Blockchain

Bi-partisan bill reintroduced in Congress to clarify blockchain regulatory regime

April 14, 2019 By Bruce Antley

U.S. lawmakers are seeking to encourage blockchain innovation to help American businesses remain competition with Chinese companies. Photo by Hobvias Sudoneighm | CC By 2.0

A bipartisan group of U.S. lawmakers re-introduced legislation aimed at clarifying how securities laws are applied to crypto tokens.

The Token Taxonomy Act of 2019, H.R. 2144, was introduced to provide regulatory certainty for businesses, entrepreneurs, and regulators in the U.S.’s blockchain economy. The proposed law would clarify the numerous conflicting state initiatives and regulatory rulings, and patchwork of judicial decisions, that have clouded certainty for entrepreneurs and businesses that use blockchain technology.

“The Token Taxonomy Act is the key to unlocking blockchain technology in America. Without it, the U.S. is surrendering its innovative origins and ownership of the digital economy to Europe and Asia. Passing this legislation, Congress would send a powerful message to innovators and investors around the world that the U.S. is the best destination for blockchain technology. In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space.
Ohio Republican Congressman Warren Davis

The legislation was written by Davidson (OH-08) and co-sponsored by Representatives Darren Soto (D-FL-09), Josh Gottheimer (D-NJ-05), Ted Budd (R-NC-13), Tulsi Gabbard (D-HI-02), and Scott Perry (R-PA-10).

Wyoming Continues Push to Be Blockchain Haven

January 27, 2019 By Bruce Antley

Although it may be known better for mountains and buffalo on the Great Plains, Wyoming’s legislators are hoping there will be a pot of gold at the end of the blockchain rainbow.
Photo by Always Shooting | CC BY 2.0

While New York, arguably the world’s financial capital, piddles with a study commission, Wyoming, one of the most rural of American states, continues to advance some of the most forward-thinking blockchain-related legislation.

Within the past week, Wyoming has pushed forward two pieces of legislation that would help to make it one of the world’s regulatory havens for blockchain. The legislation includes the following:

Digital Assets — Existing Laws: Categorizes digital assets as property under existing laws, including the Uniform Commercial Code, authorizes security interests in digital assets, and establishes an opt-in framework for banks to provide custodial services for digital assets.

Corporate Stock Certificates: Authorizes corporations to issue blockchain-based certificate tokens in lieu of traditional stock certificates.

The new legislation was celebrated by numerous blockchain advocates, including Caitlin Long, a member of the Wyoming Blockchain Coalition.

1/ TWEETSTORM about #Wyoming’s BIG REVEAL. This is long & info-packed, so buckle in. My native state is about to do bigger things for #blockchain, & the sector is about to pay Wyoming back big-time. Win-win! @Tyler_Lindholm @SenatorDriskill @TraceMayer @ForbesCrypto pic.twitter.com/gP4oWtTmJj
— Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) January 18, 2019

The new legislation comes on heels of several other pieces of legislation that position Wyoming as a haven for blockchain and cryptocurrency.

It’s “impressive and inspirational – the work that has been done by a number of key figures, including the Wyoming Blockchain Coalition and state legislators – in a very short period of time,” said Scott Burke, CEO of Canadian-based BlockCrushr Labs in a Newsweek article published last year. “It’s incredible to see common sense embraced and enacted in what could and should be an example-setting approach.”

You come in here with a skull full of mush … and you leave here thinking like a (blockchain) lawyer

January 13, 2019 By Bruce Antley

Students at the University of New Hampshire School of Law will hit the books soon to learn about blockchain-related topics. Photo by Woody Hibbard | CC BY 2.0

The courses may feature law and technology experts as professors, rather than the iconic Prof. Kingsfield from the movie The Paper Chase, but classes in a blockchain law course will start later this month. The University of New Hampshire School of Law is the first law school in the United States to offer a program in blockchain-related topics.

“Blockchain technology is poised to disrupt virtually every industry on a global scale,” said Tonya Evans, the Chair of Intellectual Property & Technology Online Programs at UNH Law. “It has far-reaching impacts, especially for the legal field as we navigate through a new regulatory, financial and business environment.”

The UNH program will include four required courses and one elective and will provide participants with an overview of blockchain technology, cryptocurrency, and smart contracts.

Classes begin January 22, 2019, and will be offered entirely online. The cost of the certification program is $7,875.

