GM. Welcome to Degen's Newsletter, your weekly shot of legal insights and regulatory updates in crypto and emerging tech. Our expert lawyers serve up curated analysis, breaking news, and expert commentary.

In this week’s edition:

1. Regulatory Updates from around the world.

2. Weekly Breakdown - This week we explain the term ‘Sharding’.

3. Article in the spotlight Data Privacy in the Metaverse - What should you be concerned about.

4. Crypto Chronicles.

Regulatory Updates from around the world:

• UK passes new crypto regulation

• Tech firms urged by US Senator to label AI-Generated content

• Thailand's SEC implements Investor Protection Rules

• IMF embraces regulated adoption instead of outright ban on Crypto

• US Bill proposes AI commission for regulation

UK passes new Crypto Regulation

The Financial Services and Markets Bill (FSMB) has been officially passed into law. This brings about changes to the financial landscape of the UK by introducing cryptocurrency regulations and oversight. The law recognizes what it calls crypto assets as “cryptographically secured digital representation of value or contractual rights” and as regulated financial instruments, products or investments.

The law is envisages as a significant step to boost the economy. This is a formal recognition of crypto in UK. Following the adoption of Markets in Cryptoassets by the EU Parliament earlier this year, the EU has firmly placed itself as the market leader in crypto assets and is looking to capitalise on the opportunities presented by the crypto space.

Tech firms urged by US Senator to label AI- Generated content

United States Senator Michael Bennet has called on major tech companies, including OpenAI, Microsoft, Meta, Twitter, and Alphabet, to label AI-generated content and monitor misleading information produced by artificial intelligence. In a letter sent to the executives, Bennet emphasized the need for clear identifiers to inform users when AI is used to create content.

He expressed concerns about the disruptive consequences of fake images, particularly those with political orientations, on the economy and public trust. While some companies have taken steps to label AI-generated content, Bennet highlighted the reliance on voluntary compliance as inadequate. European lawmakers have also voiced similar concerns, calling for content labels to combat disinformation spread by generative AI tools.

Thailand's SEC implements Investor Protection Rules

Thailand's Securities and Exchange Commission (SEC) has introduced new regulations aimed at safeguarding investors in the cryptocurrency market. Effective July 31, 2023, digital asset service providers in Thailand must prominently display a warning message highlighting the high risks associated with cryptocurrency trading.

Customers must give consent and acknowledge the risks before using the services. Additionally, the SEC has banned crypto lending services, prohibiting platforms from offering returns on deposited crypto, as a measure to protect investors from the risks associated with such services.

These regulations were prompted by the collapse of crypto lending firms during the 2022 bear market, leaving investors with significant losses.

IMF embraces regulated crypto adoption

The International Monetary Fund (IMF) has reversed its previous stance on cryptocurrency, advocating for regulated adoption instead of outright bans. In a report analyzing cryptocurrency usage in Latin America and the Caribbean, IMF economists highlighted the benefits of cryptocurrencies, including protection against macroeconomic uncertainty, financial inclusion, and faster payments.

The economists stressed the ineffectiveness of complete bans on crypto assets in the long run. The report also examined the progress of central bank digital currencies (CBDCs) in the region, with half of the surveyed officials considering retail and institutional CBDC options.

While some Latin American countries are still in the research stage, Brazil plans to launch a CBDC in 2024. Challenges in integrating cryptocurrencies into economies were also acknowledged, as demonstrated by recent developments in Argentina and the limited adoption of Bitcoin in El Salvador.

US Bill proposes AI commission for regulation

A bipartisan group of US lawmakers has introduced the National AI Commission Act, aiming to establish a commission to study the country's approach toward artificial intelligence (AI) and formulate regulations.

Representatives Ted Lieu, Ken Buck, and Anna Eshoo proposed the bill, highlighting the importance of preventing harm from unregulated AI. The commission would bring together experts, government officials, industry representatives, and labor stakeholders to provide recommendations for effective AI regulation.

