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Blockchain in the Legal World

Presented by Jordan Shelton and Zack Jenkins , BU Law Entrepreneurship and IP Clinic. Blockchain in the Legal World. Agenda. I. Overview of Blockchain and Cryptocurrency II. Current Regulatory Agencies III. Legal Considerations and Concerns with the Blockchain IV. How can the Clinic help?.

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Blockchain in the Legal World

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  1. Presented by Jordan Shelton and Zack Jenkins, BU Law Entrepreneurship and IP Clinic Blockchain in the Legal World

  2. Agenda • I. Overview of Blockchain and Cryptocurrency • II. Current Regulatory Agencies • III. Legal Considerations and Concerns with the Blockchain • IV. How can the Clinic help?

  3. Key Definitions • Cryptocurrency • A token or coin that is offered on a blockchain that can usually be purchased for fiat currency or another cryptocurrency • Initial Coin Offering (ICO) • Generally a fundraising effort often compared to an IPO (initial public offering) • SAFT (Simple Agreement for Future Tokens) • SEC – Securities Exchange Commission • Securities

  4. Key Definitions • Blue Sky Laws • CFTC – Commodities Futures Exchange Commission • Commodities • Options • IRS – Internal Revenue Service • FinCEN– Financial Crimes Enforcement Network • Public and Private Keys

  5. What is Blockchain? • A immutable decentralized ledger

  6. Distributed Ledger vs Single Ledger • Single Ledger • Visa, Mastercard, etc. • Multi Ledger • Bank consortium • Distributed Ledger • Bitcoin, Ether, etc.

  7. Opportunities for Blockchain • Removes the “middle man” • Provides an absolute security that nothing has been removed or altered • Decentralized records are harder to hack • HOWEVER,this does not mean that blockchain is without risks

  8. Regulatory Agencies

  9. SEC • Are Tokens Securities? • Howey Test • The law is not settled so it is very fact dependent • Regulation of Exchanges • Notable statements • The DAO investigation • Cease and Letter to MuncheeInc. • Civil Action against AriseBank

  10. CFTC • Bitcoinand other virtual currenciesare commodities • Oversight of approvedfutures exchanges • Monitors fraud and manipulation

  11. IRS • The IRS has taken the stance that cryptocurrencies are “property” and not currency and are thus subject to tax • Gains from the sale of cryptocurrencies should be reported on you annual tax filings • Some exchanges may issue Form 1099 but if they don't the individual seller is still responsible for reporting their gains/losses • Cryptocurrencies are not eligible for “Like-Kind Exchange”

  12. FinCEN • Department of the Treasury • All money transmitters must register with FinCEN • AML/KYC monitoring

  13. Money Transmitters • U.S. Treasury: “a developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter” • Financial and other considerations

  14. Money Laundering Laws • Anti-Money Laundering (AML) • Requires financial institutions to report certain transactions to the Department of the Treasury • Know Your Customer (KYC) • Designed to prevent banks from being used form criminal activity and money laundering • Requires Enhanced Due Diligence on customers

  15. State Laws • Trend towards state regulation • Gradual recognition of smart K • Blockchain as evidence • Blue Sky Laws • State Money Transmitter

  16. DE/MA Money Transmitter Laws • $172.50/$300 investigation fee • $230/$1,000 license fee • Criminal background and credit check • $100,000 net worth in DE • MA is not explicit • $25,000/$50,000 (min) Surety bond

  17. Legal Considerations and other Concerns

  18. Worldwide Regulatory Flux • Japan - currently one of the most friendly Asian countries but has started doing investigation • China - Banned ICO’s, banned mining, and is attempting to crackdown on the trading of cryptocurrencies • South Korea / Australia - Banned anonymous trading of cryptocurrencies and has begun regulating cryptocurrencies • European Union - cracking down on anonymous trading and has begun creating new cryptocurrency regulations

  19. ICO vs Venture Capital • ICO: • The sale of tokens is a taxable event • Allows for access to a different set of investors** • Venture Capital: • Established process • Income is not taxed upfront

  20. Concerns with Blockchain • Performance Issues • Many of the current “chains” are becoming strained and slow • Gas Costs • Level of Control • Insufficient Adoption • Complicated Nature

  21. The Clinic http://sites.bu.edu/elawclinic/

  22. Questions?

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