Bitcoin regulation is coming! What next?

Weekly News

Over this weekend, Bitcoin’s network ‘locked-in’ the upcoming Taproot update which is due for deployment on ~21 November. 

What the hell is this, you ask? 

Here is an article written back in 2016 which summarises the brilliance of the Taproot update and why it is such an important thing for Bitcoin. 

To summarise, this update will bring down the data size of signatures in segregated witness blocks – which allows for more transactions in a block and thus, more transactions per 10 minutes on Bitcoin’s main chain. 

This is not all though! As Bitcoin’s signature method moves from ECDSA to Schnorr signatures through this soft-fork; this allows for multiple signatures to be aggregated into one. Why is this so amazing? Because now, multi-sig transactions and single-sig transactions will look uniform. Currently, they are differentiated on the ledger. This brings a whole new level of privacy to transactions on the blockchain. 

Why are we so focused on privacy? (Well, we’ll explain in our regulatory section below…)

Finally, the update brings a whole new set of benefits for smart contracts to Bitcoin (be scared Ethereum, be very, very scared). 

Smart contracts have always been possible on Bitcoin, but these contracts are quite data intensive. Bitcoin’s blocks are only 1mb in size. Small Blockers have always believed that the decentralisation of Bitcoin via small blocks is its fundamental aspect and so the importance of smart contracts on Bitcoin have normally fallen to the wayside. 

With Schnorr signatures and its ability to aggregate and reduce signatures’ data size – there is now a possibility for Scriptless Scripts. Here is a podcast that explains some of the possibilities. 

Smart contracts can now become a reality on the first and second layers of Bitcoin – without hurting Bitcoin’s main use case – digital, self-sovereign, censorship-resistant and secure money.

A really great example of what one can do soon is imagine if you could place an easy rule/script on your Bitcoin wallet that if there is no event on the address (such as a login), the Bitcoin gets moved to another address. This is commonly known as a ‘Dead Man’s Switch’. This is a way to pass your Bitcoin to a beneficiary in case something happens to you, without any need for an intermediary. This use case is simple against the flood of innovation that is about to come to Bitcoin.

If you have any questions about Taproot or managing Bitcoin in your estate, send us an email at support@bitvice.io

Some of the other news items for the week are:

  1. Microstrategy’s private offering of $400m turns crazy
    Michael Saylor announced a private offering of Senior Secure Notes of $400m to turn into Bitcoin on 7 June. On 8 June, this offering led to an open interest of $1.6bn! He then turned this offering into $500m.

    There were some large hedge funds rumoured to be interested in the offering. This only proves that institutional and retail demand for this asset class is very much still alive and well.

    The subscription to this offering closed recently and it has been confirmed that Microstrategy will follow their playbook and place small bids on open exchanges over a few days, to not move the market too much. Expect an interesting market this week.
  1. Paul Tudor Jones to invest 5% of his portfolio ($7bn) in Bitcoin
    PTJ confirmed on Monday, 14 June, on CNBC that things are ‘bat shit crazy out there’ and inflation is our biggest risk.

    This is why the most successful hedge fund manager is going to increase his Bitcoin position size to 5% of his entire portfolio, from 1%. Expect many others to do the same, over time, as they understand and trust Bitcoin more and more. 

    PTJ went on to say, “Bitcoin is math. Math has been around for thousands of years. 2+2 will equal 4, and it will for another thousand years. I like the idea of investing in something reliable, honest, secure, and hundred percent certain. Bitcoin is a way to invest in certainty.
  1. Nation states vs The IMF
    The IMF released a statement against the recent events of El Salvador making Bitcoin a legal tender. The president had a meeting with the IMF and the outcome/s seem quite opaque for now. However, President Bukelele recently released a post that confirms the Central American Bank supports the initiative, which is great news indeed.

    This will only move more South and Central American countries to this standard whilst other smaller nations such as Tonga do the same.
  2. The American CPI increased by an annual rate of 5% last month
    This is the highest mark it has reached since August 2008. A lot of people in Bitcoin also seem sceptical about the ineffective methods of calculating CPI against real, holistic inflation in countries.

    Nonetheless, the Central Banks seem to have no plan on turning off the ‘money taps’ and as quantitative easing continues, the poor/middle-class will continue their downtrend in wealth and scarce assets (Bitcoin) will continue to increase in price.

    For more information on this, we would suggest reading Jeff Booth’s book; The Price of Tomorrow

Bitcoin Regulation is coming: The Good and The Bad

South Africa’s Intergovernmental Fintech Working Group (that’s a mouthful) released a document last Friday with recommendations on how cryptocurrencies will be regulated in South Africa. 

There are some recommendations that are currently being implemented, some in discussion and others in the pipeline. 

What the regulators are primarily focused on is to combat ‘money laundering’ and ‘financing terrorism’’. These narratives have been pretty common over the years which led to FICA and other FAIS regulations – so not much has changed in their strategies. 

‘Bitcoin on-ramps’ such as exchanges will be known as Crypto Asset Service Providers (CASPs) and there will be heavy enforcement on transaction transparency. All transactions over R25,000 will need to be reported. 

They will also be implementing measures to surveil cross-border financial flows in respect of Crypto which also might be defined as ‘capital’ for the purposes of Exchange Control Regulations. 

There are other possibilities of migrating Crypto to the Single Discretionary Allowance category which means that individuals can only purchase up to R11m per year (R1m under SDA and R10m under the FCA). It is unclear if this will become a reality for most investors in South Africa who technically purchase Bitcoin on South African exchanges and thus, purchase the asset domestically. These rules currently apply to Crypto investors who purchase Cryptos abroad and sell them in South Africa to profit on arbitrage. 

