In order to better protect cryptocurrency investors, new legislation has been filed in the US. It calls for the transparency of transactions that take place off-chain, or outside the main blockchain network. The “Off-Chain Digital Commodity Transaction Reporting Act” was unveiled on September 28 by U.S. Representative Don Beyer. The major goal of the legislation is to require bitcoin service providers to submit a record of all blockchain transactions to a government repository that is registered with the Commodity Futures Trading Commission (CFTC).
The rationale behind this legislation is to mitigate potential disputes, manipulation, and fraudulent activities that can arise from transactions conducted off-chain. Unlike on-chain transactions, which are immediately recorded on a public blockchain, off-chain crypto transactions take place through secondary layers, making tracking and monitoring more challenging.
In recent times, the cryptocurrency landscape has witnessed a surge in off-chain transactions due to the proliferation of trading platforms that aim to expedite transaction processing times and reduce costs. These off-chain transactions, however, remain undocumented on the publicly visible blockchain.
Representative Beyer emphasized the need for standardization and transparency in the cryptocurrency sector, stating, “Unfortunately, internal record keeping among these private entities can vary wildly, and this can leave investors and consumers vulnerable to fraud and manipulation. This bill is a common-sense measure to restore some transparency and confidence to the digital asset market.”
Under the proposed legislation, cryptocurrency service providers would be obliged to report all off-chain transactions to a CFTC-registered trade repository within 24 hours. This requirement aligns with similar reporting rules governing the majority of securities and swaps transactions.
This legislative initiative is part of a broader effort by U.S. lawmakers to establish comprehensive regulatory frameworks for the cryptocurrency industry. In mid-September, nine U.S. senators lent their support to Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act. Originally introduced in July 2023, this legislation aims to clamp down on noncustodial digital wallets and extend the Bank Secrecy Act’s responsibilities to combat the illicit use of digital currency.
As the cryptocurrency sector continues to evolve and expand, regulatory measures like the “Off-Chain Digital Commodity Transaction Reporting Act” are crucial for ensuring investor protection, market integrity, and the prevention of financial crimes. By requiring transparency in off-chain transactions, lawmakers aim to strike a balance between fostering innovation and safeguarding the interests of cryptocurrency users. This legislative development underscores the growing recognition of digital assets as a significant component of the modern financial landscape, deserving of robust regulatory oversight.
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