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Can US Regulators Claim Jurisdiction Over All Ethereum Transactions?

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The SEC claimed it has jurisdiction over all Ethereum transactions because the chain’s nodes are “clustered more densely” in the US than elswhere.

SEC: Ethereum Transactions Take Place in US

On the face of it, it was just a typical US Securities and Exchange Commission enforcement action, when the SEC charged crypto promoter Ian Balina for not disclosing compensation he received from Sparkster for publicly promoting its tokens, and failing to file a registration statement with the regulator for Sparkster tokens ($SPRK) that he resold to a pool of at least 50 investors.

One statement in the SEC complaint against Balina, however, has turned heads in crypto circles, because the American regulator appears to suggest that it has jurisdiction over all transactions on Ethereum, the second-largest decentralized blockchain after Bitcoin.

The SEC stated that US-based investors irrevocably committed to the purchase of SPRK tokens, which were built on the Ethereum blockchain, when they sent Ethereum’s native coin $ETH to Balina’s investment pool.

“At that point,” the SEC argued, “their ETH contributions were validated by a network of nodes on the Ethereum blockchain, which are clustered more densely in the United States than in any other country. As a result, those transactions took place in the United States.”

A node on the Ethereum network is formed every time two computers running the Ethereum client software are connected. The network of nodes is used to perform tasks, including validation and running smart contracts.

Currently, 46.2% of nodes are located in the United States, followed by Germany with 18.7%, according to Etherscan.

The claim that a preponderance of nodes in the US would mean the SEC has potentially jurisdiction over all transactions on Ethereum has no legal weight. It is also unlikely that the court will express an opinion on the matter in this case.

The Long Arm of US Regulators

But the throwaway remark has nonetheless caught the attention of crypto advocates.

It reflects the SEC’s desire to bring as much of the digital asset space as possible under its, or any other US regulator’s, purview.

In the absence of a clear legal framework, which is unlikely to be established by the US Congress anytime soon, the SEC is inclined to make its own regulations through enforcement actions.

It is equally likely that the argument related to the share of US-based Ethereum nodes will be brought up in response to future jurisdictional challenges of US regulators.

Does the density of nodes determine the legal jurisdiction of a blockchain transaction?

The SEC’s comment shows that US regulators believe most transactions even on a decentralized network can be characterized as taking place in the United States if there is a significant number of US-based computers, servers, networks or other systems involved.

It would be convenient for regulators if a court were to accept that proposition. After all, most Decentralized Finance (DeFi) protocols and Non-Fungible Tokens (NFTs) are running on Ethereum.

While new to the world of decentralized, internet-based transactions, the long arm of the US judicial system has a precedent in international fraud cases.

In fact, the argument is reminiscent of US regulators assuming jurisdiction for international corruption, money-laundering and sanctions cases that occur outside the United States but happen to use the US dollar.

US courts have consistently ruled that such cases are taking place in the US because all US dollar non-cash transactions, even between non-US parties, are ultimately facilitated by US correspondent banks.

Is Ethereum a Security?

The SEC comment in the Balina suit follows a report in the Wall Street Journal in which SEC Chairman Gary Gensler suggested that Proof-of-Stake (PoS) cryptocurrencies might potentially be considered securities.

Ethereum of course has just switched to a PoS validation process, which involves validators committing capital in the form of $ETH to a smart contract and receiving a reward for their work.

SEC Chairman Gary Gensler sees securities, like, everywhere.

In Gensler’s opinion, this process of “staking” could indicate that an asset meets the definition of an “investment contract” subject to US securities laws under the so-called Howey test.

The US securities regulator first applied the Howey test when it released its DAO Report of Investigation to determine whether a token sale is a securities offering that is subject to SEC registration.

The test defines investment contracts as offerings that represent a monetary investment with an expectation of profit from a common enterprise in which the profit is derived solely from the efforts of the promoter or a third party.

While common in crypto, the concept of staking does not exist in traditional finance. Rather than being just a pure investment to generate yield, which would be more akin to a security, staking rewards participants for both the work they do and the collateral they commit.

It is not clear therefore that staking would meet all elements of the Howey test.

Ripple Challenges ‘Regulatory country grave

One case that might help define and limit the SEC’s reach is the securities regulator’s suit against Ripple Labs Inc., which claimed the company’s XRP token issue was an unregistered securities offering.

The cryptocurrency firm filed a motion to dismiss the suit this month on the basis that the XRP token cannot be considered a security. Ripple said there was simply no “investment contract” in the sense of the Howey test, which would grant investors’ rights to the investment and a share of the profits and impose post-sale obligations on the company to act in the investors’ benefit.

Ripple lawyers characterize the SEC’s actions as a “regulatory land grab.”

According to Ripple, rather than arguing that the Howey test elements are present, the SEC attempts to establish a theory that becomes an “impermissibly open-ended assertion of jurisdiction over any transfer of an asset” that the SEC thinks may benefit from the registration and disclosure requirements of US securities laws.

Without an investment contract, the cryptocurrency firm asserts, the Howey test cannot be sensibly applied.

