Blockchain and Cryptocurrency Litigation: What to Expect in 2019
2018 was an eventful year in general when it comes to blockchains and cryptocurrencies. Digital currencies such as Bitcoin and Ethereum suffered huge trading losses last year with the former nearing towards the $3,000 mark by the end of the year. Another notable trend from last year is the rise of blockchain and cryptocurrency related lawsuits, triggering SEC chairman Jay Clayton to announce a crackdown on the industry. This is why different industries have called 2019 the make or break year for these technologies. Now what is in store for laws and litigation regarding digital currencies and blockchains then? Let us find out.
Defining Cryptocurrencies as Securities
Over the years, there seemed to be a never-ending debate as to how cryptocurrencies are defined whether as a currency or an investment. These arguments may be nearing an end this year. A landmark federal court ruling has declared that cryptocurrencies, particularly those under initial coin offerings (ICO), may be subject to securities laws. In United States vs. Zaslaviskiy, the grand jury ruled that the cryptocurrency purchases the defendant has persuaded its investors to buy under his companies are considered as investment contracts. This means individuals and companies who purchased cryptocurrencies as funding for a business or enterprise can count it as an investment and is protected by the law. It also legally solidifies the SEC’s stand that the current securities regulations are sufficient enough to cover cryptocurrencies, blockchains and possibly other fintech investments in the future. Finally, this ruling can also lead to a clearer definition of what these technologies are in the eyes of the law.
Pushing for More Regulations
Despite the federal court ruling and SEC’s stand on cryptocurrency investments, the pressure for tougher regulations is still on for 2019. With the trading rate for cryptocurrencies remaining on the lower end and securities lawsuits regarding ICOs increasing, both the government and cryptocurrency institutions need to evolve. Creating a legal framework or adding supporting regulations specific to these technologies, like what France, South Korea and China did, can help with institutionalizing digital assets and similar investments. New laws that protect cryptocurrency and blockchain owners, traders and investors will surely encourage other institutions to adapt these technologies and bring it to more people.
Smart Contracts
Another factor that cryptocurrency and blockchain litigators are looking into this year are smart contracts. This is a type of blockchain technology that converts contracts into a computer code and is stored and managed by a network. It basically simplifies transactions and deals with money, property or any type of asset as it self-executes contract terms, liabilities and penalties.
While some lawyers see smart contracts as a threat, it can be a useful tool for them especially when it comes to documentation and paper trails. The transparent and self-executory nature of these contracts will help them in the event that these transactions are challenged in court.
There are a lot of exciting legal developments to look forward to as more institutions open up to the possibility of adapting cryptocurrencies and blockchain technology. More questions and situations will will eventually come up, but the industry remains positive about the growth of these technologies and the new rules and regulations that will come with it.
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Original article posted on the Hogan Injury Website
Syndicated article, by permission, posted on Markethive, by Jeffrey Sloe