Lastly, they recommend that Cryptocurrencies be declared a financial product under the FAIS act. 

We at Bitvice, actually think it is great news that the regulatory bodies finally recognises Bitcoin as a serious asset and that it will become a licensed product for financial services.

We launched with the intent to not only sell Bitcoin easily and securely, but to also work with financial advisors across South Africa. Bitcoin is a complex asset, but the methods of self-custodying it and managing it in one’s estate is where financial advisors will inevitably fit in. If financial advisors can educate their clientele on the importance of self-custody, how to manage Bitcoin and how to pass it on to beneficiaries – then we have done our job.

Unfortunately, there will be other ancillary services built on top of Bitcoin which will not be required, but will be sold as ‘snake oil’. 

Investment funds will sell actively-managed funds to investors that hold Bitcoin. Bitcoin is inherently self-sovereign, and can easily be managed by an investor. Financial institutions will also undoubtedly use Bitcoin as a pristine collateral, to offer financial products and to also allow the retail market to get loans with Bitcoin as collateral. All in all, similar products in the retail market will be migrated to Bitcoin.

Also, traditional crypto exchanges seem to have lobbied the government in their favour – as the new, proposed regulation will make them strong on and off-ramps for crypto – as they will report all movements to the regulators. 

The problem with the regulation is that there is no direct reference to private methods of purchasing and selling Bitcoin. What about Bitcoin ATMs? What about Peer-to-Peer transactions on LocalBitcoins, Paxful and alike? How will these be regulated so as to ensure citizens can still enjoy privacy with their money? 

Bitcoin ATMs might become a target for regulators as they have central service providers, but Bitvice wishes regulators all the luck in the world on regulating Peer-to-Peer transactions. In Nigeria, the crypto-ban led to a 30% increase in P2P market behaviour. Thankfully, this is something that is not easy to bring down. However, there are quite a few scams on these platforms – and so this brings a lot of risk to new investors. We hope to see some transparency and prudency on how these platforms will be regulated. 

What we believe we need to keep focusing on is the importance of self-custody in an asset that costs nothing to custody and was built to remove intermediaries. As soon as Bitcoin is held by other parties and there is counterparty risk, Bitcoin loses its fundamental essence: censorship-resistance. 

When Bitcoin is held with intermediaries, exchanges or similar parties – they hold the private keys. Bitcoin is technically an IOU at his point, to the investor. They can choose to do whatever they want with it. If regulators change any rules overnight, investors’ Bitcoin can be locked-up easily. This is not unheard of and many precedents have been set. 

Bitvice will also focus on providing input to regulators on the importance of separating Bitcoin from other cryptocurrencies. They are not one and the same. Many cryptocurrencies are utilities, securities and downright scams. Now that Bitcoin is a legal tender in El Salvador and will likely be the same in other smaller nations over the coming months, shouldn’t it be treated differently in terms of International Exchange Controls? Perhaps, due to Nation-State adoption, maybe there can be debate about the removal of capital gains tax on Bitcoin – since it is seen as a currency now, globally?

To conclude, it seems that the South African paradigm on regulations on Bitcoin is obtuse, archaic and ill-thought. Other nations such as Portugal, Germany, Japan and others treat Bitcoin with 0% capital gains tax. They do not use the terms ‘anti-money laundering’ and ‘financing terrorism’ in their statements or regulations. They understand that this is a serious asset-class that could bring Billions in capital, if the regulatory environment is friendly enough. 

Unfortunately, South Africa seems focused on locking-in their citizens’ money within the borders, over-surveillance and plutocratic rules that will inhibit innovation by the endless bureaucracy of KYC and all the bad things that come with it. 

We implore everyone to self-custody their Bitcoin over the long-term and enjoy the peace of mind that comes with that.

#NotYourKeysNotYourCoins

Bitvice Podcasts and Media

We are extremely excited to announce that we will be chatting with Bitcoin Beach on Tuesday, 15 June at 9pm. 

Who is Bitcoin Beach? They are the group that brought Bitcoin and Lightning Network to a small town in El Salvador that became the inspiration for the president of El Salvador to make Bitcoin a legal tender. You can hear them chat to the Bitcoin community and the president himself here

We cannot contain our excitement for this one! Tune in to our discussion here.

Join us on Thursday at 9am on our Youtube channel as well. There will also be a live discussion with Dawie Roodt about South African economics, his stance on what happens next and of course, Bitcoin. 

You can follow our discussions on YouTube or via our podcast on Spotify, Google Podcasts or Apple Podcasts. If you are listening on a different podcast app, here is our RSS feed.

Referral Program: 0.25%

Don’t forget that you can earn the highest referral fee in South Africa with Bitvice. If you want to help family and friends buy and self-custody Bitcoin, just share your referral link from the top-right of your Bitvice dashboard. You can see how much Bitcoin you have earned on the top-left of your dashboard. 

You will earn 0.25% of every referred order, paid in Bitcoin once a month to your Bitcoin address on record. It’s that easy!

If you want to learn more, check out our post here.

Brandon van Niekerk

Co-Founder of Bitvice & ICT Project Manager (PMP) who has worked with dozens of international institutions and teams such as Barclays, Standard Chartered etc. Agile practitioner. Product Owner who has owned numerous fintech products and their development. Motivated problem-solver and consistent communicator. Specialist in Banking, Institutional & Enterprise software development and integrations. Gregarious, passionate about working with others and always looking to make the best out of any situation.

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