A fresh legislative proposal has been tabled in the United States to bolster transparency within the rapidly evolving cryptocurrency sector. Titled the “Off-Chain Digital Commodity Transaction Reporting Act,” this bill was spearheaded by U.S. Representative Don Beyer on September 28. It necessitates cryptocurrency trading platforms to document all transactions in a repository accredited by the Commodity Futures Trading Commission (CFTC).
Aiming for Enhanced Investor Protection
At the core of this legislation is the intention to shield cryptocurrency investors from potential fraud, manipulation, or disputes that might emerge from off-chain transactions. Unlike their on-chain counterparts, off-chain transactions are not immediately recorded on a blockchain. Instead, they traverse through secondary layers, making them challenging to monitor.
Off-chain transactions, often facilitated by trading platforms, aim to accelerate transaction times and slash costs. However, this mechanism leaves many transactions unrecorded on the publicly accessible blockchain. This lack of transparency has raised eyebrows among legislators and investors alike. The proposed bill seeks to mitigate this by mandating a 24-hour reporting window for all off-chain transactions to a CFTC-certified trade repository.
In recent months, the digital currency realm has increasingly come under the legislative scanner. A notable instance is the support rallied by nine U.S. senators in mid-September for Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act. Reintroduced in July 2023, this legislation targets noncustodial digital wallets. It also broadens Bank Secrecy Act obligations to combat the nefarious use of digital currencies.
Standardizing On-Chain and Off-chain Record Keeping
The bill underscores the discord in internal record-keeping among private entities operating in the crypto sphere. Representative Beyer emphasized that the disparity in record-keeping practices could expose investors and consumers to fraud and manipulation. The bill endeavors to restore transparency and confidence in the digital asset marketplace by advocating for a standardized reporting framework.
Interestingly, the reporting requisites delineated in the bill echo the standards set for nearly all securities and swaps transactions. This move towards aligning cryptocurrency transaction reporting with established financial reporting norms underscores the evolving regulatory landscape surrounding digital assets.
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