“The SEC’s untethered position would convert the sale of all types of ordinary assets – diamonds, gold, soybeans, cars, and even works of art – into sales of securities,” the court filing said, adding that the SEC was “engaged in a regulatory land grab” that far exceeds the boundaries of Congress set on its authority.

Ripple said in its filing: “The SEC is not following the law – it is seeking to remake it.”

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Green Cryptocurrency May Be the Future – This One Just Added Dyson and Samsung as Affiliate Partners

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Disclaimer: The Industry Talk section features insights by crypto industry players and is not a part of the editorial content of Cryptonews.com.

The Impact project has added Samsung and Dyson as affiliate partners. This platform’s IMPT token is an ideal asset for value-seeking investors to have in their portfolios.

Samsung and Dyson Join the Impact Project’s Affiliate Network

This week, Impact Project expanded its affiliate network by adding two of the world’s biggest companies. Korean technology conglomerate Samsung and Singapore-based household appliances company Dyson has joined the platform’s network of partners, with both firms committing to a greener future by using the Impact Project as a channel.

With this new move, the Impact Project has continued to grow its ever-expanding affiliate network as it looks to bring the corporate landscape to a greater consciousness of the climate challenges faced by the world.

More than 25,000 companies worldwide have already signed deals to join the Impact Project’s network. In one way or another, these companies will integrate the platform into their operations, enabling their customers to shop, make payments for carbon credits, and offset their carbon footprint.

Of the 25,000-plus companies in the Impact Project’s affiliate network, over 10,000 are retailers. These companies will reward their customers with IMPT tokens for using the platform while also serving as an incentive for other companies to do the same.

Transforming the Carbon Credit Landscape

The Impact Project is a blockchain-based platform looking to make it easier for individuals and companies to purchase carbon credits. Built on the Ethereum blockchain, the initiative has gained massive buzz in the crypto market for its potential to transform the fight against climate change.

So far, Impact Project is operating in an untapped niche. For years, many have asked that the blockchain space be more active in the fight against global warming. And while there is still much to be desired, platforms like the Impact Project are leading the charge and showing that blockchain can be a force for good.

The Impact Project has recognized the need for blockchain to be at the center of the fight against climate change. The platform aims to optimize the trading process for these credits, improving efficiency and transparency in the process while taking industry players away from the old and antiquated processes that have been so far the standard.

Since the state-based credit issuance system has been prone to inefficiency and bureaucracy, interested buyers have found it more challenging to purchase these credits over time.

The Impact Project will also address the liquidity problem, with credits being offered as non-fungible tokens (NFTs) that would allow users to trade seamlessly and efficiently. Users can control the number of tokens in circulation while also choosing whether or not they’d like to sell or burn them entirely.

Buy IMPT & Create a Better World

IMPT, the native token for the Impact Project, is one of the most exciting coins on the market. The coin, available on presale, has been available on presale, has so far raised over $13.2 million in less than two months. And, even with the bearish forces on the market being strong, it is impressive how much IMPT has managed to capture the attention of value-seeking investors who would also like to create better work.

As each stage of the IMPT presale goes on, the asset’s value rises. This means that the token holds a lot of untapped potential for gains. The digital asset trades at $0.023 but will move to $0.028 in the next phase.

For investors looking for the perfect ESG investment, IMPT is a good coin to buy.

Buy IMPT on Presale Now

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IMF Seeks Stronger Regulation of Cryptocurrency in Africa as Adoption Takes Hold

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The collapse of the FTX cryptocurrency exchange has attracted the attention of global regulators, including the International Monetary Fund (IMF). Before its demise, FTX was the third-largest cryptocurrency exchange by trading volumes, and it had a significant presence in developing countries.

IMF calls for crypto regulations in Africa after FTX collapse

In a recent statement, the IMF said that the demise of FTX and the dropping prices of Bitcoin, Ethereum, and other cryptocurrencies, have necessitated better regulations in the industry and consumer protection measures.

The global financial institution noted that crypto assets were highly volatile, and their decentralized nature made it challenging for most governments to regulate the industry. Therefore, there was a need to balance lowering the risk posed by the industry and supporting innovation.

It further noted that only a quarter of the countries in sub-Saharan Africa regulated cryptocurrencies. Moreover, two-thirds of these countries had implemented some restrictions. In contrast, another six, including Cameroon, Ethiopia, Tanzania, Lesotho, Sierra Leone, and the Republic of Congo, had imposed a total ban on cryptocurrencies.

On the other hand, Zimbabwe has mandated all the banks licensed to operate in the country to halt processing cryptocurrency transactions. Additionally, Liberia instructed a crypto startup that had started offering services in the country to halt operations.

Africa has become a main hub for cryptocurrency activities. Data from Chainalysis shows that the number of crypto transactions in the country has increased over the years. However, the size of crypto transactions in the continent is smaller than in other regions, with the monthly transactions peaking at $20 billion in mid-2021.

The highest number of crypto users in the region are in Kenya, Nigeria and South Africa. The majority of people in the region use cryptocurrencies to make commercial payments. However, the volatility of these assets makes them unsuitable for use as a store of value.

