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Cryptocurrency and Blockchain Issues for Business Lawyers
For many business lawyers, cryptocurrencies became a conversation topic circa 2013 or 2014 – in the early years when Bitcoin experienced enormous upward - and then downward - volatility. At the time, cryptocurrency and blockchain were fledgling technologies that were not widely understood, and that were primarily used by computer programmers, cryptologists, and individuals dedicated to avoiding government scrutiny. As Bitcoin enjoyed some price appreciation and publicity, entrepreneurs and programmers issued other cryptocurrencies. Public awareness of cryptocurrencies increased dramatically, even if public adoption of the new forms of monetary instruments increased only modestly. And government scrutiny has followed. As we enter 2024, cryptocurrency companies include a broad range of players, from respected, publicly-traded entities with nine-figure market caps to disgraced, bankrupt exchanges to underground, criminal enterprises. Given the potential opportunities and pitfalls, the business lawyers have an increasingly important role in advising clients regarding the legal issues surrounding cryptocurrencies and blockchain.
Regulation Of “Crypto”: What Is Current And What Is On The Horizon?
There are currently approximately $2.5 trillion worth of digital assets created and being traded, worldwide. That is a significant amount of value which requires governments and international organizations to consider how to interact with this asset class. There is a current clamor that the U.S. Congress must regulate digital assets or risk being unable to control transactions in that asset class at all. Also, there is a clamor from market participants for more clarity and the industry has spent approximately $2.5 million in lobbying the U.S. Congress in 2021 as they anticipate regulation. Despite these calls, I would argue that U.S. regulatory agencies have had digital assets in their sites for some time. While the CFTC could use some additional statutory language that would make its jurisdiction more straightforward, it has not hesitated to act. The SEC has issued fairly clear guidance to persons trying to legitimately be involved in these markets while also going after cases of fraud. This paper discusses the technical bases for digital assets and use cases, categorization and where most U.S. federal regulatory action exists currently.
WIDE OPEN SPACES: HOW BLOCKCHAINS HAVE MOVED BEYOND CURRENCY
Court Opinions
A set of opinions from various courts that address the use of blockchains and virtual currencies.
CSC 2019 Legislative Developments #24
This will be the last regular Friday update for 2019. I’ll send one more update before the end of June and thereafter when there are sufficient developments to report. The regular Friday updates will resume in January 2020. Here are the most significant developments since the last update on 6/7/2019:
Chinese Court is First to Accept Blockchain as Means of Evidence
The Hangzhou Internet Court rendered a copyright dispute judgment on June 27, 2018, which is the first time blockchain technology has been recognized as an admitted means of evidence in a civil law case. The blockchain was used by a third party to preserve the evidence (in a copyright infringement dispute).
SEC FINHUB - The SEC's "Strategic Hub for Innovation and Financial Technology"
From the website: "As financial technologies, methods of capital formation, market structures, and investor interfaces continue to evolve, FinHub will play an important role in facilitating the SEC’s active engagement with innovators, developers, and entrepreneurs. In addition to being a resource for information about the SEC’s views and actions in the FinTech space, FinHub is also a forum for engaging with SEC staff..." Hat tip to Ms. Cheryl Tangen for the link.
Videos that are an Excellent Resource for the Law on Blockchains
This is a set of videos about blockchains and the law. According to the website: "This is an applied course designed to introduce students to the emerging social, economic and legal issues associated with blockchain and crypto-enabled technologies. The course is a survey designed for students with little or no prior experience with these technologies. The course is divided into three modules: (1) an introduction to blockchain and crypto technologies; (2) applications of the technologies; and (3) the law applicable to the technologies."
Where approved Power of Attorney forms fail you on Digital Assets and problems your clients or you may not anticipate.
A lacuna exists in Texas case law so the full impact of the definition of a digital asset is not settled. A digital asset may include information that is subject to the attorney-client privilege as to the original Principal, i.e. , the person granting the fiduciary access to the digital assets. A person with signature authority for a foreign financial account must file a “Report of Foreign Bank and Financial Accounts (“FBAR”) through the (Financial Crimes Enforcement Network’s (“FinCEN”) BSA E-Filing System, even if this person does not file a federal tax return. 6 This report identifies individuals who have signatory authority over an account(s) with $10,000 in assets at any time during a year. A curious issue arises out of TRUFADAA, that would be applicable to individuals in Texas as well as individuals in other states under RUFADAA. The foreign accounts under control of the Digital Asset Fiduciary are aggregated to determine the threshold amount which requires Fiduciary to file Form 8938. The analysis of who has to file is similar to the calculations regarding filing FinCEN Form 114 in the preceding section “C” for Principals Ashley and Michelle, and Digital Asset Fiduciary Sandy.
Proposed Language for TBOC Statute Addressing Rule 902 of the Tex R. Civ. Evid.
Requesting comments on a clause in an upcoming bill to amend the Texas Business Organizations Code to allow the use of blockchains for all types of business activities (including business governance). This proposed clause would amend Rule 902 of the Texas Rules of Evidence to facilitate authentication of documents obtained from a blockchain.
Securities on Blockchain
A recent paper appeared in the Winter issue of the ABA Business Lawyer that addresses transactions for securities using a blockchain.
Iowa S 137
Relates to electronic transactions by permitting the use of distributed ledger technology and smart contracts.
Michigan H 4106
Includes altering a record by use of a distributed ledger technology in crimes involving forgery and counterfeiting.
Washington S 5638
Recognizes the validity of distributed ledger technology.
New York A 2239
Establishes the office of financial resilience to develop and implement new programs and initiatives for the purpose of supporting local economies and promoting resilient financial models.
New Mexico H 649
Relates to financial institutions; enacts the internet business development and innovations act; declares an emergency.
Nevada S 162
Revises provisions relating to electronic transactions.
Nevada S 163
Revises provisions relating to technology used by certain business entities.
Nevada S 164
Recognizes certain virtual currencies as a form of intangible personal property for purposes of taxation.
Wyoming H 57
Relates to trade and commerce; makes legislative findings; creates the financial technology sandbox for the testing of financial products and services; authorizes limited waivers of specified statutes and rules under certain conditions; establishes standards and procedures for sandbox applications, operations and supervision; authorizes reciprocity agreements with other regulators; requires criminal history background checks; creates an account; requires a consumer protection bond.
Illinois H 3575
Creates the Blockchain Technology Act; provides for the permitted uses of blockchain technology in transactions and proceedings; provides limitations to the use of blockchain technology; prohibits units of local government from implementing specified restrictions on the use of blockchain technology; defines terms.
Nevada S 162
Revises provisions relating to electronic transactions.
Nevada S 163
Revises provisions relating to technology used by certain business entities.
Nevada S 164
Recognizes certain virtual currencies as a form of intangible personal property for purposes of taxation.
Wyoming H 57
Relates to trade and commerce; makes legislative findings; creates the financial technology sandbox for the testing of financial products and services; authorizes limited waivers of specified statutes and rules under certain conditions; establishes standards and procedures for sandbox applications, operations and supervision; authorizes reciprocity agreements with other regulators; requires criminal history background checks; creates an account; requires a consumer protection bond.