We are pleased to release an updated edition of our smart contracts white paper, originally published in May 2017. The updated white paper surveys the current academic and industry landscape related to smart contracts, and discusses the key legal issues surrounding smart contract applications. Authors of the white paper are Dax Hansen, Partner and
Recently, there has been growing interest in whether, and in what circumstances, crypto-tokens may constitute “investment contracts” under the U.S. Supreme Court’s Howey test, rendering them securities subject to regulation in the United States. The following resources take a deep dive into that issue, exploring the structural, marketing and other key considerations that may make crypto-tokens more or less likely to be securities under Howey. As these resources demonstrate, the Howey test is highly fact-dependent, indicating that certain crypto-tokens may be securities under Howey whereas others – if properly designed – may not.
- Peter Van Valkenburgh, A Securities Law Framework for Blockchain Tokens, COINCENTER (Jan 25, 2016) Discusses certain blockchain token “rights” that likely to decrease the risk of blockchain tokens being categorized as securities under the Howey test.
- Reuben Bramanathan, Introducing the Blockchain Token Securities Law Framework, THE COINBASE BLOG (Dec. 12, 2016) Discusses the result of a joint initiative of Coinbase, Coin Center, Union Square Ventures and Consensys.
We are pleased to release two in-depth white papers discussing cutting-edge legal and technology issues applicable to smart contracts and self-sovereign identity systems.
On June 20, Dax Hansen and Carla Reyes from Perkins Coie LLP spoke at a Blockchain Legal Panel in Seattle. The panel, hosted by blockchain technology leaders and entrepreneurs, discussed the legal implications and concerns facing blockchain technologies. Topics included the regulatory climate, personal liability, and the Decentralized Autonomous Organization (DAO). View the discussion here
On Monday, FinCEN issued two advisory rulings responding to requests for clarification regarding the money transmitter status of two virtual currency companies. While the advisory rulings are technically limited to only the requesting companies, they strongly suggest that FinCEN considers both virtual currency payment processors and virtual currency exchange platforms to be money transmitters. In practical terms, many virtual currency businesses that previously have argued that they are exempt from FinCEN regulations will now have to register as money transmitters, implement an anti-money laundering program, and comply with other reporting and recordkeeping requirements under the Bank Secrecy Act. We summarize the two rulings below, and then lay out some of the key “takeaways” for virtual currency businesses.
Last week, the Conference of State Bank Supervisors (CSBS) and the North American Securities Administrators Association (NASAA) released model consumer guidance that they jointly developed to assist state regulatory agencies in providing consumers with information about virtual currency and factors consumers should consider when transacting with or investing in virtual currency. Within days of the model guidance release, the Maryland Commissioner of Financial Regulation and the Nevada Department of Business and Industry both issued their own Advisories. The Maryland advisory notice adds a statement that Maryland does not currently regulate virtual currencies. Given the breadth of Maryland’s money transmitter statute, Maryland likely has the authority to regulate virtual currencies without any amendments to its laws, but appears to have decided to take a “wait-and-see” approach for now. The Nevada guidance adopts the CSBS model advisory language verbatim with only insubstantial changes in the introductory language, and does not comment on whether current Nevada law covers virtual currency.
Continue Reading CSBS Model Virtual Currency Advisory: DO YOUR HOMEWORK! Maryland and Nevada Release Their Own Similar Advisories
The Washington State Department of Financial Institutions (“DFI”) issued a consumer alert warning of the risks of holding virtual currencies for investment or as a currency. The Washington DFI specifically called out virtual currency’s volatility, lack of backing or guarantee, connection to criminal activity and potential tax repercussions. This warning is the Washington DFI’s second announcement on virtual currencies following its earlier determination that it interprets Washington law to include digital or virtual currency in the definition of “money” in the Uniform Money Services Act, chapter 19.23 RCW. The DFI also recently revised certain regulations to require all authorized delegates of licensed money transmitters to have a physical presence in Washington unless the licensed money transmitter received prior approval for an out of state licensed delegate. This revision effectively requires all internet-based companies, including virtual currency firms, to obtain prior approval before acting as an authorized delegate for a licensed money transmitter.
Continue Reading Washington Consumer Alert
On March 10, the Securities Commissioner of the State of Texas issued an emergency order against Balanced Energy, LLC (“BE”), ordering it to immediately cease and desist its sale of working interests in oil wells (“C&D”). The primary basis for the C&D appeared to be that the working interests constituted unregistered securities, and that by offering them for sale without a qualified exemption, BE was violating both state and federal securities laws. However, the C&D also noted BE’s claims that it is the first company in the oil and gas exploration and production industry to accept bitcoin as payment for its prospects. The C&D concluded that BE’s failure to disclose the risks associated with using bitcoin to purchase unregistered working interests constituted fraud and materially misleading conduct in connection with the offer for sale of securities – activity that threatened immediate and irreparable public harm. The C&D specifically focused on perceived risks inherent to the use of bitcoin and the risk that fluctuation in the price of bitcoin may affect business operations. These findings regarding BE’s use of bitcoin follow the Securities Commissioner’s previous issuance of a press release addressing the risks associated with investments tied to digital currencies.
Continue Reading Texas Cease and Desist Order
On March 11, the New York State Department of Financial Services issued an Order announcing that that it “will consider formal proposals and applications in connection with the establishment of regulated virtual currency exchanges operating in New York.” While the Order itself is silent on timing, an accompanying press release makes clear that the NYDFS will begin accepting applications from exchanges “immediately.” The press release also makes clear that while exchanges can begin submitting applications at any time, approved applicants will ultimately be required to adhere to the proposed “BitLicense” regulatory framework, which the NYDFS promised would be announced no later than the end of the second quarter of 2014.
Continue Reading New York BitLicense Order
The United States Department of Treasury Financial Crimes Enforcement Network (“FinCEN”) supplemented its March 18, 2013 guidance on the applicability of federal money transmission regulations to virtual currency “miners” and investors with two letter rulings on January 30, 2014. Both rulings are fact specific, but provide information and insight into FinCEN’s views on regulation of various participants in the virtual currency ecosystem under the Bank Secrecy Act (“BSA”). The rulings establish that:…
Continue Reading FinCEN Issues New Virtual Currency-Related Letter Rulings