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EU Lawmakers Reach Preliminary Agreement On Draft Artificial Intelligence Act

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After several months of deliberations, European Union lawmakers have reached a preliminary agreement and have passed a draft of the Artificial Intelligence (AI) Act, which would be the first set of comprehensive laws related to AI regulation.

The draft which was approved on Thursday will see it proceed to the trilogue stage, a place where lawmakers would reach a provisional agreement on the draft and will work on finalizing the details.

The proposed regulations will categorize AI tools based on their assessed level of risk, ranging from minimal to limited, high, and unacceptable. However, the use of AI tools will not be prohibited, as they will only be required to ensure transparency in their operation. Also, under the proposal, companies that make generative AI tools would have to disclose if they have used copyright in their systems.

Ahead of the European Parliament’s vote on the AI Act in May, the advocacy advisor on Artificial Intelligence Regulation at Amnesty International Mher Hakobyan via an open letter to members of the Parliament, disclosed that the EU has a significant opportunity to regulate AI technologies to protect and promote human rights.

The letter reads in part,

The AI Act offers an opportunity to put an end to the use of discriminatory and rights-violating artificial intelligence (AI) systems. The EU must ban the use of discriminatory AI systems which disproportionately affect people from marginalized communities, including Refugees, migrants, and asylum seekers. Such technologies profile people and communities, claiming to predict crimes or identify people who supposedly pose a security risk, even leading to them being denied the right to asylum.

EU lawmakers must not miss the opportunity to prohibit the use of certain AI-based practices and protect the rights of migrants, refugees, and asylum seekers against harmful aspects of AI. The use of mass surveillance technologies, such as retrospective and live remote biometric identification tools must also be banned. The proposed law must also ban discriminatory social scoring systems that prevent people from accessing essential public and private services, such as child support benefits and education.

The AI act should address the development of European technologies that are exported to third countries. Firstly, AI systems that are prohibited in Europe should not be allowed to be exported abroad. Secondly, permitted high-risk technologies that are exported must meet the same regulatory requirements as high-risk technologies sold in the EU. Strong accountability and transparency measures must also be enforced when public and private bodies use AI systems in the EU. These actors must disclose their use of high-risk AI systems, and publish the human rights impact assessments. This is important so that people harmed by AI systems can seek redress. The AI Act should establish a mechanism for this purpose”.

Reports reveal that the European Union began drafting the AI Act nearly two years ago to regulate emerging artificial intelligence technology, which underwent a boom in investment and popularity following the release of OpenAI’s AI-powered chatbot ChatGPT last year.

It is worth noting that the race among tech companies both big and small to integrate AI into their products has concerned so many, which has seen Twitter CEO Elon Musk and several tech leaders write a proposal to call for the halt of the development of such systems.

Recall that these leaders urged major AI labs to immediately pause the training of AI systems more powerful than GPT-4 for at least six months. In an open letter penned by the Future of Life Institute, they cautioned that AI systems with “human-competitive intelligence” could become a major threat to humanity. Among the risks, is the possibility of AI outsmarting humans, rendering us obsolete, and taking control of civilization.

The letter emphasizes the need to develop a comprehensive set of protocols to govern the development and deployment of AI.

In the U.S., it has adopted a hands-off strategy. The US Chamber of Commerce have called for AI regulation, to ensure it doesn’t hurt growth or become a national security risk, but no action has been taken yet. It is interesting to note that the battle for regulation has seen governments and large technology companies go at loggerheads.

There are several arguments both for and against allowing caution to drive the control of AI. On one hand, AI is praised for being able to generate all forms of content, handle mundane tasks and detect cancers, among other things. On the other hand, there are concerns over its ability to deceive, perpetuate bias, and plagiarism, as some experts are worried about the future of humans.

Some scholars have however argued that excessive regulation may hinder AI’s full potential and interfere with “creative destruction.

A Great Testimonial on Tekedia Mini-MBA By Moshood Adelotan (video)

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He was my big boss in the bank. As a junior IT Systems Automation engineer in the heart of Diamond Bank’s technology, we knew the day he was not at work. How? Confusion would be everywhere in that branch. Moshood Adelotan was peerless in branch banking operations. He redefined excellence and inspired even those of us who were in technology. He lived the Diamond Bank’s “absolute commitment to quality”.

