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Blogs & Articles: FinCEN Comment Letter đź”— 3 years ago

Nic Carter on Medium

Castle Island Ventures recently submitted a letter to FinCEN regarding their proposed rules on digital assets. The following is the contents of the letter:

Re: FinCEN Docket Number FINCEN-2020–0020, RIN 1506-AB47, “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets”

To Whom it May Concern:

Castle Island Ventures welcomes the opportunity to submit this letter for consideration by the Financial Crimes Enforcement Network (“FinCEN”) with respect to the Notice of Proposed Rulemaking regarding “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets” (the “NPRM”).

We respectfully request that FinCEN extend the comment period for this NPRM to 60 days in order to allow greater industry participation and dialogue around this issue.

About Castle Island Ventures

Castle Island Ventures was founded by Matt Walsh and Nic Carter and is an early-stage venture capital firm based in Cambridge, MA. We are focused on supporting businesses that are building infrastructure products and services in the public blockchain ecosystem. We believe that public blockchains are a breakthrough new technology that will have a transformative impact on a wide variety of industries, in a similar way that the commercial web has transformed nearly every industry since its deployment in the late 1990s.

Like in the early days of the commercial web, we believe that the United States can lead the way and establish itself as the premier jurisdiction for entrepreneurs to build companies in this category. We are hopeful that regulators will work collaboratively with companies and policy groups in this emerging field to ensure that these breakthrough companies can thrive in the United States.

Comments

Castle Island Ventures supports FinCEN’s objectives to combat money laundering, terrorist financing and other types of illegal activities. We believe that these objectives are aligned with the goals of the overwhelming majority of market participants in this industry.

Castle Island Ventures has several concerns with the NPRM, and also supports the comment letter put forth by the Chamber of Digital Commerce, of which we are members. Among our highest concerns with the NPRM:

  • Shortened Comment Period: We believe that the 15-day comment period is wholly inadequate and raises process questions under the APA. We do not see an immediate necessity beyond the change of Administration on January 20, 2021. Given the level of impact on commercial interests and citizens in the United States, we believe that this issue warrants at minimum a 60-day comment period.
  • Impact on Data Privacy and Personal Security of Cryptocurrency Holders: As currently contemplated, the proposed rule would unnecessarily compromise the private data of cryptocurrency holders. Unlike cash withdrawals, many cryptocurrency users withdraw funds from exchanges and brokerages with the intention of storing and holding these funds, not spending them. The current rule would in effect create honeypots of personal data including user addresses, that would make cryptocurrency holders vulnerable to personal attacks and attempted thefts. Additionally, because public blockchains are transparent and allow for the traceability of transactions, this rule would have the effect of permanently assigning personal identity to blockchain-based assets. If the database tying the identities of Americans holding digital assets to blockchain addresses were to be leaked or hacked — not an unlikely prospect given events of the last month — this full dossier could be used by adversaries to target these individuals. Because digital assets are bearer-style assets that can be transferred digitally, holders of these assets are frequent targets for fraud, phishing, extortion, and even physical threats. This rule would have the net effect of endangering the millions of Americans who already use digital currency by exposing. The permanence and traceability of these ledgers means that once one’s identity is tied to an address, it can be virtually impossible to break that linkage. Thus these requirements impose a far more onerous and invasive standard of disclosure than their equivalents for transactions with physical cash.
  • Detrimental Impact to United States National Interests in the Technology Market: Public blockchain technology has the potential to be a platform infrastructure that drives economic growth for decades to come in the United States. It is a technology that is on-par with the commercial web in terms of the breakthrough new business models that will be enabled and the myriad of jobs that will be created because of its existence. This is a technology that is very much entering the mainstream and will exist — the question is whether the United States will lead the way like we did with the commercial web. Applying onerous and undue regulation to companies in this nascent field will have the effect of forcing these entrepreneurs to build their businesses in other jurisdictions.
  • High Compliance Costs: We echo the sentiments in the ErisX comment letter, especially with respect to the significant compliance costs that the NPRM would impose on small startup entities. These costs include data storage, proprietary software development, increased compliance vendor spend and potential fines. Competitive companies in non-U.S. jurisdictions will be unnecessarily advantaged over their U.S. peers if the NPRM proceeds as drafted.

Castle Island Ventures appreciates the opportunity to provide this public comment.

Respectfully Submitted,

Matt Walsh, Founding Partner

Nic Carter, Founding Partner

FinCEN Comment Letter was originally published in Castle Island Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

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