Yesterday, at the conclusion of my #NYU class discussing #Governance of #Bitcoin and #Cryptocurrencies, I posted this slide, summarizing my thoughts about what the #US can do to improve its #law and #policy related to #Crypto. A #thread on what we can and should fix:
First, establish an government wide-policy. What do we want? Are we pro -innovation? Do want to protecting consumers? Do we want to strike a balance in the middle?Do we want to facilitate experimentation? How much control will the govt take over these experiments? /2
Do we want to make it easier or harder to launch businesses/reach consumers? To make an effective policy, we either need an interagency group, or a new freestanding group focused on the subject. Whoever tackles it, step 1, what do we want? /3
Next, the #SEC should create a law for #token offerings. So far we have applied venerable precedent in settled enforcement actions, modified/added glosses to that precedent it in speeches & non-binding guidance, seen those positions supported in trial court rulings, /4
& looked to a proposed safe harbor (hat tip to @HesterPeirce) that is promising but which has not been enacted. Perhaps with the #XRP case we’ll ultimately see the 2nd circuit make the law by ruling on the positions taken by the SEC, but that might take a few years. /5
In the meantime, lawyers & clients are left to navigate the nebulous territory created by non-binding guidance. The cost to go to market & uncertainty of the strategies to go to market would be reduced with binding guidance, a rule, a safe harbor, or a law. /6
Third, given the cambrian explosion of #digital asset types, clarity as to which assets are regulated under which laws under which circumstances would be very helpful. We’ve already seen a bill that calls for the #SEC & #CFTC to collaborate to set boundaries. This is promising./7
Money Services Business /Money Transmission law is complicated & expensive for new companies who are required to comply with federal law & to potentially apply for licenses under 54 different state/territorial laws to serve the entire country. /8
The same activitiy is regulated differently in different states. Different states have differnt requirements to obtain licenses. These laws are important but could be standardized. Pre-emption, standardization or passporting would significantly reduce the burden on businesses./9
Next, property rights. What is a #bitcoin to the law? What legal rights does a party that controls a bitcoin actually have? Property rights are created by statute or judge-made law. Although we have a ton of state and federal laws that affect use of #digital assets, /10
only #Wyoming has explicitly classified #digital assets as property. Other jurs. may have broad property definitions (see, for ex. #California 's statute as interpreted in Kremen v Cohen) that could include these assets, but without clear property rights, /11
we are left w/ questions- can you steal a #bitcoin? Can you get civil relief for conversion of a #bitcoin? We assume yes, but the law isn’t as clear as you’d think. FYI- Most courts that have looked at the issue say yes, and get there in different ways. /12
Clarity as to property rights makes it lower risk and thus easier and cheaper to engage in transactions related to these assets and these systems. /12
This one's a pet project - thoughtfully include #digital assets in the UCC. IYDK, the Uniform Commercial Code is a comprehensive set of uniformly adopted laws governing all commercial transactions (sales of goods, lending, secured transactions, etc…) in the United States./12
As the #crypto #lending markets have exploded & many #defi projects like #MakerDao are offering collateralized transactions that look like familiar secured transactions (if you squint....), there’s a need to understand what rules apply in the absence of contracts /13
What rules? For Ex: how to encumber #crypto, how to perfect a lien against crypto, take free rules, shelter rules, etc... Its best to not force these assets into custodial/intermediated models, & ideally the rules could work cross-border. /14
Although most (properly) treat #crypto as A8 general intangibles, there are open questions as to perfection & the issues above. Some states have already started experimenting with their own laws- none are perfect or comprehensive enough, yet. The good news is that the ULC/ALI /15
is working on crafting these rules (disclosure- I’m participating) & international groups law reform groups are also looking at these issues as well. Standardizing law across states is a major challenge, but these laws work best when standard or compatible globally. /16
There is lots of thoughtful nuanced work to be done here, but “the juice is worth the squeeze”- reliable predictable commercial transactions would make #crypto "safer" to use and more available for more different types of transactions. /17
#Crypto used as a substitute for currency should be treated as much as possible like cash. We are quickly retreating from physical cash losing with it the privacy enjoyed by cash users. Efforts should be made to allow crypto to remain private until it collides with regulated /18
entities that are subject to data collection and reporting requirements. /19
The US tax approach to #crypto has made it incredibly burdensome to use crypto - many are feeling the pain as tax day approaches. A de minimis safe harbor/exception for transactional use as suggested by the AICPA would encourage/simplify use &reduce tax burden. /20
clarification of some of the forks rules would also help. There are opportunities in tax as well. Regtech built into payment systems with the cooperation of the tax authorities could be a game changer for retail, merchants and taxing authorities. Looking forward to it. /21
Finally, a court should consider limiting the 3rd party doctrine, which has eroded our 4th amendment privacy rights. The TLDR; of the 3rd party doctrine: if a person willingly gives unprotected information to 3rd parties, & those 3rd parties have a business reason to retain /22
that information, law enforcement can get that information from the 3rd party without a warrant, even if law enforcement would need a warrant to get it from a person directly. Given our increasing reliance on digital payment systems that collect & commercialize tons of data /23
about us pursuant to clickwrap & browsewrap agreements that we have no choice but to accept, the amount of data held by 3rd parties is astounding. The BSA requires data collection & applies to intermediaries serving #crypto, & the scope of data collection seems likely to grow./24
These laws serve an important purpose- money is like air to criminals, and the use of intermediaries to identify, disrupt, & prevent criminal activity is critical to our collective safety. No issue with the good work (and outstanding guidance) we have seen from FinCEN. /25
All that being said- Given that so many regulations dictate what data is collected, is a person “willingly” or “voluntarily” giving that data to regulated intermediaries so it can be provided to the govt. w/o a warrant? If it is, should regulation modify my 4a privacy rights?/26
SCOTUS had this issue before it in California Bankers but it was not addressed on the merits. This is an important issue that I'm looking forward to seeing our courts address. /27

