The U.S. Securities and Exchange Commission (SEC) filed suit against crypto exchange Binance and its CEO, Changpeng “CZ” Zhao, on allegations it violated federal securities laws on Monday. The world’s largest exchange is charged with operating an unlicensed stock exchange, among other issues, adding to earlier charges brought by the U.S. Commodity Futures Trading Commission (CFTC) claiming Binance and Zhao illicitly offered derivatives products in the U.S. The SEC’s announcement had an immediate downward effect on the market: Binance saw some $69 million in net outflows in an hour and rival exchange Coinbase ($COIN) saw shares drop 10% (though some decentralized exchanges appear to be gaining). This follows news Binance executive Richard Teng has been appointed the new “head of regional markets” outside the U.S., positioning him as a potential successor to Zhao. Teng, who’s resume includes stints as former chief regulator in Abu Dhabi and Singapore, will manage operations in Asia, Europe, the Middle East and North Africa. He downplayed the move in a CoinDesk interview saying it’s “just expanded responsibility to help [CZ] look at certain things.”
New Rules
On Friday, Republican leaders of the congressional House Financial Services Commission and Agriculture Committee introduced a draft bill that’s being called “the most significant crypto oversight proposal this year.” A “discussion draft,” negotiated by Rep. Patrick McHenry (R-N.C.) and Rep. Glenn “GT” Thompson (R-Pa.), doesn’t yet have Democratic buy-in, though aims to address whether the SEC or CFTC would be the crypto sector’s main regulator. Elsewhere, a group of U.K. lawmakers is calling on the government to appoint a dedicated official to oversee the introduction of dedicated crypto laws. In a Monday report, the multi-party Crypto and Digital Assets All Parliamentary Group (APPG) said the industry is “here to stay” and may need more than just Financial Conduct Authority (FCA) oversight. This comes, more or less unrelatedly, after a $35 million attack on centralized wallet services company Atomic Wallet. The firm, which previously said it was investigating an issue involving user funds, claimed “less than 1% of our monthly active users” were impacted on Monday.
Big Bucks
JPMorgan has teamed up with six Indian banks to settle interbank dollar transactions on its proprietary blockchain Onyx. The pilot project is being run from the investment bank’s unit in Gujurat, India, which is gearing up to rival financial hubs in Singapore and Dubai with an experimental regulatory sandbox for finance and tech. Meanwhile, Taurus, the crypto services provider backed by Credit Suisse and Deutsche Bank, has gone live on Polygon, the popular Ethereum scaling solution. “Most Tier 1 financial institutions are entering the space and building capabilities to manage tokenized securities,” Taurus said in an email, adding those firms want “token-agnostic infrastructure.” Last but not least, Volcano Energy announced $1 billion in commitments to build a 241 megawatt bitcoin mine in the Metapán region of El Salvador. Stablecoin issuer Tether joined as a financier while the President Bukele’s government will play “a crucial role” in the site’s planning and execution.
From privacy to regulation to governance to self-custody, an exploration of vital challenges facing the crypto community based on intimate, curated conversations held at Consensus 2023.
Based on intimate, curated group discussions that took place at Consensus 2023, it covers a wide range of pressing issues for the digital assets industry.
Some Consensus 2023 participants argue that the economic benefits of CBDCs are not worth the threats to privacy in an excerpt from CoinDesk’s first-ever Consensus @ Consensus Report.
The Takeaway: Thunder Follows
On occasion, the Lightning Network earns its name. People love the lightning fast Bitcoin layer 2 protocol – when it works and even when it doesn’t. Although it has some potential issues and shortcomings, the network could very well help solve Bitcoin’s scaling problems. However, even if promising, all too often bitcoiners view the Lightning Network as a solution for all of Bitcoin’s woes.
With bitcoin fees skyrocketing amid the recent Ordinals and BRC-20 craze, which so luckily lined up perfectly with the annual bitcoin pilgrimage to Bitcoin Magazine’s Bitcoin 2023 conference in Miami, the same answer found its way into conversations about some of Bitcoin’s problems on- and off-stage and on social media again and again.
Which is to say: Maybe the Lightning Network isn’t the way bitcoin can enable fast, cheap, casual, peer-to-peer transactions.
There’s also a group of people who do and don’t want layers built on Bitcoin at all and think the base layer should ossify or stop changing.
Putting that aside for now, there’s a growing pragmatic view that the Lightning Network is or probably will be good for certain types of payments, but not all types of payments. That doesn’t mean either side is completely correct, but at least the hivemind doesn’t appear to be in control anymore.
Lightning Network might not solve everything and that’s okay. We should still try.
The Lightning Network very much was and still is an experimental technology. Proponents warn to this day to exercise caution when committing hard-earned bitcoin to the Lightning Network since you can easily lose funds if you aren’t experienced. And even then, a lot of the more popular Lightning-enabled wallets, like Wallet of Satoshi, work really well mostly because they are custodial.
The Lightning Network spurred many promising Bitcoin startups: THNDR Games, Voltage, CashApp, Strike, River, Amboss, Zebedee, IBEX, to name quite a few. Many Lightning proponents have even positioned the layer 2 protocol as a way to make Bitcoin accessible to billions.
They may be right. In the future, when many people are using Bitcoin, it will be theoretically cheaper to use the Lightning Network for everyday transactions which necessarily makes it more accessible, especially as wealth distribution varies so much across countries.
But the idea that Bitcoin can scale to billions isn’t taken for granted these days, and some see it as an outrageous proposition. More people using Bitcoin could be a problem. Nobody knows if the Lightning Network will continue to be cheap if transaction fees start to rise.
There are no panaceas. Not the Lightning Network, not Stratum V2, not your favorite Bitcoin thing.
The end of investing every hope and dream in one Bitcoin spinoff is a good thing. Investing in false gods never works.
Bitcoin is decentralized and, so, it requires decentralized diversity of thought. It’s okay to champion the Lightning Network or Liquid or Ark or whatever your other thing might be. But there’s always a new project to come on Bitcoin, because it’s open-source, and that’s a good thing.
Since the collapse of large crypto projects like FTX and BlockFi, investors have been cautious about parking their funds with centralized exchanges, which, some believe, are susceptible to collapse in ways that might leave their customers empty-handed.
To access services like staking rewards, centralized exchanges often require customers to “lock up” their tokens in accounts that can’t be accessed for a period of time, or might be used by an exchange for other purposes. So when panic strikes or there’s a bank run, as in the case of FTX, customer funds can be lost altogether. With the collapse of these firms, investors learned that when their funds are delegated to a third party, it no longer fully belongs to them. As the expression goes, “not your keys, not your crypto.”
