Regulatory Uncertainty for LN businesses (Layer2 Meetup@Tokyo Sept 20th, 2024)

General
1

13:15-14:45 Regulatory Uncertainty for Lightning Businesses

  1. What is uncertain? (5-10 minutes)
  2. Set a foundation for the discussion (5 minutes)
  3. Decide which “uncertainty” we will discuss

Wallet and Other Custodial Service Providers

  • What is the definition of a “self-custodial” LN-supported wallet?
    • Many LN-supported wallets rely on third-party players operating LN nodes. Could any centralized entity offering custodial services be a regulatory touchpoint?
    • LN-supported wallets are mostly hot wallets. Do we need new operational requirements for custodial service providers managing LN-supported hot wallets? (Custody service providers are required to hold most of their customer assets within cold wallets in Japan)
  • Regulatory uncertainty for “self-custodial” wallet providers
    • Let’s look into recent cases and reactions in the industry: e.g., the US Government recently charged “self-custodial” wallet providers for an unlicensed money-transmitting business
    • How can we combat money laundering and other malicious activities?
      • Privacy vs discoverability
      • Is there any consideration of developing a solution to balance between them? - touching upon “Accountable Wallet (BGIN’s project)”
      • Any other measures being discussed in the bitcoin community?

Routing (Intermediary) Node

  • Regulations for “Money Transmitting Businesses: in the US and “Funds Transfer Service Providers” in Japan
    • Discuss the requirements for money transmitting businesses in the US
    • Discuss the requirements for funds transfer service providers in Japan
    • What are those requirements for?
  • Let’s share a technical understanding
    • The Onion Routing makes it impossible for routing node operators to identify the sender and receiver of a transaction. They just share transaction commitments with the persons in front and behind.
    • Are there any evil acts that routing nodes can do arbitrarily? Can they only follow the workflow dictated by the person in front due to the use of HTLCs?
    • To ensure sufficient liquidity, it is necessary to increase the balance of the routing node sufficiently or replenish it in the liquidity marketplaces.
    • Does it enable large payments?
  • How can we combat money laundering and other malicious activities?
  • Is the routing (intermediary) node decentralized?
  • Could the liquidity marketplaces be a regulatory touchpoint?

Watchtower

  • Let’s share a technical understanding
  • Are there any evil acts that watchtowers can work on arbitrarily?
  • Is watchtower decentralized?
  1. The ethos of Bitcoin (if we have time)
  • Introduction of the ruling by the Supreme Court in the Coincheck case
    • The ruling has negated the “Not Your Keys, Not Your Coin” ethos. There needs to be discussion and clarification of crypto rights, including bitcoin

Any reaction from the bitcoin community? Did Satoshi really stand for the ethos?