Bitcoin Association Founding President Jimmy Nguyen joined Albany Law School’s ‘Blockchain and Cryptocurrency: The Legal Framework and Future Trends’ panel to discuss the ever-evolving interface between the law and blockchain technology. We look back at the key moments and learnings from a session equal parts intriguing and informative.
The panel was moderated by the assistant dean of Albany Law School and director of online programs, Will Trevor. Joining Nguyen and Trevor were four other panellists:
- Debbie Hoffman, adjunct professor at Albany Law School and the teacher of their upcoming graduate program course: ‘Understanding blockchain, cryptocurrencies and the law’
- Sean Keefe, founder and managing partner at Straight Up Capital
- Daniel Stabile, partner in Shultz & Bowen’s Miami office
- Josh Garcia, partner at Ketsal
Trevor opened the session by batting a fundamentally important question over to Nguyen: what exactly do we mean when we discuss terms like blockchain, cryptocurrencies and Bitcoin?
The question seems almost trivial in a panel on trends in blockchain and cryptocurrency, it is a necessary first step toward a coherent conversation on the topic as exemplified by Nguyen’s first comment: that he prefers the term digital assets rather than cryptocurrencies.
‘[These terms] sound very new to people, but they combine concepts that have existed for a long time. First, there was an effort to create electronic cash, a way to send value across the internet and through digital means,’ he said.
‘Blockchain is simply a form of ledger, a record-keeping system which records transactions of payments but also data, which can be used to create much more powerful business applications such as smart contracts, or tokens of other assets.’
Debbie Hoffman was in agreement and offered more granular definitions still, explaining that blockchain and cryptocurrencies are not synonymous – blockchain refers to the protocol on which digital assets are built: ‘if you know nothing else about Bitcoin and blockchain cryptocurrencies, you should be able to tell the definition of the two are different.’
By beginning the conversation off with the tall task of providing these definitions, Trevor also introduced one of the key issues in the digital asset world today: there are so many. Both Nguyen and Hoffman, in providing their definitions, stressed that the term ‘digital asset’ or ‘cryptocurrency’ can only tell you so much about the capabilities of the underlying technology.
Trevor made a comparison to the Betamax-VHS phase of home video, where there were many competing formats rather than the single VHS-dominated era that would follow. Are digital assets and blockchains going through a similar phase? Will we come to a stage where we have an accepted, standard form of cryptocurrency?
‘You won’t have to,’ offered Josh Garcia. ‘The industry is very iterative. When it sees a problem, it attacks it with a tech solution. And so, it saw this problem and you had multiple projects that work on what’s called cross-chain or intra-coin protocols so that you don’t have to worry about whether you’re using one or the other.’
Seeking clarity
A large part of the discussion was directed by questions taken online, which provided two benefits: not only did it ensure the panel’s discussion stayed relevant to the audience, but the questions themselves provided a window into community concerns in this space. Some were strictly practical – (‘If I buy Bitcoin and then use it to buy something else, do I have a gain or a loss for tax purposes?’), while others were much more involved and esoteric.
For example, one question from the virtual audience brought the panel to the meat of the discussion, asking: is the use of digital assets legal? How are they regulated? Who regulates them? How successful is that regulation? Are there any significant legislative initiatives currently underway?
‘Is it legal? When you ask that question, there are a lot of ifs or buts,’ explained Hoffman. ‘There are laws all over the world that regulate cryptocurrencies in different ways. I think of money transmission laws because that’s kind of the most basic way to think about it, but there are all kinds of other laws that come into play: securities laws, taxation laws – if you can go through every different aspect of laws, there are different ways they can be applied. We don’t necessarily have a wide variety of guidance yet in the US.’
Echoing the point, Daniel Stabile added: ‘Certain uses of cryptocurrency are illegal – you can’t use it to extort people. But I think more importantly, for the purposes of this discussion, is that different businesses that deal with cryptocurrency are regulated in different ways, depending on what they’re doing.’
‘I think the overarching trend here is that there’s a recognition by the regulators that we’ve passed a tipping point and blockchain technology is in one form or another here to stay…Gradually, we’re starting to see more clarity.’
