Government’s proposed Crypocurrency / Blockchain legislation

For those who have been following the government’s moves with regards to Distributed Ledger Technology (DLT), Premier Burt provided an update on the upcoming legislation that will be distributed for feedback soon.

The recording of this morning’s parliamentary session is available here.  The Premier’s statement is covered in the recording between 10:12am and 10:23 am.

As I have covered in my previous writings on distributed ledger technology and cryptocurrencies, I am wholly wary of the cryptocurrency bubble and associated scams but am very bullish and supportive of government moves to provide a solid regulatory framework to encourage DLT innovation in Bermuda.

The Premier’s mention of disclosure requirements sound encouraging.  We absolutely need a clear regulatory framework to be in place that provides a secure, trusted and transparent process for Initial Coin Offerings (ICOs).

I am highly skeptical of most ICOs due to their nature as a glorified uncollateralized loan agreement that provides little security for the investor.  ICOs of this form are basically IOUs that provide the bulk of the reward to the token issuer while leaving the bulk of the risk with the purchaser. My concern is if potential investors do not fully appreciate the risks and no protections are offered to ensure an issuer cannot simply raise a bunch of money and then disappear.  There are of course cases where this kind of financial arrangement is perfectly valid, so I await further details on what the task force has come up with to balance risks vs. opportunities.

I am hopeful that provisions are being made to allow for the tokenization of securities.  Namely, providing the ability for companies to issue rights of ownership in the form of tokens stored on a blockchain.  The present means of issuing stock in companies is cumbersome and could well be made more accessible and transparent. Thus, legislation legitimizing the tokenizing of assets would be welcome.

One of the concerns I have about the Premier’s statement is the suggestion that companies looking to offer an ICO will require consent from the Minister of Finance.  I would prefer to see us establish a politically independent body that reviews and authorizes these rather than than place power and control in the hands of a politician.

We’ll have to wait and see what is published in the coming weeks to find out more of what is intended by this legislation.