And you know? He came to Tekedia Mini-MBA. People, I shouted when Eyitayo shared this video as part of Tekedia Mini-MBA edition 10’s Graduation Week. My Oga, thank you so much for the kind words.

We’re Tekedia Institute. More co-learners come here than any business school in Africa. Yes, we co-learn here because we have professors, CEOs and business super-operators like Mr. Adelotan as members. We cannot teach them; we only co-learn with them. Join us in the next edition.  This is the #best school.

Tekedia Capital Syndicate is in an ACTIVE Investment Cycle; Join Today and Co-invest

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Greetings! Thank you so much for facilitating a really successful Startup Demo Day yesterday.  If you missed it or want to re-watch it, login and click the Active Member area for the video. Deal room closes soon. 


If you are not a member of Tekedia Capital Syndicate, please register here. You can still join us and invest in the 8 available startups in the Board.

Why Bitcoin is Not Classified as Security Asset, and How Crypto Will Drive Institutional Transfer of Ownership

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Bitcoin is the most popular and valuable cryptocurrency in the world, but it is not considered a security asset class by most regulators and investors. A security is a financial instrument that represents an ownership stake in an entity or a claim on its future cash flows. Securities are subject to strict regulations and disclosure requirements to protect investors from fraud and manipulation.

Bitcoin does not fit this definition for several reasons

Bitcoin does not represent an ownership stake in any entity or a claim on its future cash flows. Bitcoin holders do not have any voting rights, dividends, or interest payments from the network or its developers. Bitcoin does not depend on the performance of any issuer or intermediary. Bitcoin is a decentralized network that operates without any central authority or intermediary. The supply of bitcoin is fixed by its protocol and cannot be altered by anyone. The value of bitcoin is determined by the market forces of supply and demand, not by the promises or actions of any issuer or intermediary.

Why Bitcoin Is Not Classified as a Security Asset Class

Bitcoin is the most popular and valuable cryptocurrency in the world, but it is not considered a security by the U.S. Securities and Exchange Commission (SEC). A security is a financial instrument that represents an ownership stake or a debt obligation in an entity, such as a company or a government. Securities are subject to strict regulations and disclosure requirements to protect investors from fraud and manipulation.

Bitcoin, on the other hand, is a decentralized digital currency that operates without the need for intermediaries, such as banks or exchanges. Bitcoin users can send and receive payments directly to each other through a peer-to-peer network, without relying on any central authority or intermediary. Bitcoin transactions are recorded in a public ledger called the blockchain, which ensures transparency and security.

There are several reasons why Bitcoin is not classified as a security by the SEC, based on the existing legal framework and precedents. Here are some of them:

Bitcoin does not generate cash flow or earnings. Another characteristic of securities is that they typically generate cash flow or earnings for their holders, such as dividends, interest, or profits. Bitcoin does not generate any such income for its holders, nor does it represent any claim on the assets or revenues of any entity. Bitcoin holders only benefit from the appreciation of its market price, which is determined by supply and demand.

Bitcoin does not have an issuer or a promoter. Securities are usually issued or promoted by an entity that is responsible for creating, distributing, and marketing them to investors. This entity is also liable for complying with securities laws and regulations, and for providing accurate and timely information to investors. Bitcoin does not have any such issuer or promoter, as it was created by an anonymous person or group using the pseudonym Satoshi Nakamoto, who has since disappeared from the public eye. Bitcoin is also distributed and marketed by its users themselves, without any centralized coordination or oversight.

Bitcoin is not subject to manipulation or fraud by insiders. One of the main purposes of securities regulation is to prevent insider trading, market manipulation, and fraud by entities that have access to privileged information or influence over the market. Bitcoin is immune to these risks, as it operates on a transparent and decentralized network that prevents anyone from having undue control or influence over its transactions or price. Bitcoin transactions are verified by a network of nodes that follow a set of rules called the protocol, which cannot be changed without the consensus of the majority of nodes.

Bitcoin is a replacement for sovereign currencies. According to former SEC Chair Jay Clayton, cryptocurrencies that act as replacements for sovereign currencies are not securities, but commodities. Commodities are goods that have value and can be traded on a market, such as gold, oil, or wheat. Commodities are regulated by different agencies than securities, such as the Commodity Futures Trading Commission (CFTC). Clayton stated that cryptocurrencies like Bitcoin “replace the yen, the dollar, the euro with bitcoin\” and that “that type of currency is not a security”.