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More from @propelforward

30 Dec 20
OFAC settlement w/@BitGo for apparently failing to prevent users accessing their online hot-wallet service via Crimea, Cuba, Iran, Sudan, & Syria IP addresses; service appears to be a non -custodial online wallet. Violaton of OFAC regs, NOT BSA . Let's look at the regs: /1
31 CFR 515.201, (i.e. Cuban Assets Control Regulations) prohibits transactions by foreign countries and their nationals including "...transfers, withdrawals, or exportations of, any property," /2
31 CFR 560.204 regarding Iran (defined as the Territority of Iran) also prohibits "exportation, reexportation, sale, or supply, ....from the United States....of any goods, technology, or services to Iran or the Government of Iran" /3
Read 11 tweets
26 Sep 20
🚨🚨🚨BREAKING: clarity on how broker dealers should handle non-custodial digital asset securities transactions on ATS. 🚨🚨🚨 THREAD coming atcha /1
/1 since the Joint Staff Statement (July 8, 2019) which addressed BD custody & handling of trades of digital asset securities (sec.gov/news/public-st…) which emphasized consumer protection, it has not been clear how transactions on ATS should be conducted:
/2 The Joint Statement did not make clear how BDs should conduct these trades. Today's letter provides no action relief (i.e. if you do this specific thing, the SEC will not enforce against you) for a specific process flow for digital asset securities transactions by BDs
Read 17 tweets
24 Sep 20
Should #smartcontract code execution always be dispostive? Can code execution actually bind participants if litigation is always available? Does extrinsic goverance of #blockchains that may alter #consensus governance weaken, or strengthen a protocol? Who should care? /1
Short answer- everyone. #Developers #investors & #lawyers all need to understand #blockchain & #smartcontract governance to understand what it means to build on top of others' tech. Can you patent new art built on a blockchain? Will your software work if the underlying chain /2
upgrades its code? What if the underlying blockchain forks? How can a #smartcontract advocate for or against software changes to underlying #blockchain system functionality? Is it worth investing in a project built on a frequently shifting foundation.... /3
Read 4 tweets
12 Aug 20
Another place where #bitcoin tends to show up in litigation is in divorce, when married couples divvy up assets. In DeSouza v. DeSouza, a spouse was held to violate his fiduciary duty to his spouse by concealing #bitcoin. /1 ImageImageImageImage
Here, the divorcing spouse had some #bitcoin tied up in #MtGox and some held on private wallets. One spouse did not disclose the holdings until after the divorce, and the other spouse immediately sought an award of 1/2 and attorney's fees. Court agreed, noting that divorcing /2
Spouses owe statutory fiduciary duties, & failure to disclose the existence of the #bitcoin, payments to Mt. Gox, some bitcoin's ties to #MtGox & the forks of #bitcoincash and #bitcoingold amounted to breaches of duty; Court disagreed that capital appreciation mitigated /3 ImageImageImage
Read 6 tweets
11 Aug 20
#California appellate court affirms summary judgment in favor of @coinbase as to claims for #conversion #breach of contract & negligence; related to #coinbase not supporting #bitcoingold fork for its users; since it's precedent in CA, let's dive in /1 ImageImageImageImage
Court ruled that there was no agreement to give Plaintiff #Bitcoingold; there was no "contractual obligation to support or provide services for any particular cryptocurrency." Merger clause barred parol evidence & there was no contractual duty. That's breach of contract /2
Conversion of crypto is a pet issue of mine because it requires the Court to determine that the thing that is allegedly converted (i.e. the civil version of theft) is legally recognized property. Fun Fact- property rights are mostly created by state law. Only 1 state (Wyoming)/3
Read 11 tweets
6 Jun 20
@CQRollCall reports the Boston Options Exchange (BOX) reworks its plan to use #Ethereum to record ownership of securities, says it resubmitted plan after meeting with regulators; would use #blockchain as an "ancillary method of recordkeeping" with official data kept by DTCC /1 Image
New proposal limits trading on exchange to listed items, not to provide unlisted trading privileges, which would allow transactions in securities whose home is on another exchange.
Notably, @SIFMA is reported to have asked the SEC to "take its time to consider the proposal," /2
given its novelty. SIFMA did not oppose it, but "said the prospect raised many issues. For one, the plan would allow an options exchange to have an effect on the securities markets, it argued." also expressed concerns about security token technology and unlisted trading privs./3
Read 5 tweets

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