International Roundup: New regs could stifle blockchain development in China; South Africa considers tax hike on blockchain development; Malta considers “personhood” for blockchain

November 3, 2018 By Bruce Antley

Although China remains a leader in blockchain technology, new regulations threaten the blockchain industry there. BitcoinExchange Guide reports that the Chinese blockchain market is “thriving like never before.”

“China has had quite a big boom in the tech sector… where people are looking very strongly into blockchain technology,” Blockchain Exchange Guide quoted one analyst as saying. “Of course, the popularity of Bitcoin helped in terms of people understanding what blockchain is. In terms of technology, China is actually very welcoming in terms of how these things are being applied.”

But now, China is considering regulations that would, among other things, require users of blockchain services to register with their own names.

South Africa is considering legislation that could hike taxes on blockchain-related activities. Coingeek reports that the National Treasury and the South African Revenue Services introduced changes to a draft of a tax bill that suggest that cryptocurrency should be categorized as a financial instrument. The changes would mean that work on cryptocurrency would not qualify for a research and development tax credit that otherwise applies to innovative activities.

Blockchain haven Malta is considering a legislation intended to further blockchain-related innovation. Cryptoslate reports that the legislation could give legal personality to decentralized autonomous organizations (DAOs), smart contracts, and blockchains. It’s unclear how that would apply to smart contracts or blockchains, but presumably it would be partly aimed at recognizing DAOs the same way corporations has separate rights from the people who have ownership or management responsibilities for them.

SEC Probes Investment Advisers’ Handling of Crypto

November 3, 2018 By Bruce Antley

U.S. Agencies continue crackdown on alleged illegal activities involving blockchain-based currencies and tokens.

The U.S. Securities and Exchange Commission is expanding its crackdown on on illegal activities involving cryptocurrencies by focusing on the activities of investment advisers, according to a report on the website Politico.

Politico reported that probe is targeting how advisers are storing cryptocurrencies, the vulnerability of crypto to hackers and possible price manipulation.

“Typically, after a sweep of this type, the SEC staff will publish its findings and observations, and that can provide very helpful guidance for advisers as they consider their compliance obligations,” Politico quoted Gail Bernstein, the top lawyer for a DC-based investment advisory trade group, as saying.

The problem is the latest in a series of actions by the SEC and the U.S. Commodities Futures Tradition Commission as they assert control over alleged illegal activity involving blockchain-based currencies and tokens.

China Advances New Restrictions on Blockchain Services

October 26, 2018 By Bruce Antley

New regulations would require Chinese users of blockchain services to register with their real names. Photo by Maher Najm | Public Domain

The Chinese government has released a draft of rules aimed at regulating the use of blockchain technology, including a requirement that users in China register their real names when using the technology.

The primary regulator of the Internet in in China — the Cyberspace Administration of China — published the draft regulations on October 19. its website on Friday for public comments until November 2, reported the China Morning Post.

Blokt quoted the regulatory agency as saying the following in a translated post: “In order to standardize blockchain information service activities, promote the healthy and orderly development of blockchain information services, protect the legitimate rights and interests of citizens, legal persons and other organizations, and safeguard national security and public interests, I have formulated the Regulations on the Management of Blockchain Information Services. (Consultation Draft), is now open to the public for comments.”

According to an article posted by The Verge, the new rules not only would require users to provide their real names and national ID card numbers when registering for a blockchain service, they also would require blockchain services to:

remove “illegal information” before it spreads among users
maintain backups of information for six months and provide those backups to the police upon request.

Assuming the new regulations are adopted following the public comment period, it is not clear when they would go into effect.

Tin Soldiers and Nixon may be Coming, but Ohio Will Recognize Your Blockchain-Based Transactions*

October 18, 2018 By Bruce Antley

Starting Nov. 2, the State of Ohio will officially recognize electronic records that are generated or signed using blockchain technology.

Gov. Kasich signed SB220 , which amends the Ohio electronic transactions law in two ways: (1) “electronic records” are redefined to include a “record or contract that is secured through blockchain technology” and (2) “electronic signatures” are redefined to include a “signature that is secured through blockchain technology.”

