If you’re a forward-thinking legal professional, you should be thinking about blockchain. Blockchain technology, which underlies everything from cryptocurrency to smart contracts to cutting-edge supply chain management systems, is set to impact the way business is conducted and information stored throughout the world. But this technology is not without its uncertainties. How does blockchain technology align with current and emerging regulations? How can attorneys best advise clients on blockchain technology? And how does blockchain actually work, anyway?
To provide some guidance, Logikcull recently hosted the webinar “Blockchain and the Law: What Lawyers (and Their Clients) Need to Know About This Cutting-Edge Technology.” Featuring two brilliant speakers, Antigone Peyton of Protorae Law and Erica G. Wilson of Vuono & Gray, this webinar covered the above questions and more.
3. Agenda
An Introduction to Blockchain Technology
Blockchain Use Cases and Implementation
Developing Regulatory and Enforcement Issues
Other Legal Issues and Getting Involved
4. An Introduction to Blockchain Technology
What is Blockchain?
Public
Permissionless
Digital ledger
Records transactions
across a distributed,
decentralized network
5. An Introduction to Blockchain Technology
In Blockchain We Trust
● Decentralized network = security
● Public ledger = transparency
● Irreversible transactions = certainty
● Proof of identity = authenticity
8. Cryptocurrency Hype
• Bitcoin in 2017-from $800 to $20,000, market
cap over $130B ($100 at inception worth $3M)
• Litecoin - value growth of over 6,000% over last
12 months
• Neo-focused on Chinese market, 83,000%
growth in 12 months and market cap over 5B
• Ripple (XRP) - settling payments across borders
fast and at low cost, high fluctuation in value
but expected to explode in 2018
• Bitcoin cash - newer, "better" version of Bitcoin
incompatible with Bitcoin
9. Bitcoin and Cryptocurrencies
● Origin: Nakamoto (2008)
● Goal: Low-cost, irreversible transactions
● “Cryptographic proof instead of trust”
● Create additional value in ecosystems
● Real-time recordation
● Redundant independent verification
10. Blockchain and Cryptocurrencies
● Blockchain ≠ Bitcoin
● But, likely most widely implemented use
● All bitcoins need blockchain, but not all
blockchains need bitcoin
11. Why Blockchain?
● Revolution in systems of record
● Global ledger of records, no single trust
authority
● Can be applied to any need for a
trustworthy record
● Puts the power of cryptography in the
hands of individuals, eliminates middlemen
● Not based on accounts/permissions for
accounts
● Not a database; a decentralized record
keeping system
● For “pull” transactions
12. Blockchain Is “All Business”
Just a few ideas:
● Asset tagging and tracking
● Supply chain management
● Value transfers without central authorities
● Government issued credentials
● Smart contracts
● Data management and privacy protections
● Financial transactions
● Public records management
13. Think Before You Try
● IP protection options and issues
● System type: centralized, hybrid, or
decentralized system
● Token model
● Value to market players
● Integrity of exchanges (crypto theft)
● Customization can compromise integrity
14. Legal and Regulatory
Issues
● IRS: not currency, it’s property
● Crosses jurisdictional boundaries
● Enforceability of smart contracts
● IP issues
● SEC says: ICOs are just like other
initial offerings
(If it looks like a duck and quacks
like a duck, it’s duck…)
15. Developing Regulatory and Enforcement Issues
That ICO’s a Duck
“The SEC is looking closely at the disclosures of public
companies that shift their business models to capitalize
on the perceived promise of distributed ledger
technology and whether the disclosures comply with the
securities laws, particularly in the case of an offering.”
-SEC Chairman Jay Clayton
17. Developing Regulatory and Enforcement Issues
The IRS and Blockchain-based Virtual
Currencies
“Virtual currency transactions are taxable by law just like transactions in any
other property.” –IRS
Notice 2014-21 sets forth tax implications of virtual currency transactions
“We know that you want to get your money out at some point.” – Also the IRS
IRS has been using blockchain analytics since 2015 and just hired a special
criminal investigation team to hunt down tax evaders
18. Developing Regulatory and Enforcement Issues
FTC
• Federal Trade Commission enforcement actions for deceptive
practices that may harm consumers
• FTC “Blockchain Working Group” announced 3/16/2018
• Focusing on: payment, deceptive schemes, defendant assets,
competition policy
• Exhibit A: SD FL shut down deceptive cryptocurrency $ making
scheme (3/16/2018)
• Exhibit B: Butterfly Labs bogus Bitcoin mining computer sales shut
down as deceptive (2/18/2016)
19. But Wait, There’s More…
• FinCEN
• CFTC
• State lawmakers/AG efforts
• Foreign and international laws
and regulations
• Recent Congressional Report
• Taxation of blockchain forks
• Smart contact disputes
20. Getting Involved
• Federal Trade Commission enforcement actions for deceptive
practices that may harm consumers
• GSA’s Emerging Citizen Technology Office (US Fed Blockchain
Program)
• SAP co-innovation program for blockchain
• Blockchain at Berkeley (UC program supporting crypto and
blockchain communities)
• Hashed Health Blockchain Consortium (group of healthcare
companies)
• Global Legal Blockchain Consortium