SEC to outsource crypto data collection from blockchain nodes

The Securities and Exchange Commission (SEC) in the U.S. has published a request for blockchain support. The agency wishes to outsource the task of running nodes on the BTC, ETH, and XRP blochchains, ostensibly “to support its efforts to monitor risk, improve compliance, and inform commission policy with respect to digital assets.” The Trustnodes news outlet spotted the request and alerted industry insiders, who have reacted in a variety of ways, both positive and negative.

The SEC has been interested in obtaining blockchain information ever since the first application for a Bitcoin Exchange-Traded Fund (ETF) was filed some years back. There have been at least a dozen application denials, citing volatility, security, and a host of other issues as the reasons for a lack of approval. Currently, there are two additional applications for a BTC ETF now waiting for approval, each of which has been delayed since May. The agency has also clamped down hard on Initial Coin Offerings, as well.

The crypto industry tends to be super sensitive to any actions taken by the regulatory establishment, but the SEC’s request seems on the surface to be a common one, all things considered. Regulators are always challenged, when it comes to performing oversight over any industry. Education, experience, and awareness of technical issues are always primary requirements, but budget restraints limit access to qualified personnel.

Once candidates are hired and trained, retention then becomes a problem, since corporations will hire them away at greater compensation, due to their experience within the agency. Demand for qualified blockchain specialists is extremely high at the moment, thereby making it equally difficult for the SEC to hire highly competent staff in the blockchain arena. As a consequence, it makes perfect sense that the SEC would choose to outsource its current needs and, perhaps, build an internal capability later down the road.

The actual SEC request appeared as a simple advertisement: “The [SEC] intends to award a firm-fixed-price contract in accordance with FAR Subpart 13.5 in conjunction with FAR Part 12, Acquisition of Commercial Items, for a commercially available enterprise-wide data subscription for blockchain ledger data in accordance with the attached requirements list.” It goes on that the “subscription shall source all blockchain data from hosted nodes, rather than providing this data as a secondary source (e.g., via blockchain explorers).” The SEC also “intends to procure a commercially available off-the-shelf (COTS) enterprise-wide data subscription for blockchain ledger data.”

For now, however, industry insiders have mixed opinions, regarding the latest action taken by the SEC. Here are a few public comments to date:

  • Omar Bham, L.A.-based crypto news correspondent: “It took them this long?? Welcome to the playground, kids — Hopefully, they’re not the bullies in the sandpit.”
  • Mati Greenspan, senior analyst with eToro: “Never thought I’d see the day.”
  • Nic Carter, founder of Coinmetrics: “You’d never see the day because it’s not happening — They are looking to outsource node-running. They will never run nodes (not according to this prompt at least); they are outsourcing everything and just ingesting the data.”
  • Another unnamed crypto proponent remarked that these actions were “bullish” for all things crypto and that: “The SEC is seeking quotes from contractors to run Bitcoin and Ethereum nodes on its behalf — Great, I welcome it — These are public blockchains that can be queried by any basic blockchain explorer.”
  • Another analyst delved a bit deeper into the details to find: “The SEC’s plan to hire contractors to run full nodes is an entirely different animal, and the document seems to address third party blockchain surveillance operations. The regulator wants data like “hashing algorithms, hashing power, mining difficulty and rewards, transactions quantity and size, coin supply and blockchain size.” Additionally, the contractor should be able to “demonstrate the level of rigor of data cleansing and normalization meets requirements of financial statement audit testing.”

In order to prepare such a request, the SEC had to be technically competent enough at this stage to define exactly what its information needs would be in future. They do plan to “experiment” with a one-year contract that could be expanded to four years and could pave the way for other projects. A simple takeaway is that the agency is preparing for an eventual BTC ETF, and possibly others, as well. In addition to the “Big 3”, it also listed Stellar, Zcash, Bitcoin Cash, EOS, and NEO as potential future contracts.

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