“In Ohio, blockchain innovators can thrive in their efforts to develop new products and applications for the financial industry and beyond,” said Valentina Isakina, Financial Services Managing Director for JobsOhio, the private economic development corporation for Ohio. “Many companies looking to expand their blockchain and R&D operations are rapidly growing job creators, and Ohio is now even more attractive to these businesses.”

Ohio is one of 47 states that adopted what is known as the Uniform Electronic Transaction Act (also known as UETA). UETA is model legislation designed in the late 1990s, as the Internet was gaining mainstream adoption, to ensure that courts and state agencies would recognize transactions conducted digitally, rather than through paper contracts. Ohio joins three other states — Arizona, Nevada and Tennessee in amending its electronic transactions law to recognize blockchain-based transactions, according to a American Bar Association report. Two of the three states that have alternatives to UETA in place — Illinois and New York (Washington state is the third, in case you’re wondering) are considering amending their laws to recognize blockchain-based transactions. Florida and Nebraska also are considering amending their UETA statutes to recognize blockchain.

*The author expresses his sincere apologies to the fine state of Ohio (fine, not applying to its two professional football teams) for the allusion to Crosby, Stills, Nash & Young’s “Ohio,” which anachronistically played nightly on a mix tape in the newsroom of his college newspaper when he was a young journalist, long before blockchain, or the even the Internet, was really a thing.

California Adopts 2 Pro-Blockchain Laws

October 4, 2018 By Bruce Antley

California State Capital Building By Jeff Turner / CC BY 2.0

Although new legislation is a step forward in recognition of the important of blockchain technology, regulatory uncertainty is harming innovation.

California has adopted two laws that promote the use and development of blockchain technology in an effort to maintain the state’s position as a leader in technology development.

One of the laws — AB 2658 — requires the formation of a working group to report to the legislature on the potential uses, risks and benefits of the use of blockchain technology by state government and California businesses. The report is due by July 1, 2020. The second law — SB 838 — enables companies incorporated in California to use blockchain technology to record the issuance and transfer of company stock. Gov. Jerry Brown signed the laws on Sept. 28.

Blockchain has the potential to revolutionize many industries in the near future. It is vital that California recognizes and supports this industry as an economic driver in our state. These are common sense bills that send the message that California supports innovation and the blockchain industry ….
Ally Medina, Director of the Blockchain Advocacy Coalition

What is blockchain technology? Blockchain is a digital ledger — a log of transactions. The ledger is shared across a network of computers, and transactions are recorded onto the ledger only if the computers on the blockchain network reach consensus on the validity of the transaction. Transactions are logged on the ledger as part of a block, and the blocks are strung together in a chain, with each including a reference to the preceding block – thus the name “blockchain.” It’s the same technology that powers Bitcoin and other “cryptocurrencies,” but, in part because transactions recorded on a blockchain are resistant to tampering, it is well-suited to tasks such as maintaining records of assets. If you’re interested in learning more, check out Blockchain Explained in 1000 Words.

The California laws, although they reflect a significant recognition by the legislature of the potential of blockchain technology, do not address many of the regulatory uncertainties surrounding certain implementations of blockchain.

For example, the U.S. Securities and Exchange Commission has not provided clear guidance on the circumstances under which cryptocurrencies will be subject to the same regulations as corporate stock. The Internal Revenue Service has not provided guidance about issues affecting owners of cryptocurrencies, such as how the tax law should treat owners of blockchain-based currency that has undergone a split called a “hard fork.”

The lack of clear guidance from regulators threatens development of blockchain-related businesses in the United States, including in California, the center of so much of the innovation in the digital age. The Blockchain Advocacy Coalition published a chart showing how California is losing its global share of blockchain businesses.

Earlier this year, Perianne Boring, president and founder of the Chamber of Digital Commerce, an industry group, told The New York Times that the current regulatory landscape is “unorganized and incredibly complicated, and it’s really putting the U.S. at risk of falling behind from an innovation and technology perspective. There are turf wars between the different regulatory agencies and turf wars between the feds and the states, and none of this is in the best interest of the U.S. or the blockchain technology industry.”

Will Blockchain Technology Determine Control of the U.S. Senate?

September 28, 2018 By Bruce Antley

West Virginia has begun accepting absentee ballots cast in this fall’s general election via a smartphone app, marking a first in U.S. general elections. The app, built by Voatz, a startup based in Boston, uses blockchain technology along with features on voter’s smartphone to try to ensure the identity of the voter and the integrity of the vote.

