CFTC Warns Developers About Predictive Codes on Smart Contracts Could Have Consequences
US CFTC Official Warns Developers About Predictive Code on Smart Contracts
A U.S. regulator has warned smart contract developers that they could be held liable if they use blockchain technology to create functions that are marked as predictive. Mr Brian Quintenz, part of the U.S. Commodity Futures Trading Commission (CFTC), commented in this way at the 38th Annual GITEX Technology Week Conference in Dubai. The event took place on Tuesday 16.
He mentioned that it is important to understand whether these developers know that it would be used by U.S. persons.
About it, he commented:
“The appropriate question is whether these code developers could reasonably foresee, at the time they created the code, that it would likely be used by U.S. persons in a manner violative of CFTC regulations.”
Currently, it is very to apply legal systems to cryptocurrencies and blockchain technology. And he gave this comments framed in this discussion. There are different challenges that current legal systems need to address related to this emerging sector. One of the most important things is to protect investors that deal with virtual currencies. At the same time, the legal framework and regulatory agencies are working in order to preserve market integrity.
However, with a decentralized network (such as cryptocurrencies), with anonymous miners, players and nodes, it is quite difficult to find a balanced regulatory framework.
Quintenz focused specifically on smart contracts. There are several platforms with the possibility to execute them. Perhaps, the most popular is Ethereum, with a market capitalization of over $21 billion dollars.
As these contracts operate without another party to execute them, it is quite difficult to judge them under the current laws. Nonetheless, he explained that although it is complicated to create a clear legal framework, they are subject to regulations and legal precedents.
For example, he says that developers could create a predicting software about financial outcomes related to stocks or commodity performance. And these developers could offer their data for purchase. Offering this data could be deemed by current laws as giving investment advice. In addition to it, it could fall in the ‘insider trading category.’
There are other smart contracts that allow users to easily bet on future events such as sporting events or elections. The CFTC could consider these smart contracts as ‘prediction market.’ As per the regulatory agency, the CFTC has generally prohibited prediction markets, with just a few exceptions.
At the same time, the former CFTC chairman Gary Gensler said that,
“Most tokens sold through ICOs should be classified as securities. That means that tokens would be regulated by the U.S. Securities and Exchange Commission (SEC).”