorrow

REGISTRAT ION L ICENSING

2015 Juan Llanos

ACT IV I TY -BASED CUSTOMER JUR ISD ICT ION

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FORM SUBSTANCE

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12

3

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2015 Juan Llanos

Form-substance continuum substance Letter-spirit continuum focus on spirit (underlying purpose

and values) facilitates compliance without compromising performance

Holistic risk management leverage tech for everything

Engineers, not lawyers (sorry, guys)

COMPETIT IVE ADVANTAGE e x cep t i ona l comp l i ance a t t r a c t s f a vo rab l e r e v i ews f r om r egu l a t o r s and banke r s .

REPUTATION h i gh comp l i ance and i n t e r na l con t r o l s s t anda rd s r a i s e t h e e l i g i b i l i t y o f t h e company f o r pa r t n e r s h i p s

SHAREHOLDER VALUE a spo t l e s s comp l i ance r e co rd r educe s t h e d i s coun t a po t en t i a l acqu i r o r i s l i k e l y t o app l y t o t h e va l ua t i o n

T h e Va l u e o f a N e c e s s a r y E v i l

2015 Juan Llanos

Agenda

1. Regulation today 2. Compliance 3. Enforcement4. Regulation tomorrow

2015 Juan Llanos

conser vative vs. progressive restr ict ive vs. expansive

misguided vs. enlightened

formal vs. substantial aggressive vs. permissive

Regulatory & Enforcement A t t i t u d e s

2015 Juan Llanos

2013-03-18 F i n C E N I s s u e s G u i d a n c e o n V i r t u a l C u r r e n c y 2013-05-13 C F T C v o w s t o c o n s i d e r B i t c o i n r e g u l a t i o n 2013-05-13 D H S f r e e z e s D w o l l a a c c o u n t s 2013-05-28 L i b e r t y R e s e r v e i s i n d i c t e d f o r $ l a u n d e r i n g 2013-06-22 FAT F R e p o r t o n N e w P a y m e n t M e t h o d s 2013-06-23 B i t c o i n F o u n d a t i o n r e c e i v e s C & D l e t t e r f r o m C A 2013-07-22 S E C c h a r g e s Te x a s m a n f o r B T C P o n z i s c h e m e 2013-08-12 N Y s u b p o e n a s B i t c o i n f i r m s 2013-10-01 L a w s k y : S o B e I t i f t r a n s p a r e n c y d o o m s B i t c o i n 2013-10-26 F B I S i l k R o a d B i t c o i n b u s t 2013-12-12 F i n C E N s h u t s d o w n C a s a s c i u s o p e r a t i o n

Regu la tor y / Law Enforcement Mi les tones 2 013

2015 Juan Llanos

2014-01-27 C h a r l i e S h r e m a r r e s t e d , i n d i c t e d 3 m o n t h s l a t e r 2014-01-27 B i l i c e n s e h e a r i n g s a r e h e l d i n N e w Yo r k 2014-01-31 F i n C E N d e c l a r e s m i n e r s & i n v e s t o r s n o t M Ts 2014-02-07 F l o r i d a t a r g e t s l o c a l b i t c o i n e x c h a n g e r s 2014-02-07 M t G o x h a l t s w i t h d r a w a l s 2014-02-24 M t G o x s h u t s d o w n , f i l e s f o r b a n k r u p t c y 4 d a y s l a t e r 2014-02-26 S e n a t o r M a n c h i n ( R - W V ) c a l l s f o r B i t c o i n b a n 2014-03-25 I R S s a y s B i t c o i n a n d V C t o b e t a x e d a s p r o p e r t y 2014-04-08 U S A t t o r n e y G e n e r a l k e e p i n g e y e o n b i t c o i n 2014-04-29 F i n C E N d e c l a r e s c l o u d m i n i n g & e s c r o w n o t M Ts 2014-05-05 U S g o v e r n m e n t t o s t u d y B i t c o i n s t e r r o r i s t t h r e a t 2014-06-06 E u r o p e a n C e n t r a l B a n k c a l l s f o r i n s t i t u t i o n a l c o n t r o l s 2014-06-30 F i n C E N e x a m i n e s r i s k s o f d i g i t a l c u r r e n c i e s 2014-07-14 N Y S i s s u e s B i t l i c e n s e p r o p o s a l 2014-07-17 E u r o p e a n B a n k i n g A u t h o r i t y e x a m i n e s B T C r i s k s 2014-09-23 U S g o v e r n m e n t s h u t s d o w n B u t t e r f l y L a b s 2014-10-27 F i n C E N r u l e s p a y m e n t p r o c e s s o r s & b r o k e r s a r e M Ts

