The BSV Blockchain Association recently sponsored the first annual Unbounded Capital Summit in New York City at Dream Downtown. The exclusive event was invite-only and featured some 80 attendees including prominent venture and hedge fund managers, fintech and blockchain entrepreneurs, and institutional and family office investors.
The summit was hosted by Unbounded Capital to help promote a network and provide excellent opportunities for on-chain companies to meet experts and investors.
One of the keynote addresses at the summit was given by Dave Mullen-Muhr, Partner at Unbounded Capital, who talked about the recent problems at Tornado Cash and how regulators in the US have moved beyond sanctioning individuals and are actually sanctioning code itself.
The troubling future of coin mixers
Since 2019, Unbounded Capital has been publicly warning against the widespread legal ignorance of the blockchain sector and avoided use cases which, at their core, attempted regulatory arbitrage – including from privacy coins like Monero and mixers like Tornado Cash, he said.
While avoiding these types of projects may sound obvious, this broad category including unregistered securities constitutes the vast majority of capital in the cryptocurrency/blockchain sector.
Unbounded Capital’s forecast for the future of blockchain is that projects seeking to exploit these perceived legal loopholes will fail while those leveraging blockchain to deliver value to their business will thrive. This is true not only of niche projects like the now-defunct Tornado Cash but also of industry leaders like BTC and Tether.
‘A lot of people were surprised by the Tornado Cash situation as it is a decentralised technology so how can it be sanctioned and frozen in this manner? But our reaction is that this was totally expected,’ Mullen-Muhr said.
Decentralisation is not what you think
‘The implication of decentralisation is that there is no main party which is responsible and that governments and regulators don’t have anyone to explicitly target,’ Mullen-Muhr said.
‘By comparison, a distributed network is something like Amazon Web Services, which has a CEO and pays taxes but offers a distributed network architecture so that if a server goes down, the whole system doesn’t also go down.’
While a cryptocurrency such as BTC advertises itself as being ‘decentralised’, Mullen-Muhr said there are a handful of mining pools which account for over 51% of the network. The implication of this is that regulators could target one of these pools and it would have a significant impact because of the amount of sway they have over the network.
He again pointed to the case of Tornado Cash where specific addresses were effectively blacklisted and prohibited from interacting with the network at a code level.
Blockchain lives in a legal context
‘In reality, blockchain lives in a legal context. The computers which create these networks are provisioned by people. The software which manages and tracks blockchain-based tokens is programmed by people,’ Mullen-Muhr said.
‘The exchanges which provide liquidity for the sale of tokens, their primary function thus far, are operated by people. All of these people live in a legal context and, as a result, so do the fruits of their labour.’
The BSV Blockchain Association’s approach to legislation
The BSV Blockchain Association is pro-regulation and believes that the global adoption of blockchain technology requires enterprises and lawmakers to become comfortable with legal compliance by industry participants.
To ensure the development of a regulatory environment that both fosters lawful conduct and facilitates innovation, the Association regularly engages with leading policymakers to advise on the development of positive policy.
In October 2022, the Association announced the launch of its Blacklist Manager, the first software tool making it possible for Bitcoin miners to comply with court orders to freeze lost or stolen Bitcoin tokens.
Marcin Zarakowski, General Counsel and Chief of Staff at Bitcoin Association, highlights the demand for a legitimate blockchain systems:
‘The introduction of the Blacklist Manager tool is a sign of the maturing blockchain space. If we want to have a massive adoption of blockchain technology by the corporate world, large firms, banks and governments, there needs to be a way to recover lost or stolen assets.