A novel piece of legislation has surfaced, with its primary objective being the safeguarding of cryptocurrency investors against potential disputes, manipulation, or fraud stemming from transactions conducted off-chain.
Within the United States, a freshly proposed bill sets its sights on mandating that cryptocurrency service providers furnish comprehensive reports on all blockchain transactions to a government-designated repository.
On the 28th of September, U.S. Representative Don Beyer unveiled the “Off-Chain Digital Commodity Transaction Reporting Act.” This legislative initiative mandates trading platforms to promptly relay detailed transaction data to a repository officially registered with the Commodity Futures Trading Commission.
The innovative legislation’s core aim is to fortify the protection of cryptocurrency investors, not only in cases of disputes, manipulation, or fraud arising from off-chain transactions but also from transactions occurring beyond the confines of the blockchain network itself. Diverging from on-chain transactions, off-chain crypto transactions do not instantly find their place on a blockchain ledger but rather traverse secondary layers, thereby introducing complexities in tracking their flow.
In this era marked by the proliferation of trading platforms and a fervent desire to expedite transaction speeds and curtail expenses, a multitude of transactions transpire “off-chain” and evade visibility on the publicly accessible blockchain, as elucidated in the official announcement.
Regrettably, the internal record-keeping practices of these private entities exhibit substantial variability, leaving investors and consumers susceptible to fraudulent activities and manipulative practices, as aptly noted by Representative Beyer. He further elucidates, “This bill represents a commonsense approach to reinstating a degree of transparency and trust within the digital asset marketplace.”
According to the provisions outlined in the bill, cryptocurrency service providers will be obliged to furnish detailed reports on all off-chain transactions within a 24-hour timeframe to a trade repository duly registered with the Commodity Futures Trading Commission. It is worth noting that these stipulations mirror the regulatory framework governing virtually all securities and swaps transactions.
Recent times have witnessed a concerted focus by U.S. lawmakers on the regulation of cryptocurrencies. In the middle of September, nine U.S. senators joined forces in lending their support to Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act. Initially reintroduced in July 2023, the current iteration of the legislation intends to clamp down on noncustodial digital wallets and extend the purview of Bank Secrecy Act obligations, among other legal provisions, to combat illicit activities involving digital currency.