Policymakers have raised concerns about whether crypto assets can be used to make illegal transactions outside the region and to avoid the rules put in place to avoid capital outflows. The high use of cryptocurrencies in the region could reduce the effectiveness of the monetary policy, which poses a danger to financial and macroeconomic stability.

IMF concerned about the adoption of crypto as a legal tender

The IMF has also said that the cryptocurrency sector’s risks were higher if these assets were adopted as a legal tender, citing an example of the Central African Republic. The country became the second globally to adopt Bitcoin as a legal tender. According to the IMF, holding crypto assets as a means of payment puts public finances at risk.

The IMF has also added that adopting BTC as a legal tender in the Central African Republic has caused conflict between the country and the Bank of Central Africa States (BEAC), as it violates the institution’s treaty. Central Africa’s Banking Commission, which oversees the BEAC banking sector, has banned using cryptocurrencies for financial transactions.

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Author: Ali Raza

Ali is a professional journalist with experience in Web3 journalism and marketing. Ali holds a Master’s degree in Finance and enjoys writing about cryptocurrencies and fintech. Ali’s work has been published on a number of leading cryptocurrency publications including Capital.com, CryptoSlate, Securities.io, Invezz.com, InsideBitcoins, BeinCrypto, and more. …

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Crypto Firm FTX’s Ownership of a U.S. Bank Raises Questions

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Among the many surprising assets uncovered in the bankruptcy of the cryptocurrency exchange FTX is a relatively tiny one that could raise big concerns: a stake in one of the country’s smallest banks.

The bank, Farmington State Bank in Washington State has a single branch and, until this year, just three employees. It did not offer online banking or even a credit card.

The tiny bank’s connection to the collapse of FTX is raising new questions about the exchange and its operations. Among them: How closely tied is FTX, which was based in the Bahamas, to the broader financial system? What else might regulators have missed? And in the hunt for FTX’s missing assets, how will Farmington get dragged into the multibillion-dollar bankruptcy?

The ties between FTX and Farmington State Bank began in March when Alameda Research, a small trading firm and sister to FTX, invested $11.5 million in the bank’s parent company, FBH.

At the time, Farmington was the nation’s 26th-smallest bank out of 4,800. Its net worth was $5.7 million, according to the Federal Deposit Insurance Corporation.

The sudden collapse of the crypto exchange has left the industry stunned.

  • A Spectacular Rise and Fall: Who is Sam Bankman-Fried and how did he become the face of crypto? The Daily charted the spectacular rise and fall of the man behind FTX.
  • A Symbiotic Relationship: Mr. Bankman-Fried’s built FTX partly to help the trading business of Alameda Research, his first company. The ties between the two entities are now coming under scrutiny.
  • Missing Assets: Lawyers for FTX said a substantial amount of the company’s assets had either been stolen or were missing, casting doubt on the odds of recovering billions of dollars in crypto that customers lost.
  • A Bid for Influence: ​​In just three years, Mr. Bankman-Fried built a massive operation to woo politicians, regulators and nonprofits to support his crypto goals. Here’s how.

FTX’s investment, which according to financial regulators was more than double the bank’s net worth, was led by Ramnik Arora, a top lieutenant of the exchange’s founder, Sam Bankman-Fried. Mr. Arora was responsible for many of the much larger deals that FTX signed with Sequoia Capital and other venture capitalists that eventually failed.

Farmington has more than one crypto connection. FBH bought the bank in 2020. The chairman of FBH is Jean Chalopin, who, along with being a co-creator of cartoon cop Inspector Gadget in the 1980s, is the chairman of Deltec Bank, which, like FTX, is based in the Bahamas . Deltec’s best-known client is Tether, a crypto company with $65 billion in assets offering a stablecoin that is pegged to the dollar.

Tether has long faced concerns about its finances, in part because of its reclusive owners and offshore bank accounts. Through Alameda, FTX was one of Tether’s largest trading partners, raising concerns that the stablecoin could have yet-undiscovered ties to FTX’s fraudulent operations.

Before the acquisition, Farmington’s deposits had been steady at about $10 million for a decade. But in the third quarter of this year, the bank’s deposits jumped nearly 600 percent to $84 million. Nearly all of that increase, $71 million, came from just four new accounts, according to FDIC data.

It’s not clear what FTX’s plan was for Farmington. Online, Farmington now goes by Moonstone Bank. The name was trademarked a few days before FTX’s investment. Moonstone’s website doesn’t say anything about Bitcoin or other digital currencies. It says Moonstone wants to support “the evolution of next generation finance.”

Deltec and Moonstone did not return a request for comment.

It’s unclear how FTX was allowed to buy a stake in a US-licensed bank, which would need to be approved by federal regulators. Banking veterans say it’s hard to believe that regulators would have knowingly allowed FTX to gain control of a US bank.

“The fact that an offshore hedge fund that was basically a crypto firm was buying a stake in a tiny bank for multiples of its stated book value should have raised massive red flags for the FDIC, state regulators and the Federal Reserve,” said Camden Fine , a bank industry consultant who used to head the Independent Community Bankers of America. “It’s just astonishing that all of this got approved.”

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