Hi there. We had a huge response to the first issue of Crypto Esq. and have more than doubled our audience since then. So, the odds are that this is the first time I’ve landed in your inbox. Thanks for subscribing. These semi-regular briefings are my humble attempt to gain and share some knowledge on the legal side of blockchain, cryptocurrencies and smart contracts. I hope it provides some value for you.
Meanwhile in Washington
Last week leaders from the cryptocurrency industry, Wall Street and venture capital firms met lawmakers in Washington and overwhelmingly asked for more clarity around existing regulation. A recurring complaint was the idea of applying a 72-year-old securities law to digital currencies. The U.S. Securities and Exchange Commission uses what’s known as the “Howey Test,” which comes from a 1946 U.S. Supreme Court decision, to determine whether or not a cryptocurrency is a security. SEC Chairman Jay Clayton has made it clear that he does not intend to update those standards to cater to crypto. If companies don’t get a better idea of the legal guardrails, multiple attendees warned that innovation is bound to head overseas, draining the U.S. of potentially profitable blockchain businesses. Foreign companies are able to out raise their U.S. competitors and often whoever raises the most money is who wins. “The competition around the world is real. But there’s still time and opportunity for the U.S. to be a leader here,” says Joyce Lai, a lawyer at blockchain software technology company Consensys. CNBC (6 minutes)
Last weekend popular cryptocurrency exchange ShapeShift was the subject of a investigative piece in the Wall Street Journal that suggests a “new breed of cryptocurrency intermediary”— exchanges with unidentified owners and addresses that often let users transact without identifying themselves—are probably making it easier to use cryptocurrency to launder money without leaving a trace. Just how big of a problem is money laundering via crypto? It’s hard to know for sure, but it’s a contentious issue between concerned policymakers and crypto advocates, who like to point out that hundreds of billions are already laundered each year using traditional financial institutions. Perhaps the most specific estimate out there came from the director of Europol, who estimated in early 2018 that criminals in Europe are laundering more than $5 billion a year using cryptocurrencies. Wall Street Journal (12 minutes)
Crypto & Estate Planning
Any will, trusts and estates lawyers out there interested in crypto? Jessica Wilson, a New York attorney, reached out to me noting that many clients have been inquiring about leaving their cryptocurrency in trusts/wills. Of course, an obvious solution is to keep a copy of their wallet and private key on a thumb drive in a safe place known to a family member they trust and another copy in a safe deposit box. Do you have any other ideas? We’re convening a conversation to explore this practical topic. If you’re interested, click here.
Three companies that provide cross-border payment services plan to use technology developed by startup Ripple that employs cryptocurrency XRP to speed transactions. This week Ripple, a large holder and promoter of XRP, said its platform for cross border payments, called xRapid, is now commercially available and that it had signed up firms Cuallix, MercuryFX and Catalyst Corporate Federal Credit Union as clients. XRapid uses XRP, a virtual currency powered by the blockchain, to make international payments faster, according to Ripple. The projects, assuming they go live, will mark one of the first uses of a virtual currency by financial institutions in a commercial product. Reuters (2 minutes)
Special Purpose Depository Institution
The Wyoming State Legislature, in a draft bill, has found that the sector’s rapid innovation has resulted in actors being “unable to access secure and reliable banking services,” which has “hampered development of blockchain services and products in the marketplace.” To let these innovative new companies know Wyoming is “open for business,” the state’s blockchain task force is working on new legislation that could lead to the creation of one or more “special purpose depository institutions” (SPDIs). Though it would not offer loans, it would be able to hold and exchange balances of cryptocurrency and exchange between fiat and cryptocurrency. The SPDI would need to maintain a 100 percent cash reserve to match its virtual currency accounts.The draft bill also includes a caveat to allow an SPDI to have a blockchain-based platform incorporating smart contract technology for its operations. ETH News (5 minutes)
Crypto & Counterterrorism
This week HR 5036, the Financial Technology Protection Act, passed the US House of Representatives and is moving to the Senate. The bipartisan bill, intends to create an interagency task force dedicated to combating illicit use of cryptocurrency in the funding of terrorism. The task force will consist of the attorney general and the directors of the CIA, the Financial Crimes Enforcement Network, the Secret Service, and the FBI, as well as six private sector appointees to be chosen by the secretary of the treasury. It also establishes the ‘Fintech Leadership in Innovation and Financial Intelligence Program’ which will let academia and the private sector apply for grants to come up and experiment with ideas and programs to combat terrorist use of digital currencies. Congress (8 minutes)
President Julius Maada Bio of Sierra Leone announced at the 73rd Session of the U.N. General Assembly (UNGA) a partnership that brings together leading technology nonprofit Kiva, the U.N. Capital Development Fund (UNCDF) and the U.N. Development Programme (UNDP) for the launch of a bold, new initiative designed to give the country’s seven million citizens, most of whom have no credit history or formal identity, access to financial services. The centerpiece of the partnership is the new Kiva Protocol, which will create and establish a national digital identification system using distributed ledger technology (DLT). The system will help ensure that every citizen in Sierra Leone has secure and complete ownership of their personal data and information. It could serve as a model for both developing and developed nations in the future and has the potential to radically change the landscape of financial inclusion. PR Newswire (6 minutes)
About Crypto Esq
A briefing on the legal side of cryptocurrencies, blockchain and smart contracts by Kyle Westaway – Managing Partner of Westaway, an innovative Brooklyn law firm.
Photo by Red Morley Hewitt.