Merve Hickok, president of the Center for AI and Digital Policy, supported the proposal, emphasizing the need for essential regulations and public involvement in shaping the nation's AI strategy. This move aligns with calls from influential figures like Elon Musk and OpenAI CEO Sam Altman, who have stressed the urgency of regulating the AI industry and even supported the proposal for a 6-month ban on developments in AI tools until appropriate rail-guards are put in place.

Weekly Explainer

Sharding

Sharding is a technique used to improve the scalability and performance of blockchain networks.

In a traditional blockchain, every node in the network stores a complete copy of the entire blockchain, which can cause a bottleneck as the network grows. Sharding solves this problem by dividing the network into smaller groups of nodes called "shards." Each shard is responsible for processing and validating a subset of transactions, rather than the entire transaction history.

As a result of distributing the workload across multiple shards, the blockchain network can process transactions in parallel, significantly increasing its throughput. Sharding also reduces the storage requirements for individual nodes, making it more feasible for participants with limited resources to join the network.

Imagine a library with multiple librarians. Instead of each librarian keeping track of all the books, they divide the books into sections and each librarian is responsible for their section. This way, the library can handle more visitors efficiently. That's basically how sharding works.

To learn more about such concepts, visit our resource page linked below:

Article in Spotlight

Data Privacy in the Metaverse

Have you wondered how much data your online avatar generates & how such data will be processed and protected? Don’t worry, we have.

1. Intersection between Data Privacy and the Metaverse

Experts agree that the metaverse will collect ‘multitudes’ of the current data being collected (which is already pretty scary). Due to innovations in the nature of interactions, companies are poised to collect and process more data than ever before. eg. Even an ‘anonymous’ login using an avatar is bound to collect several identifiers through behavioural or knowledge-based cues. As the metaverse becomes more sophisticated, avatar-based influencers and targeted ads (just a few examples); will use such data to engage with users and collect even more personal data. All such ‘sensitive personal data’ will fall under current data regimes and is liable to be protected accordingly. This includes notification and consent-based requirements for usage of such data and protections on its transfer.

2. Collection & sharing of data

The true notion of successful implementation of the ideals of decentralization called for interoperability across multiple metaverses. When data is ported from one metaverse to another, data privacy laws around contractual accountability & privacy must be taken into account. Additional requirements will apply where the transfer is out of a jurisdiction (like EU).

Given how cross-border the metaverse is & its decentralised nature, it may be almost impossible to pinpoint where such data is being transferred & if such transfer qualifies as ‘cross-jurisdictional transfer’. Further, metaverse providers must keep in mind that during a transfer; data breaches are likely. Afterall, attacks on bridges are amongst the most common vulnerabilities in the Web3 ecosystem.

To read the rest of this article, visit our website.

Crypto Chronicles- Stories from the wild world of digital assets

The financial behemoth Blackrock filed for a spot bitcoin ETF with the SEC!

The Web 3 world has been buzzing with developments and no it’s not because of the latest Azuki fiasco, this one’s even bigger. Bitcoin, the undisputed king of cryptocurrencies, experienced a surge and then a drop out of the blue. This is because Blackrock, yup giant investment firm that drives the largest investment decisions in the world and is super chummy with the US Govt, is diving headfirst into the world of Bitcoin with a Bitcoin Spot ETF! Now this has led to all kinds of theories from some predicting that this is good for mass adoption and that crypto will finally be brought on the same plane as traditional financial investing, and others claiming that this is a ploy by the US Govt and Blackrock to edge out native Web 3 companies and control the ‘Bitcoin’. However, the SEC has recently stated that the filings may not quite be adequate, causing a dip in BTC prices (Just another day at the office)

In the midst of this madness, one thing is crystal clear: the world of cryptocurrencies will no longer be the same, with BlackRock's potential involvement we are witnessing a seismic shift in the way we perceive and engage with money.

Thank you for reading!

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