An interesting backdrop to the discussion is comments made by the new U.S. Secretary of the Treasury Janet Yellen, who has reiterated in the first months of the year that misuse of these assets is a growing problem, with digital currencies being used to finance terrorism and launder illicit money. As to their utility, Yellen made the point that Bitcoin is an inefficient way to process transactions. As the industry holds its collective breath in anticipation of what new regulatory regime the Biden administration might introduce, Yellen’s comments are something to pay close attention to.
‘I absolutely agree with Janet Yellen in saying that Bitcoin is an extremely inefficient way to process transactions,’ said Nguyen.
‘If she’s referring to BTC, which is the dominant ticker symbol for Bitcoin that people see in the news – it’s the one that’s risen up 50,000 USD in value – it’s inefficient because the Bitcoin protocol developers that took control of that network chose not to scale the network, so it only does 7 transactions per second on average.’
‘That’s why we have this proliferation of many other attempted digital currencies: because they kept the transaction capacity small.’
Keefe offered his own, slightly different perspective: ‘I think that Bitcoin is sort of the on-ramp for individuals and businesses to digital transactions. While it is definitely inefficient, let’s be honest: paper cash is also inefficient for transactions.’
Notions of privacy
One touchpoint for the discussion was that of privacy. Already a hot topic, one of the common criticisms (fair or not) of digital assets and blockchains is the implications of its (commonly touted) privacy capabilities. How can an anonymous transaction ledger be compliant with, for example, anti-money laundering and know-your-customer requirements?
‘If you’re a company that is handling somebody else’s money, then you’re in a world where you have to abide by anti-money laundering laws,’ explained Garcia.
‘There’s a whole set of reporting and record-keeping requirements that fall upon you, whether or not that money is in the form of fiat.’
‘On the other hand, there are these questions of data privacy. There’s a bit of a complicated nuance to what we’re talking about when we talk about anonymity in cryptocurrency or blockchain technology. It’s not really anonymous, it’s pseudonymous, which means it’s sort of like if someone sees your bank account statement and your name is scratched out, but your bank number is there. We know the bank knows that your bank account number is tied to your name, so the number is a pseudonym for your account. It’s the same thing here.’
‘One question that’s kind of crucial that arises – not so much under US law but more under European data protection laws is: when does a pseudonymous string of numbers and letters become personally identifiable information or information that’s so important that it should be protected under those laws?’
Nguyen agreed, highlighting that this problem is becoming more pressing as time goes on with the many new applications which store data on the blockchain. He illustrated this using an example from Bitcoin SV: EHR Data.
‘[EHR Data] is building an electronic health records platform on the Bitcoin SV blockchain to give you as a patient more control over your own data – because in the US our healthcare data is spread across all of our different providers – by consolidating it in one place to allow you to make small amounts of Bitcoin SV micropayments by allowing companies to pay the patient to access it.’
Even within the question of how blockchain and digital assets fit within the law, there are so many avenues worthy of discussion and exploration. That there is so much uncharted territory can be cause for caution, but it also represents the chance to chart new ground.
‘I think the interesting thing about going into this area of law is that there are no answers, and [yet] there are so many opportunities as a lawyer to grow and help find the answers,’ said Hoffman.
Future trends
To conclude, Trevor asked each panellist to answer one final question: what key trend should lawyers and non-lawyers should be looking at?
Debbie Hoffman: ‘Continued and innovative uses. Every day, those of us who are in the field see it and think “wow, who would have thought of that?”’
Josh Garcia: ‘It’s impossible to predict, but certainly in the near term, NFTs will affect the whole ecosystem and decentralised exchanges specifically for NFTs are going to emerge more.’
Daniel Stabile: ‘Decentralised finance generally; removing financial institutions as an intermediary from financial transaction.’
Sean Keefe: ‘I would echo the point of decentralisation. I really think what we’re seeing right now is the power of the internet and it’s fully globalising what cryptocurrencies and blockchains are able to do.’
Jimmy Nguyen: ‘All of those trends I think are good and key and they can all be encapsulated in one message that I think the audience should open their minds to: all blockchain and digital currency technology is igniting the power of data. The Bitcoin protocol is a data network protocol just like the IP protocol was created to power the internet… Once you open your mind to that, you can open your minds to all the great potential of blockchain and all forms of digital currencies.’