Bitcoin

December 4, 2015

Regulat ion & Compl ianceAround the World

Mexico City

@JuanL lanos

“anonymity”“transmission of money or value”

“cash or monetary equivalent”“value that substitutes for currency”

B i t c o i n Re g u l a t e d B e f o re B o rn

© 2015 Juan Llanos

Agenda

© 2015 Juan Llanos

1. Regulation today2. Compliance3. Enforcement4. Regulation tomorrow

Agenda

© 2015 Juan Llanos

1. Regulation today2. Compliance3. Enforcement4. Regulation tomorrow

VALUEPROPERTY

POWER

© 2015 Juan Llanos

R i sk M a na g e m ent 1 0 1NEGLIGENCEIMPRUDENCEMALPRACTICE

ABUSE

LOSS

© 2015 Juan Llanos

© 2015 Juan Llanos

© 2015 Juan Llanos

© 2015 Juan Llanos

Agenda

© 2015 Juan Llanos

1. Regulation today2. Compliance3. Enforcement4. Regulation tomorrow

REGISTRATIONLICENSING

© 2015 Juan Llanos

ACTIVITY-BASEDCUSTOMER

JURISDICTION

© 2015 Juan Llanos

FORMSUBSTANCE

© 2015 Juan Llanos

1

2

3

© 2015 Juan Llanos

© 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)

• COMPETITIVE ADVANTAGE except iona l compl iance at t racts favorab le rev iews f rom regu lators and bankers .

• REPUTATION high compl iance and interna l cont ro l s s tandards ra ise the e l ig ib i l i ty o f the company for par tnersh ips

• SHAREHOLDER VALUE a spot less compl iance record reduces the d iscount a potent ia l acqu i ror i s l i ke ly to app ly to the va luat ion

“ T he Va l ue o f a N e c es sa r y E v i l ”

© 2015 Juan Llanos

Agenda1. Regulation today2. Compliance3. Enforcement4. Regulation tomorrow

© 2015 Juan Llanos

conservative vs. progressiverestrictive vs. expansive

misguided vs. enlightened

formal vs. substantialaggressive vs. permissive

Regulatory & Enforcement Att i tudes

© 2015 Juan Llanos

2013-03-18 Fi nCEN I s sues Gu i da nce on V i r t ua l Cu r renc y2013-05-13 CFTC v ows to co ns i de r B i t c o i n regu l a t i on 2013-05-13 DH S f reezes D wo l l a a cc oun t s2013-05-28 L i be r ty Rese r ve i s i nd i c t ed f o r $ l a under i ng2013-06-22 FAT F Repo r t o n New Pay ment Met hods 2013-06-23 B i t co i n Found a t i o n rec e i v es C&D l e t te r f rom CA2013-07-22 SEC c ha rges Texa s ma n f o r BTC Ponz i s ch eme2013-08-12 NY subpoenas B i t co i n fi rms2013-10-01 L awsky: “So Be I t ” i f t r anspa rency do o ms B i t c o i n2013-10-26 FB I S i l k Ro ad B i t co i n bus t2013-12-12 Fi nCEN shu t s down Ca sa sc i us o pe ra t i on

Regulatory / Law Enforcement Milestones

2 0 1 3

© 2015 Juan Llanos

2014-01-27 C h a r l i e S h re m a r re s t e d , i n d i c t e d 3 m o n t h s l a t e r2014-01-27 ‘ B i l i c e n s e ’ h e a r i n g s a re h e l d i n N e w Yo r k2014-01-31 Fi n C E N d e c l a re s m i n e r s & i n v e s t o r s n o t M Ts2014-02-07 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 ox h a l t s w i t h d r a w a l s 2014-02-24 M t G ox s h u t s d o w n , fi 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 r2014-02-26 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 n2014-03-25 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 xe d a s p ro p e r t y2014-04-08 U S A t t o r n e y G e n e r a l ke e p i n g e y e o n b i t c o i n2014-04-29 Fi n C E N d e c l a re s c l o u d m i n i n g & e s c ro w n o t M Ts2014-05-05 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 ro r i s t t h re a t2014-06-06 E u ro 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 ro l s2014-06-30 Fi 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 re n c i e s2014-07-14 N Y S i s s u e s ‘ B i t l i c e n s e ’ p ro p o s a l2014-07-17 E u ro 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 TC r i s k s2014-09-23 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 fl y L a b s2014-10-27 Fi n C E N r u l e s p a y m e n t p ro c e s s o r s & b r o ke r s a r e M Ts

Regulatory / Law Enforcement Milestones

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 s2015-03-26 I s l e o f M a n I n t ro d u c e s B i t c o i n Re g u l a t i o n2015-05-05 Fi n C E N Fi 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 s2015-05-05 Ro 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 n2015-06-03 N Y S Re l e a s e s Fi n a l B i t l i c e n s e2015-07-22 A u s s i e S e c u r i t i e s Re g u l a t o r S t o p s B i t c o i n I P O2015-08-14 Fi n C E N Ru l e s A s s e t -B a c ke d To ke n C o s a re M Ts2015-09-24 C FTC Re a c h e s S e t t l e m e n t w i t h Te r a E xc h a n g e2015-09-29 M ex i c o E x t e n d s Pa y m e n t Re s t r i c t i o n s t o B i t c o i n2015-10-21 FAT F Wa rn s B i t c o i n C o u l d Fu e l Te r ro r i s m2015-10-22 B i t c o i n E xe m p t f r o m VAT i n E u ro p e2015-10-28 Ru s s i a P l a n s t o B a n B i t c o i n - t o - Fi a t C o n v e r s i o n s2015-11-12 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 rn i n g2015-12-01 S E C C h a rg e s G AW M i n e r s C E O w i t h S e c t s Fr a u d

Regulatory / Law Enforcement Milestones

2 0 1 5

© 2015 Juan Llanos

Agenda1. Regulation today2. Compliance3. Enforcement4. Regulation tomorrow

© 2015 Juan Llanos

RETHINKREDEFINEREINVENT

© 2015 Juan Llanos

PARADIGMSquestioned

m on eyso ve re i gn ty

secu r i t yregu la t i on

p ro pe r t yi den t i t y

l awgo ve rnance© 2015 Juan Llanos

A M L / C F TTODAY- 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 YTODAY- Countries have the monopoly over a person’s 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 VA 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 YTODAY- 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 outcome2.Real-time measurement3.Adaptive algorithms 4.Deeper analysis

A lgor i thmic R e g u l a t i o n *

* Tim O’Reilly, “Open Data & Algorithmic Regulation” (in Beyond Transparency)

© 2015 Juan Llanos

INNOVATEIMPLEMENTINFLUENCE

© 2015 Juan Llanos

© 2015 Juan Llanos

Proof that Influence Works

“ 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

conservative vs. progressiverestrictive vs. expansive

misguided vs. enlightened

formal vs. substantialaggressive vs. permissive

Regulatory & Enforcement Att i tudes

© 2015 Juan Llanos

INNOVATE& Reinvent the World

INFLUENCEPublic Policy

IMPLEMENT

Mandatory Rules

ResponsibleEvolution

© 2015 Juan Llanos

“Forget the negative attacks on governments or banks. It’s 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