Unfortunately, the rise of cryptocurrency has brought both hope and danger. According to the Federal Trade Commission, more than 46,000 people were defrauded and more than $37.4 billion was lost in the past two years. The success of these scammers can be attributed to many factors, one of which is celebrity endorsements.
As a State Assembly legislator, I recognize the need for regulation to address the growing problem of cryptocurrency fraud. I have introduced two bills aimed at preventing fraud and protecting investors: A938 (crypto fraud) and A944 (crypto fraud). I approach cryptocurrency regulation with a philosophy of finding a balance between promoting a fair market and protecting consumers. For cryptocurrency, this means acknowledging that we must share its properties. So while cryptocurrencies can be many different things, from works of art to investment vehicles, they all share a common characteristic: they are bundled into a highly liquid contract that is easily traded.
Given the rapid pace of technological change in cryptocurrencies, reliance on traditional, judicially interpretable fraud laws is not ideal. As a very important new asset class, cryptocurrencies require new regulations to address the unique challenges they present.
The Crypto Fraud and Crypto Advertising Bills include five main provisions: first, a requirement to disclose the amount and nature of payment received when an individual, such as a celebrity, is paid to promote cryptocurrencies; second, virtual token fraud; three, "carpet dragging"; fourth, private key fraud; and fifth, a deceptive avoidance of revealing their interest in the virtual arguments they developed.
Virtual fraud should serve as a baseline for prosecutors, allowing them to crack down on offenses that may not be covered by other provisions of the bill, such as private key fraud, which involves the unauthorized disclosure of one's private key to others, or disclosure of a provision that requires developers to cryptocurrencies to disclose their interest in the virtual tokens they create, a key provision designed to ensure transparency and accountability in new cryptocurrency projects.
There is also a provision that creates a crime, commonly referred to as retroactivity, that aims to prevent fraud from entering the cryptocurrency space. This would prohibit the sale of more than 10% of the entire class of artificial cryptocurrencies for five years after the last sale.
As a politician, I understand the importance of cooperation and receiving information from stakeholders. I am committed to working with society and industry to get closer to the ideal regulatory framework.
It is important that New York State has a strong economic environment. We must be a state that promotes innovation, new technologies, business growth and investment. We also want to be a safe place to invest in businesses, traditional markets and new types of investments, including cryptocurrencies.
Clyde Whannell is a member of the Queens Legislature representing the 33rd District.