Your Blockchain Business Needs a Blockchain Lawyer
Your Blockchain Business Needs a Blockchain Lawyer
Chetan Phull · Jan 4, 2018
What is Blockchain? What is Bitcoin? And Why Should Anyone Care?
“Blockchain” and “bitcoin” are two of the hottest words in tech today.
And yet, many entrepreneurs and executives still misunderstand blockchain, its implementation as Bitcoin, its revolutionary application to the Internet of Things, and many other topics this blog will cover in future posts.
- A blockchain is a ledger or database existing on many computers, all over the world.
- Changes to a blockchain are securely propagated throughout the network.
- Every blockchain network is itself a unique blockchain.
- Bitcoin runs on the Bitcoin blockchain. It is a type of cryptocurrency (also known as a “virtual currency” or “digital currency”).
So, why is blockchain tech so important today?
Consider the following quote by Alex Tapscott, CEO of NextBlock Global:
Underpinning bitcoin, is this revolutionary technology called the blockchain. A vast global distributed database. A single source of truth, that doesn’t run on one computer—it runs on all computers. And it’s not accessible to a few, but it’s accessible to all. Where not just information, but potentially anything of value—Bitcoin, to be sure, but also money, financial assets, intellectual property, carbon credits, energy, even votes in an election—can be moved, stored, and managed securely and privately. And where trust is not established by a third party, but rather through mass collaboration, cryptography, and clever code.
[Source: Alex Tapscott, “Blockchain is Eating Wall Street”, TEDxSanFrancisco (Oct 26, 2016)]
The key takeaway: through blockchain, “anything of value … can be moved, stored, and managed securely and privately.”
Numerous Regulatory Environments: Sectors Putting Blockchain to Work
Blockchain tech is ripe for literally any application involving data or transactions.
Ground-breaking blockchain applications are currently being developed in the following sectors:
|Banking and payments. Quick and secure access to funds at minimum cost across borders, including to/from parties in the Third World.||Cyber security. Encrypted data resistant to unauthorized changes and attacks. Elimination of intermediaries.||Healthcare. Secure storage of medical records. Secure sharing of medical records with authorized doctors or patients.|
|Private transport & ride sharing. Decentralized peer-to-peer ride sharing apps. No third party intermediaries. Automatic payments for parking, tolls, and fuel.||Networking and IoT. Decentralized network of IoT devices using the blockchain eliminates the need for a central communication hub. Devices communicate directly with each other to update software, manage bugs, and monitor energy usage.||Real Estate. Eliminates bureaucracy, lack of transparency, fraud, title mistakes, and lengthy settlement time for transactions. Assists with tracking contract revisions between parties and transferring property deeds.|
|Forecasting. Place bets in the global prediction markets by decentralized and transparent means.||Online data storage. Cloud storage that is more secure and robust against attacks.||Retail. Connects buyers and sellers without intermediaries and associated fees.|
|Voting. Voter registration and ID verification, and electronic vote counting, with a publicly viewable ledger of recorded votes. Fairer democracy.||Government. Reduce bureaucracy, and increase security, efficiency and transparency of government operations.||Public benefits. Assess, verify, and distribute benefits securely, with reduced waiting periods and bureaucracy.|
|Insurance. Payouts that are less claims-based and more loss-based. Example: integration of real world data with blockchain smart contracts (e.g. crop insurance).||Energy management. Energy users and producers buy and sell from each other directly, without needing to transact through public grids or a trusted intermediary.||Online Music. Direct payment from consumer to artist without intermediaries (platforms or record companies). Streamlined licensing transactions and song cataloguing.|
|Supply chain management. Transactions documented in a permanent, secure record, and monitored securely and transparently. Example: to verify the authenticity or fair trade status of products.||Charity. Decreases inefficiency and corruption.||Crowd-funding. Removes intermediary escrow platforms.|
|[Adapted from: FutureThinkers.org, "19 Industries The Blockchain Will Disrupt" (June 15, 2017)]|
Each of these sectors invoke sector-specific regulations.
Blockchain businesses must consider such sector-specific regulations in a blockchain context.
This requires careful consideration of additional regulations engaged by blockchain-related activities.
Why Your Blockchain Business Needs a Blockchain Lawyer
Your blockchain business needs a blockchain lawyer to:
- identify and navigate the overall regulatory environment engaged by your specific business model;
- assess current compliance and develop a compliance strategy;
- develop contractual and governance foundations for the venture’s long-term viability and profitability; and
- engage adversarial parties on the basis of the applicable regulations and legal foundations.
There is no one-size-fits-all approach to blockchain law.
Every business model must, in addition to considering sector-specific regulations, also consider compliance of blockchain-related activities with the laws of securities, tax, contracts, banking and trusts, and anti-money laundering, to name a few.
And more blockchain-related regulations are on the horizon.
For example, Canadian federal anti-money laundering laws will soon govern virtual currency activities. Consider:
- June 19, 2014: the Governor in Council was given the power regulate in respect of the phrase "dealing in virtual currencies" (PCMLTF, s.73(1)(a)).
- Date TBA: a person or business that deals in virtual currencies will be a "money services business" (PCMLTF, s.256(2)(h) and (h.1)). This provision will come into force on a day to be fixed by the Governor in Council (such date presently unknown).
Consider also the following steps taken in the U.S. to regulate virtual currency activities:
- March 18, 2013: FinCEN released guidelines on regulating virtual currencies.
- June 24, 2015: New York State enacted rules governing virtual currency business activity.
- October 9, 2017: the Uniform Regulation of Virtual Currency Business Act was released for proposed adoption as a statute in all states.
Specific regulatory developments will be discussed in future blog posts.
Suffice it to say, the law is changing. Blockchain activities are being regulated. Legal compliance is—and will increasingly be—essential to the functioning and profitability of your blockchain business.
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