Crypto Regulation: Per Aspera Ad Astra, or The Wonderful Adventure of Nils Cryptosson

“The Wonderful Adventures of Nils”, a 1906 book by Swedish novelist Selma Lagerlöf, described a challenging but breathtakingly interesting journey of Nils Holgersson, a lazy and sleepy boy who, after travelling with wild geese across the provinces of Sweden, becomes a man: useful companion to the flock, brave and capable of making mature decisions. This story that we all loved when being children strongly resembles changes taking place in the cryptocurrency sector, its “behaviour” and regulatory framework.

The Beginning

Crypto industry emerged out of nowhere about five years ago. Technically, October 30, 2008 is Bitcoin’s birthday that was largely celebrated last fall. Several month later, the network’s Genesis block was created de jure starting this blockchain functioning. However, it had been years until the idea got to an adoption level that could be called “massive” by any standard. A legendary 10,000 BTC pizza purchase that happened in 2010 was rather a joke than a real merchandize.

Things started to change in 2013–2014; better media coverage and supporters’ efforts helped to draw attention to other blockchain use cases: Ethereum concept, the idea of smart contracts and possible benefits for cross border trades, remittance and other financial implications. The breakthrough point was ICO market boom of 2016 and 2017 where about $10bn were raised by approximately 2,000 projects. That is where regulators got their noses and hands tingling.

The Risks

Overall, there are three major issues that worry most regulators across the globe:

First, sovereignty and emission monopoly. Most Central Banks and reserve systems are not happy with a potential threat to their unique right of issuing national money. Despite cryptocurrencies remain a tiny portion of the global monetary supply, the whole concept of national currency protection is important enough that most countries impose restrictions on any alternatives: you can’t use foreign currencies in retail business, some jurisdictions force exporters to convert revenues into local currency and more.

Second, taxation. This is quite simple: in crypto world, it is nearly impossible to track and trace transactions and identify beneficiaries and their area of residence. Aside from very rare cases, actors of the digital business prefer to remain everywhere and nowhere: no official registration, ISIN, banking records. Officials presume that circulation of cryptocurrencies may reduce taxation base, both in export and import, and in retail, rentals and property.

The last but definitely not the least, investor rights protection. Most investors understand well that buying into any ICO was a leap of faith. Most project didn’t bother with any disclaimer at all, the legally advanced ones explained that tokens are, at maximum, an option to consume some goods or services that are intended to be created in some distant future. This created a huge rabbit hole operated by fraudulent people and filled with retail investors’ money. Some countries decided to leave the casino opened, most acted more promptly.

The Response

Currently, the world map of сrypto regulation is a real patchwork. Changes and updates are taking place almost on daily basis, traced by many respected outlets, some good summaries are those by DeCenter and CryptoNews.

One of the most detailed studies was composed by the US Library of Congress Research Centre (full version available here).

Governments and regulators are split into three categories, as their position towards crypto is concerned:

Hostile. Some countries, like China, Bangladesh, Iran, Thailand, Lesotho, and Colombia, have completely banned use of cryptocurrencies. Those are rare cases and (except from China) small economies with little influence on the global scale. Their reasons for banning are mostly tied to capital outflow and payments control, or anti-government/terrorist activity.

Partial liberty. Now, this section could easily expand into a PhD paper as over 100 countries have introduced different forms of regulation or proclaimed an intention for such. Some of them allow for crypto as a payment but prohibit solicitation of their citizens (South Korea), some put token offering in line with “normal” investment banking and capital raise activities (USA), some require full registration with local regulator (Singapore) supported by deep KYC/AML disclosure.

Green light. There are several countries that aimed for blockchain safe haven status. Most of them are in Europe: Malta, Luxembourg, Liechtenstein, Gibraltar (Cyprus running up). Japan got quite advanced in adopting crypto currencies in their daily use with plenty of ways to pay with BTC, Litecoin and other tokens, crypto exchanges and banking integration. One country went as far as trying to replace its currency with a crypto one (Venezuela’s El Petro).

D1 Coin Solution

D1 Coin learned all the lessons of Nils Holgersson. We designed the token and the system behind it in a way to reflect all the challenges that regulatory framework puts upon us.

Legal transparency. The token is issued by D1 Mint legal entity that is incorporated in Cayman Islands. The company operates under the law of this country and is subject to respective regulation. All legal details are carefully laid down in D1 Coin Whitepaper as well as sealed by necessary agreements and registration documents.

Full asset coverage and security. Diamonds that provide collateral for D1 Coin token are stored in secure vaults in Singapore (and Switzerland in the future), operated by industry leading safe storage operators Brinks and Malca-Amit.

Validation and traceability. The token transactions will be accounted on Ethereum blockchain, thus protected from any reverse changes and amendments. D1 Coin will be listed with several major trusted crypto exchanges to provide sufficient liquidity and investor coverage.

Thank you all for joining us today! We barely were able to scratch the surface with our brief overview, so be prepared for an amazing adventure in your research. If you enjoyed the article, don’t forget to leave a clap!

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About the D1 project

D1 aims to be one of the top asset-backed crypto tokens accessible by everyone, backed by the valuable and rare investment-grade natural polished diamonds.

Investors from the ultra-rich to the retirement-minded can purchase and trade these coins with the peace of mind knowing that each holds the value of 1/1,000th of a carat of hand selected quality polished diamonds.