Oct. 27, 2023
Dear Securities and Exchange Commission, As an interested party, I would like to offer my public comment on the proposed rule Amendments Regarding the Definition of Exchange. The new SEC rule, which potentially classifies every person using a smart contract as an exchange, could have several significant consequences for individuals and organizations operating in the blockchain space. Firstly, the broad scope of the SEC rule may stifle innovation and impose unnecessary burdens on developers and users of smart contracts. The rule could potentially extend regulatory requirements to individuals and organizations that do not have the resources or expertise to comply with such regulations. This could hinder the growth of the blockchain industry and limit opportunities for individuals and businesses to leverage the benefits of smart contracts. Secondly, the classification of individuals using smart contracts as exchanges raises questions about the applicability of existing regulations. Exchanges are typically subject to stricter regulations, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. Applying these regulations to individuals using smart contracts is excessive and does not align with the decentralized nature of blockchain technology. Thirdly, the rule imposes significant operational and compliance burdens on custodians of digital assets. The proposed rule states that entities that provide platform users with the ability to transact in crypto assets would have to give up custody of such assets back to investors or another qualified custodian if they do not wish to take on the additional compliance burdens as a qualified custodian. This will shrink the number of qualified custodians that handle crypto assets and cause investors to remove funds from platforms that may already practice robust safeguarding procedures. Fourthly, the rule follows the outdated perspective currently held on cryptocurrency as a whole. Cryptocurrency cannot be simply be classified the same as the stock market exchange. The laws pertaining back to the 1930's such as the Howey Test simply do not work. Cryptocurrency is a new emerging asset class and as such must be treated with rules and laws created in good faith of said new asset class to prevent harmful and confusing regulations for investors in the future. Cryptocurrencies such as Bitcoin and Ethereum cannot be classified as securities. At their very core, the blockchains are software that others can pass on knowledge and share with each other. If individuals using smart contracts are classified as exchanges, they could potentially be subject to enforcement actions for violations of federal securities laws. Lastly, the rule could create significant regulatory uncertainty in the crypto industry. Hasty rulemaking without properly defining terms and asset classifications first may create significant regulatory uncertainty in the crypto industry. This could chill innovation in the development of new decentralized trading systems before they can engage with regulators. In conclusion, while the SEC's new rule is intended to enhance transparency and oversight, it will have significant unintended consequences for individuals and organizations using smart contracts. Cryptocurrency in this modern age is here to stay and the less overreaching regulations and restrictions placed onto the industry, the better it will be not only for investors, but for every country that has the freedom to take part in this new asset class. I truly believe Cryptocurrency is a force for good and will continue to be so for the global market. However, this new proposed rule has the potential to stifle innovation pass the point of no return and will bring massive harm to the industry and investors, rather than bring any good to any area of cryptocurrency. Thank you for considering my comment. Sincerely, Chuck