Joe Biden’s government continues its war against cryptocurrencies, businessmen say.
User blocking is the most widely used in the face of the rise of regulatory scrutiny globally.
Despite the apparent change in focus that United States President Joe Biden has shown in recent months, the intense regulation against the cryptocurrency sector that has marked his administration for almost four years continues unabated.
This is what Jake Chervinsky, legal director of the venture capital company Variant Fund, who stands out in the new strategies that are being used to face government scrutinyamong which stands out the geofencinga term that refers to the practice of preventing users in a particular jurisdiction from accessing a product online.
Chervinsky explains that it is one of the alternatives that is being used the most in the US, while awaiting the results of the presidential elections that will be held next November (and that many aspire to change the outlook for the cryptocurrency industry. ).
As CritpNoticias has reported, the increase in the number of legal cases against companies and personalities in the ecosystem, has generated the flight of many businessmen to other countries in the last two years. Biden’s measures have been criticized by Republican legislators within the US. Many believe that they will be softened with the entry of a new ruler into the White House, but there is still time to know if there will really be changes.
Meanwhile, as Chervinsky points out, the geofencing has become part of the efforts that many companies make to comply with US laws. It is part of the options at hand, in case companies cannot apply regulations that require the provision of customer information (KYC).
Some examples of geofencing are evident in the measures taken by the Binance exchange by blocking US IP addresses; and by companies like the Ethereum restaking protocol, Eigenlayer, which prevented users from The US and other countries claim a airdrop. So does DeFi protocol Sky, which blocked VPN access to its Spark protocol.
The strategy is used as a way to avoid falling into the crosshairs of supervisory bodies, for supposedly contributing to money launderingan accusation often made by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) through lawsuits and sanctions, which have already landed several cryptocurrency developers and entrepreneurs in jail. It happened to the famous founder of Binance, Changpeng Zhao, and the developers of the Tornado Cash mixer, built on Ethereum.
These actions by regulatory bodies, which in the opinion of many members of the ecosystem are working as a deterrent practiceare forcing many entrepreneurs to look for other jurisdictions with friendlier regulations. If this cannot be done, the alternative is geofencingas Chervinsky explains.
A practice not without risks
He geofencing It allows you to create a kind of “virtual fence” around a certain geographical area, preventing the people behind it from becoming clients or users of a platform. Although “it is a rather extreme solution to the problem of regulatory uncertainty sometimes simply there is no other option«says the expert, adding that its application is also very expensive.
However, there are several reasons why has become common in the world of cryptocurrencies. One of them is the number of products and platforms that have emerged in the sector and that have very different characteristics from those of most traditional financial companies. Which often makes it difficult to adapt their functions and products to existing legal frameworks.
Given this, the geofencing It has become a regulatory compliance tactic that is applied “when all else fails” and a company’s products cannot meet the requirements of the laws, nor can they be changed to comply with them.
It is noted in this sense that the tactic is valid for regulatory bodies, as long as it fully complies with the provisions of the regulations in force in the United States, which exempt from compliance platforms that operate outside their territory. Hence the importance of proper implementation, which does not leave room for regulators to say that the company has users in the country despite the blockade.
However, the problem in the US is that “the SEC and the CFTC have not explained their views on the territorial limit of their jurisdiction in the context of cryptocurrencies,” the expert clarifies. Although these agencies have implicitly recognized that the geofencing It is an appropriate strategy to avoid the application of US laws.
Unfortunately, avoiding a jurisdiction altogether is more complicated than it seems. Many US regulatory frameworks may technically apply if a company has a single customer or user based in the country. Some may apply if the company itself is based in the United States, even if none of its customers or users are. Some regulatory frameworks grant “extraterritorial” jurisdiction to federal agencies, allowing them to enforce U.S. law even if the company and all of its customers and users are abroad.
Jake Chervinsky.
Geofencing is growing around the world
Taking into account the number of companies who has been using the geofencing and the risks involved, Chervinsky not only presents a guide for its application, but also recommends the use of other options. Mention among them, operating with infrastructure outside the United States, minimize hardware and personnel based in this country, and use non-US servers and cloud services.
The goal is to know how to apply the technique properly and consider other options before reaching such an extreme measure, Chervinsky’s guide states. A consideration that becomes important, as the strategy becomes popular not only in the United States but in other parts of the world.
As they point out TRM Labs research, The urgency to apply this type of strategies is not only affecting those who operate in the United States, since its use is expanding in a context in which more and more countries apply greater regulatory rigor to the bitcoin ecosystem.
In that sense, security firm data reveals that, between 2023 and so far in 2024, 17 jurisdictions that represent 70% of global exposure to cryptocurrencies they tightened their regulations. A situation that is leading several companies to rethink their operational strategies, in response to increased government questioning.