These are some of the reasons why Bitcoin is not classified as a security asset class by the SEC. However, this does not mean that Bitcoin is completely unregulated or free from legal challenges. Bitcoin users still have to comply with tax laws, anti-money laundering laws, consumer protection laws, and other applicable regulations in their jurisdictions. Moreover, some other cryptocurrencies or digital assets may be considered securities by the SEC, depending on their specific features and functions. Therefore, investors should always do their own research and due diligence before investing in any cryptocurrency or digital asset.

Bitcoin does not pass the Howey Test, which is a legal test used by the U.S. Securities and Exchange Commission (SEC) to determine whether an asset is a security. The Howey Test states that an asset is a security if it involves an investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others. Bitcoin does not involve a common enterprise, as there is no central entity or group that controls or coordinates the network. Bitcoin also does not rely on the efforts of others, as each user can independently verify and validate transactions on the network.

Bitcoin is not primarily used as a conduit for illicit activity, as some critics claim. Bitcoin transactions are transparent and traceable on the public ledger, which makes it easier for law enforcement agencies to track and identify criminal activities. Bitcoin also has legitimate use cases, such as cross-border payments, remittances, store of value, and financial inclusion.

Therefore, bitcoin is not a security asset class, but rather a new type of digital asset that has its own unique characteristics and risks. Investors who are interested in bitcoin should do their own research and due diligence before making any investment decisions.

Crypto Will Drive Institutional Transfer of Ownership

Cryptocurrencies have been gaining popularity and recognition as a form of digital money that can circulate without the centralized authority of a bank or government. Bitcoin, the original and most dominant cryptocurrency, has seen its price soar from about $500 in May 2016 to over $30,000 in April 2023, attracting investors and enthusiasts alike.

However, Bitcoin is not the only cryptocurrency worth paying attention to. There are thousands of other cryptocurrencies, known as altcoins, that offer different features and advantages over Bitcoin, such as faster transactions, lower fees, or more privacy. Some of these altcoins, such as Ethereum, Binance Coin, and Tether, have also achieved significant market capitalization and user base.

One of the main drivers of the growth and innovation in the cryptocurrency space is the emergence of decentralized financial (DeFi) systems that aim to provide alternative financial services without intermediaries or central control. DeFi platforms allow users to lend, borrow, trade, and earn interest on their crypto assets, creating new opportunities and challenges for both individuals and institutions.

One of the challenges that DeFi poses is the transfer of ownership of crypto assets across different platforms and protocols. Unlike traditional financial systems, where ownership is verified by centralized entities such as banks or regulators, DeFi relies on smart contracts that execute automatically based on predefined rules and conditions. These smart contracts are often incompatible with each other, making it difficult to move assets from one platform to another without losing control or value.

This is where Bitcoin and other notable cryptos can play a crucial role in facilitating institutional transfer of ownership in DeFi. By using interoperable protocols and bridges that connect different blockchains and smart contracts, Bitcoin and other cryptos can enable seamless and secure movement of assets across different DeFi platforms and services. For example, users can use Bitcoin as collateral to borrow stablecoins on a DeFi lending platform, then use those stablecoins to trade on a decentralized exchange, then swap them back to Bitcoin on another platform.

By enabling institutional transfer of ownership in DeFi, Bitcoin and other notable cryptos can enhance the efficiency, liquidity, and innovation of the cryptocurrency ecosystem. They can also attract more institutional investors and users who are looking for alternative ways to access and benefit from the growing DeFi market.

Why Coinbase Legal Action Against SEC Will Save Crypto

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Coinbase, the largest cryptocurrency exchange in the US, has filed a lawsuit against the Securities and Exchange Commission (SEC) after months of silence from the federal regulator. The lawsuit, filed on Monday in the US District Court for the District of Columbia, seeks to compel the SEC to respond to Coinbase’s petition for rulemaking, which was submitted in July 2022.

Coinbase’s petition asked the SEC to clarify its stance on cryptocurrencies and whether they are securities subject to the agency’s jurisdiction. Coinbase also requested that the SEC establish a clear and transparent process for crypto companies to register and operate in compliance with existing securities laws.