West Virginia is targeting the app for use by residents who are overseas, in particular members of the military to use the app in this year’s general election, according to an article in Slate.

“The hardships that our overseas servicemen and women have in voting and returning a ballot are much greater than those that we see in the state,” West Virginia elections director Donald Kersey told The Washington Post.

According to Voatz, the app will work on recently-manufactured smartphone models from Apple, Samsung and Google that include security features, such as fingerprint and facial recognition. These devices provide hardware-based security to store private keys that allow highly secure, encrypted transactions to be conducted over the public Internet. Votes will be stored on a permissioned blockchain that will eventually be controlled by stakeholders such as state elections officials so that votes can’t be changed.

Votes cast via the Voatz app could play a critical role in determining not only the outcome of races in West Virginia, including the U.S. Senate race between incumbent Democrat Joe Manchin and Republican challenger Patrick Morrisey, but also control of the U.S.Senate. The West Virginia Senate race is close. Although most polls have shown Manchin holding a reasonably comfortable lead, the most recent poll published on the FiveThirtyEight website shows the race is tied, with each candidate at 45%. Republicans hold a slim, 51-49 majority in the U.S. Senate, and with several close races across the country, “the race for control of the Senate is as tight as it can be.”

Some are raising questions about Voatz’ security practices and more generally the security and integrity of using a smartphone app for voting. Security blogger Kevin Beaumont alleged numerous issues with Voatz in a series of Tweets. Joseph Lorenzo Hall, the chief technologist at the Center for Democracy and Technology, told CNN, “Mobile voting is a horrific idea. It’s internet voting on people’s horribly secured devices, over our horrible networks, to servers that are very difficult to secure without a physical paper record of the vote.”

For its part, Voatz responded to specific security concerns in detail, noting:

The Voatz platform goes to significant lengths to prevent a vote from being submitted if a device is compromised. Only certain classes of smartphones that are equipped with the latest security features are allowed to be used. Detecting a compromised mobile network is particularly challenging for a mobile application, which is why ensuring end-to-end vote encryption and vetting the certificates represented by unique IDs stored on the smartphone, are two of the approaches we use to mitigate a compromised mobile network.

Although critics have raised concerns about the implementation in West Virginia, blockchain technology will almost certainly play a role in voting, beyond the small-scale rollout in in the Mountaineer State. The tamper-resistance of records stored on the blockchain, particularly when combined with biometric features on modern smartphones make it a promising solution to make it easier for voters to cast their ballots.

“There have been a number of proposals to use blockchains for voting,” Vipul Goyal, associate professor in the Computer Science Department at Carnegie Mellon University told ZDNet. “It’s an active and exciting area of research. Certainly it seems like blockchains bring some missing components to make online voting a reality.”

Could the Same Technology that Powers Bitcoin Empower Victims of Sex Crimes?

September 27, 2018 By Bruce Antley

Black and White Justice by Phil Roeder / CC BY 2.0

One of the revelations of the #MeToo movement is the fear of victims of sexual assault or harassment to report crimes. Modern psychology can explain the fear, but society and our legal system tend to discredit victims who don’t report crimes promptly, and in some cases the perpetrators of crimes may even escape punishment because of a delay in reporting.

The news is filled with accounts of sex crime accusations being made in some cases decades after the alleged attack. This week, comedian Bill Cosby was sentenced to prison for drugging and sexually assaulting a woman 14 years earlier. Some of the allegations against film producer Harvey Weinstein date back to the 1990s and late 1980s. A report last month by a Pennsylvania grand jury described sex crimes by Catholic priests over a 70-year period, and as of the time of this writing, Supreme Court nominee Brett Kavanaugh was fending off allegations of a sexual assault that allegedly occurred 36 years ago.

A relatively new technology — called blockchain technology, which also power Bitcoin — may, however, provide victims of crime with a method of creating a credible written record of the facts.

Why Victims Delay Reporting

Psychotherapist Beverly Engel describes 10 reasons why victims of sexual assault may not immediately (if ever) report a sexual assault. These reasons include shame, self-blame, fear that they won’t be believed, and fear of retaliation, among others.

