CFTC, the U.S. Commodity Futures Trading Commission has warned smart contract coders over the predictive code. CFTC is a self-governing agency of the US government founded in 1974 that monitors prospects and alternatives markets.
Speaking at the 38th Annual GITEX Technology Week Conference in Dubai on Tuesday, Brian Quintenz, a commissioner at the U.S. Commodity and Futures Trading Commission (CFTC), described his viewpoints on how traditional rules can be implemented to new technologies such as blockchain and smart contracts.
In his remarks, he said that smart contracts are manageable, hence developers can modify them to foretell approaching results. Smart contracts are nearly boundless in their applicability to the amount they can even be utilized to replicate traditional financial instruments.
With respect to any smart contract protocol, the first step in the analysis is defining the basic nature of the contract. Is it a contract for a sale or a rental agreement? Or, does it have the essential characteristics of a swap, future or option? If so, is the product accessible by U.S. persons? If the contract is a product within the CFTC’s jurisdiction, then regardless of whether it is executed via a written ISDA confirmation or software code, it is subject to CFTC regulation.
CFTC and Smart Contract
Brian Quintenz further explained that if the product is within the jurisdiction of CFTC, but is not being administered in a manner docile with CFTC rules then who should be held accountable for this activity? How should the CFTC impose its laws against a software code? The answers to these questions are still being examined.
He noted, In the past, the CFTC has generally prohibited prediction markets as opposed to the public interest. The event contracts based upon war, terrorism, assassination, or other similar incidents may be contrary to the public interest – in which case, the CFTC can prohibit an exchange from offering the contract.
He further went on to say that the core developers designed a code upon which any number of applications can operate and therefore it is illogical to hold them responsible for every succeeding application that utilizes their technology, without additional proof of understanding or purpose. They may not even be informed that this singular type of smart contract has been implemented.
The commissioner concluded that smart contract applications have the potential to start new markets and design capabilities in existing ones. They also foster various subjects of accountability. Hence, under various facts, a strong case could be made that the code developers supported and encouraged violations of CFTC regulations. As such, the CFTC could prosecute those people for wrongdoing.
In the month of May 2018, CFTC regulator had claimed that two of the largest cryptocurrencies, Ethereum and Ripple, were “non-compliant securities” that were operating outside of the U.S. jurisdiction.
Quintenz further said that the CFTC will use its traditional methods to discover the nature of transactions. The rules could enable people to build their own smart contracts foretelling future events. Typically, these contracts would permit people to bet on the result of future events, like sporting events or elections, using cryptocurrency.
If this prediction is correct, the contract automatically pays. According to the CFTC, this is a “prediction market,” where people use event contracts. This is binary options or other derivative contracts to bet on the occurrence or outcome of future events. In the past, the CFTC has generally prohibited prediction markets.
In the month of July 2018, UK’s law commission had said that smart contracts can enforce laws. The Law Commission deals with many impactful social laws related to things like Pension Funds, Social Investment, and Misconduct in Public Office. Blockchain technology might not come to mind in terms of writing and editing laws. However, other related issues such as the protection of official data and anti-money laundering will likely involve blockchain technology and cryptocurrencies in the future.
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