Virtual Currency Report

THE LAW OF BLOCKCHAIN SOLUTIONS AND DIGITAL CURRENCIES

U.S. Developments Regulatory Updates SEC Chairman Clayton Explains that an Asset Can Lose Its Status of Being Labeled a Security U.S. Securities and Exchange Commission (“SEC”) Chairman Jay Clayton appears to have confirmed SEC-staff analysis of the classification of decentralized digital assets.  Last year, SEC Director of Corporation Finance William Hinman said during a speech that decentralization impacts the classification of digital assets and that, by way of example, Ethereum did not exhibit the properties…
U.S. Developments Denver to Implement Blockchain-Based Elections for Overseas Voters Denver moves to become the second U.S. jurisdiction to implement a blockchain-based voting system for overseas voters. Active duty military and other eligible overseas voters will be able to use a mobile phone application in the next election to cast their vote on municipal issues. Denver plans to use Voatz, a mobile application used by West Virginia in the 2018 mid-term election, where an
U.S. Developments Regulatory Updates CFTC Plans Public Meeting Addressing Fintech, Including Blockchain Technology On March 27, 2019, the Commodity Futures Trading Commission (CFTC) Technology Advisory Committee will host a public meeting  at the CFTC headquarters in Washington, DC. The Technology Advisory Committee plans to use the meeting to listen to presentations and consider actionable recommendations from various subcommittees. The subcommittees that will be represented are Automated and Modern Trading Markets, Distributed Ledger Technology and Market…
Cryptocurrency owners must face death—be it their own, or that of anyone else with custody of the owner’s cryptocurrency or other digital assets. We received a stark reminder of this when the Canadian exchange QuadrigaCX recently filed court papers[1] indicating it may have lost access to nearly $200 million USD of its customers’ Bitcoin, Ether and other cryptocurrencies. The exchange claimed to have used cold wallets to store its portion of customers’ vital cryptocurrency…
U.S. Developments Regulatory Updates SEC Settles Enforcement Action with Gladius Network On February 20, 2019, the U.S. Securities and Exchange Commission (“SEC”) announced the settlement of charges against Gladius Network LLC (“Gladius”) for conducting an unregistered securities offering.  Gladius conducted a presale and public sale of digital tokens called “GLA” in late 2017, raising approximately $12.7 million to finance the development of a network where peers would rent out to other peers spare computer bandwidth…
U.S. Developments Regulatory Updates SEC Commissioner Peirce Says Guidance on Crypto Token Sales Is Coming In a speech at the University of Missouri School of Law, Hester Peirce, one of the SEC’s commissioners, said that the agency is working on “supplemental guidance” to help projects determine when securities laws might apply to crypto token sales. The commissioner said that the traditional standard for determining whether something is a security—the Howey Test—can sometimes be “overbroad” and…
The Ethereum Classic blockchain was the victim of a 51% attack (often called a majority or Sybil attack) last month that reorganized portions of the blockchain and allowed the attackers to double-spend 219,500 ETC ($1.1 million). As a result of this attack, and similar majority attacks over the past year, the concept of immutability within blockchain technology has been revealed to be a potentially costly oversimplification. This update presents a more nuanced understanding of blockchain…
The International Swaps and Derivatives Association (ISDA) has published the first in a series of guidelines for what it colloquially refers to as “smart derivatives contracts” (the Guidelines).* A smart derivatives contract is a derivative that incorporates software code to automate aspects of the derivative transaction and operates on a distributed ledger, such as a blockchain. This series of papers is intended to “provide high-level guidance on the legal documentation and framework that currently governs…
U.S. Developments Florida Court of Appeals Rules That Direct Sales of Bitcoin Constituted Money Transmission and the Sale of Payment Instruments Reversing the order issued by the Miami-Dade County Circuit Court, the Florida Court of Appeals issued an opinion on January 30 in the case of Florida v. Espinoza in which the appellate court ruled that an individual’s sale of bitcoin for cash constituted money transmission and the sale of payment instruments. Largely basing its…
Arizona’s financial technology (“fintech”) sandbox (“Sandbox”), the first of its kind in the United States, has been open for several months and has accepted three participants.  A month after the program’s launch, Arizona’s Attorney General announced his approval of the first participant, payment platform Omni Mobile, Inc.[1]  Two other companies providing consumer lending services, Sweetbridge NFP, Ltd. and Grain Technology, Inc., joined Omni as Sandbox participants shortly thereafter.[2]  Arizona’s Sandbox may…