Being sexually assaulted is one of the most shame-inducing traumas that a person can experience. So it is understandable that victims don’t need to be further shamed by being shamed for not reporting the crime. And yet, that is exactly what happens whenever we hear, for the first time, about a sexual assault that occurred months or years ago. “Why didn’t she report it before?” we ask. “Why didn’t she come forward a long time ago, right after it happened?”
– Psychotherapist Deborah Engel

Statutes of Limitations Limit Prosecutions

The #MeToo movement may have helped to remove some of the stigma from victims of sexual assault and harassment and encouraged them to come forward, but fears remains a factor in the decision to come forward. The law in many states has not caught up with the recognition of the psychology of a crime victim. In most of the United States, laws called statutes of limitations prevent prosecutors from filing criminal charges if a certain amount of time has passed following the crime.

Statutes of limitations are designed to protect people from prosecution after a period of time when physical evidence may have disappeared or memories may have faded.

According to a report by PBS NewsHour, some states have recognized that it may take time for victims to come forward and have begun extending the period for prosecuting sex crimes, particularly those involving young victims, but states are “behind the curve” in extending or eliminating statutes of limitations for adult victims.

Even if a crime can be prosecuted within the applicable statute of limitations, the success of that prosecution may be hampered by faulty memories and even a jury’s bias against victims who delay in reporting a crime.

Crime victims have always had the ability to write down contemporaneous details of the crime, which could aid in a prosecution and in convincing the police and prosecutors (not to mention, the general public) of the truthfulness of a claim, but these writings may be subject to attack in a courtroom or the court of public opinion. Handwritten notes could have been written at a later date. Even techniques such as emailing a written account to yourself may be problematic as emails could still subject to forgery and victims could be spooked by new reports that the content of emails may be scanned by service providers.

How Blockchain Technology Can Help Create a Credible Record

This is where blockchain technology comes in. What is blockchain technology? Blockchain is a digital ledger — a log of transactions. The ledger is shared across a network of computers, and transactions are recorded onto the ledger only if the computers on the blockchain network reach consensus on the validity of the transaction. Transactions are logged on the ledger as part of a block, and the blocks are strung together in a chain, with each including a reference to the preceding block – thus the name “blockchain.”

It may be best known for being the technology behind Bitcoin, but blockchain also has uses outside of digital money. These uses already include keeping track of goods in a supply chain, maintaining the security of health care records and securing financial transactions. The process for recording transactions on a blockchain makes it very difficult to change what has been recorded but at the same time it also allows for the storage of records in a very private, secure manner. That’s why blockchain technology is being used by various services that attempt to replicate the services of notaries public. A notary public is a person with authority granted by the state to certify the proper execution of documents. The notary public places a stamp on the document and signs and dates it.

One of the blockchain based notaries is called Stampd. Stampd offers a web application for the time-stamping of documents. Stampd claims that “notarizing your content on the blockchain is totally straight forward and cannot be forged by anyone.” Stampd uses a technique called hashing to produce a digital fingerprint of a document and then attaches that fingerprint to the Bitcoin blockchain where it is stored in a tamper-resistant manner. The document itself never leaves the user’s device; no copy is stored by Stampd or anywhere else. It would be virtually impossible to take digital fingerprint and derive the original document. The digital fingerprint Stampd provides a certificate via email that would allow the user to prove with a high degree of certainty the date and time of the original document (the user would need to keep a copy of the original). Below are screenshots of the Stampd process and certificate.

A test document written in Google docs and downloaded as a .txt file.

Digital fingerprint of document after uploading it. The cost was only $6.09, payable via PayPal.

Confirmation that a digital fingerprint of the document is ready to be recorded on the Bitcoin blockchain.

Certificate of the transaction sent by email.

Confirmation that the transaction has been recorded on the Bitcoin blockchain

Typically, in U.S. courts documents notarized by a traditional notary public are considered authentic. Although there are no reported cases of courts considering blockchain-notarized documents (and they wouldn’t be given the automatic deference of traditionally notarized documents), the fact that the digital fingerprint recorded on the blockchain could be matched with the original would make it likely that the document is admissible in court.

This piece is not advice to victims to not report crimes, and there is no guaranty that a victim’s story will be believed (or that a case would move forward) even with blockchain notarized documentation. Obviously, it would be better if victims of sexual assault did not feel fear in coming forward and even better if sexual assault never occurred. But the reality is that sexual assault does occur and that there is real fear of reporting, and this article outlines one option victims can consider to protect themselves if the day arises when they feel than can report the crime.