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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.
How Do You Incorporate an Entirely Digital Corporation?
This paper describes what attorneys need to know about incorporating companies that rely heavily – if not exclusively – on blockchains. Because technology is central to this topic, references will be provided for a brief introduction to: cryptocurrencies, blockchains (which is the underlying technology to cryptocurrencies), smart contracts, and distributed autonomous organizations. Finally, this paper will discuss the peculiar requirements for incorporating a blockchain-based company.
How Do You Incorporate an Entirely Digital Corporation?
This paper describes what attorneys need to know about incorporating companies that rely heavily – if not exclusively – on blockchains. Because technology is central to this topic, references will be provided for a brief introduction to: cryptocurrencies, blockchains (which is the underlying technology to cryptocurrencies), smart contracts, and distributed autonomous organizations. Finally, this paper will discuss the peculiar requirements for incorporating a blockchain-based company.
What is a DApp?
A brief discussion of Distributed Applications (DApps)
OCC Issuance on StableCoins
Court Opinions
A set of opinions from various courts that address the use of blockchains and virtual currencies.
August 27, 2019 Monthly Meeting of the Blockchain Committee
Texas Legislative Session 87(R) - 2021
These bills have been filed in Legislative Session 87(R) and they pertain to blockchains and social media. Members of the Committee are monitoring these bills.
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:
Ekiden: A Platform for Confidentiality-Preserving, Trustworthy, and Performant Smart Contract Execution
This is an academic (technical) paper on a smart contract platform that is an alternative to Ethereum. The platform addressed in this paper is intended to overcome the perceived shortcomings in Ethereum.
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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.
Facebook’s Libra: What is all the Fuss About?
On May 24, 2019, Facebook announced that it was going to launch a new cryptocurrency called “Libra” that is powered by the “Libra Blockchain.” Instead of direct sponsorship, Facebook took a cue from the open source community and created a separate foundation, called the Libra Association. In conjunction with the announcement, Facebook (through the foundation) published the obligatory white paper as well as a developer’s guide and a “testnet” that can be used to test code using a for-purpose language called “Move.”
Pending Bills in the 86th Texas Legislative Session
These are the bills that are pending before the Texas Legislature in 2019 that involve blockchains, distributed ledgers, and/or digital currency/virtual currencies/cryptocurrencies.
CSC 2019 Legislative Developments #21
Here are the most significant developments since the last update on 5/17/2019:
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Monthly Meeting of the Blockchain & Virtual Currencies Committee
A law firm may now advise a client to pay a Ransomware demand, then both the law firm and client organization face a Federal conviction with penalties of a fine up to $1,000,000 or twice the ransom for each organization.
Individuals participating in the transaction (including the client officers and law firm members or employees) may also face individual fines of up to $250,000 each and imprisonment of up to 20 years. The Office of Foreign Asset Control has regulations that will require all of the above plus forfeiture of "Any property, funds, securities, papers, or other articles or documents, or any vessel, together with its tackle, apparel, furniture, and equipment, concerned in a violation of TWEA may upon conviction be forfeited to the United States Government." 31 CFR 501.701 Penalties. (Code of Federal Regulations (2020 Edition) Read on for more gory details on how laws with initials you never saw and regulations from a body you never knew existed have changed everything you knew about ransomware criminals and the ease of just giving in and getting the awkward situation behind you. Many situations turned on "let's just make the pain stop, and I''ll beef up cyber security before the next attack." This reasoning may not work anymore for clients or their law firms. Paying more for cyber protection in advance sounds less expensive when compared to saving your organization, but reading reports for the next 20 years from the federal prison library as you serve your sentence. Prosecutors seeking enforcement only of civil penalties do not have to show your intent to violate OFAC's Enforcement Guidelines because there is strict liability. Knowledge of the applicable law(s) or regulations is not required.
CSC 2019 Legislative Developments #27
There are a few developments to report since the last update on 7/26/2019:
Debevoise & Plimpton’s Byungkwon Lim answers 10 questions on blockchain law
Byungkwon Lim is a partner at Debevoise & Plimpton LLP and is leader of the firm's Derivatives, Blockchain and Hedge Fund Practice Groups. Lim's practice includes advising technology firms on a variety of matters, including regulation, platform structure and offerings. Lim is admitted to practice in the Republic of Korea and New York Lim spoke with Wolters Kluwer about trends and challenges in blockchain law and policy.