Regu la tor y / Law Enforcement Mi les tones

2 0 1 4

2015 Juan Llanos

2015-02-13 Q u e b e c M a n d a t e s L i c e n s i n g o f B i t c o i n S e r v i c e s 2015-03-26 I s l e o f M a n I n t r o d u c e s B i t c o i n R e g u l a t i o n 2015-05-05 F i n C E N F i n e s R i p p l e L a b s f o r B S A V i o l a t i o n s 2015-05-05 R o s s U l b r i c h t S e n t e n c e d t o L i f e i n P r i s o n 2015-06-03 N Y S R e l e a s e s F i n a l B i t l i c e n s e 2015-07-22 A u s s i e S e c u r i t i e s R e g u l a t o r S t o p s B i t c o i n I P O 2015-08-14 F i n C E N R u l e s A s s e t - B a c k e d To k e n C o s a r e M Ts 2015-09-24 C F T C R e a c h e s S e t t l e m e n t w i t h Te r a E x c h a n g e 2015-09-29 M e x i c o E x t e n d s P a y m e n t R e s t r i c t i o n s t o B i t c o i n 2015-10-21 FAT F Wa r n s B i t c o i n C o u l d F u e l Te r r o r i s m 2015-10-22 B i t c o i n E x e m p t f r o m VAT i n E u r o p e 2015-10-28 R u s s i a P l a n s t o B a n B i t c o i n - t o - F i a t C o n v e r s i o n s 2015-11-12 Wa s h i n g t o n S t a t e I s s u e s C o n s u m e r Wa r n i n g 2015-12-01 S E C C h a r g e s G AW M i n e r s C E O w i t h S e c t s F r a u d

Regu la tor y / Law Enforcement Mi les tones

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2015 Juan Llanos

Agenda

1. Regulation today 2. Compliance 3. Enforcement 4. Regulation tomorrow

2015 Juan Llanos

RETHINK REDEFINE REINVENT

2015 Juan Llanos

PARADIGMS quest ioned

m o n e y s o v e r e i g n t y

s e c u r i t y r e g u l a t i o n

p r o p e r t y i d e n t i t y

l a w g o v e r n a n c e

2015 Juan Llanos

A M L / C F T TODAY - national security and crime deterrence are top public policy

priorities - unintended consequence selective inclusion facilitates fiscal

surveillance but creates financial exclusion of underprivileged - stick over carrot (heavy hand) - Anonymity is anathema

TOMORROW - carrot over stick (lighter hand) - measure proportion and results - layered, zero-knowledge, identity systems could meet both law

enforcement and civil liberties goals 2015 Juan Llanos

I D E N T I T Y TODAY - Countries have the monopoly over a persons identity (mostly, for

fiscal reasons) - Not all countries have reliable identification systems - Government-issued IDs are not necessarily effective in deterring

crime/unmistakably identifying humans

TOMORROW - Alternative identity systems that transcend borders and facilitate

identification of previously disenfranchised persons - Identity systems that balance both transparency and privacy (ID3/

Windhover Principles)

2015 Juan Llanos

P R I V A C Y

TODAY - Radical transparency jeopardizes privacy - Slowly being eroded via tax compliance regulations, elimination of

secrecy havens, digitization of money TOMORROW - Leverage zero-knowledge proof technology tokenization

(Windhover Principles) - Privacy without anonymity = pseudonymity (first payment; then,

identity)

2015 Juan Llanos

S E C U R I T Y

TODAY - role-based access control - Digital tokens are bearer instruments: lose the key, lose the asset

forever - Information security risks increase with digitization - Network-centric TOMORROW - customer-centric custody and security (via multi-signature escrow) - Device/Machine-centric

2015 Juan Llanos

2015 Juan Llanos

A successful algorithmic regulation system has the following characteristics: 1.Desired outcome 2.Real-time measurement 3.Adaptive algorithms 4.Deeper analysis

A l g o r i t h m i c R e g u l a t i o n *

* Tim OReilly, Open Data & Algorithmic Regulation (in Beyond Transparency)

2015 Juan Llanos

INNOVATE IMPLEMENT INFLUENCE

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2015 Juan Llanos

Proof that I n f l u e n c e Wo r k s N o n - B a n k F i n a n c i a l I n s t i t u t i o n s , i n c l u d i n g t e l c o s , a r e o b t a i n i n g f a v o r a b l e r e g u l a t o r y t r e a t m e n t w o r l d - w i d e a n d c o m p e t i n g h e a d o n w i t h e s t a b l i s h e d d e p o s i t a r i e s .

Hugo Cuevas-Mohr

conser vative vs. progressive restr ict ive vs. expansive

misguided vs. enlightened

formal vs. substantial aggressive vs. permissive

Regulatory & Enforcement A t t i t u d e s

2015 Juan Llanos

INNOVATE & Reinvent the World

INFLUENCE Public Policy

IMPLEMENT Mandatory Rules

Respons ib le Evo l u t i on

2015 Juan Llanos

Forget the negative attacks on governments or banks. Its a war that cannot be won and

making such powerful enemies does Bitcoin no favours. The tech and the companies operating

it need to focus on making the transition to bitcoin irresistible and inevitable.

Dominic Frisby

2015 Juan Llanos

@JuanLlanos

Thank You