Coinbase argues that the SEC has failed to provide any guidance or feedback on its petition, despite repeated requests and public statements by SEC Chair Gary Gensler that the agency has a clear regulatory framework for crypto. Coinbase claims that the SEC’s inaction and silence have created uncertainty and confusion for the crypto industry, stifling innovation and growth.

Coinbase also accuses the SEC of engaging in “regulation by enforcement”, meaning that instead of issuing rules or guidance, the agency is resorting to lawsuits and threats of legal action against crypto companies. Coinbase cites the example of the Wells Notice it received from the SEC in March 2023, which indicated that the agency intended to sue Coinbase over its planned launch of a lending product that would allow users to earn interest on their crypto holdings.

Coinbase’s lawsuit is not only a bold move to defend its own interests, but also a potential game-changer for the entire crypto industry. By challenging the SEC’s authority and demanding clear rules, Coinbase is standing up for millions of crypto users who have been left in the dark by the regulator. Coinbase is also fighting for the future of crypto in the US, which is at risk of falling behind other countries that have embraced crypto-friendly policies.

Here are some of the reasons why Coinbase’s lawsuit could save crypto in the US

It could force the SEC to engage in rulemaking. The SEC has been reluctant to issue any formal rules or guidance on crypto, preferring to rely on existing laws and case-by-case enforcement actions. This approach has been criticized by many as arbitrary, inconsistent, and unfair. By suing the SEC, Coinbase is putting pressure on the regulator to respond to its petition and initiate a rulemaking process that would involve public input and feedback. This could result in more transparent and predictable regulations for crypto businesses and investors.

It could challenge the SEC’s overreach. The SEC has claimed that most cryptocurrencies are securities and fall under its jurisdiction. However, this claim is based on a broad and vague interpretation of the Howey test, a decades-old legal framework that was designed for traditional investments. By suing the SEC, Coinbase is questioning the validity and applicability of this framework to crypto, which is a new and innovative asset class that does not fit neatly into existing categories. Coinbase is also challenging the SEC’s use of enforcement actions as a substitute for rulemaking, which violates due process and fair notice principles.

It could set a precedent for other crypto cases. Coinbase is not the only crypto company that has faced scrutiny and threats from the SEC. Many other crypto projects and platforms have been sued or investigated by the regulator, often resulting in settlements or shutdowns. By suing the SEC, Coinbase is taking a stand against the regulator’s intimidation tactics and setting an example for other crypto companies to follow. If Coinbase succeeds in its lawsuit, it could pave the way for more favorable outcomes for other crypto cases.

It could inspire more legal action against other regulators. The SEC is not the only regulatory body that has been hostile to crypto in the US. Other agencies, such as the Commodity Futures Trading Commission (CFTC), the Internal Revenue Service (IRS), and the Financial Crimes Enforcement Network (FinCEN), have also imposed burdensome and unclear rules on crypto businesses and users. By suing the SEC, Coinbase is showing that it is not afraid to challenge any regulator that infringes on its rights and interests. This could encourage more legal action against other regulators that are hindering crypto adoption in the US.

It could rally support from lawmakers and stakeholders. Coinbase’s lawsuit has already attracted attention and support from various lawmakers and stakeholders in the crypto space. For instance, Senator Cynthia Lummis (R-WY), a vocal advocate for crypto, tweeted that she supports Coinbase’s lawsuit and hopes it will lead to “a productive dialogue” with the SEC. Moreover, Coinbase’s CEO Brian Armstrong has urged other crypto companies and users to join forces and voice their opinions on crypto regulation. By suing the SEC, Coinbase is raising awareness and mobilizing support for crypto among policymakers and influencers.

Coinbase’s lawsuit against the SEC is a bold and unprecedented move that could have significant implications for the future of crypto in the US. By demanding clear and fair rules from the regulator, Coinbase is not only protecting its own business, but also fighting for the rights and interests of millions of crypto users who have been ignored and marginalized by the SEC. Coinbase’s lawsuit could save crypto in the US by forcing the SEC to engage in rulemaking, challenging its overreach, setting a precedent for other cases, inspiring more legal action against other regulators, and rallying support from lawmakers and stakeholders.