Blockchain Legal Resource

On June 8, 2023, Judge William H. Orrick of the U.S. District Court for the Northern District of California granted a default judgment in favor of the CFTC against Ooki DAO, a cryptocurrency decentralized autonomous exchange. The court also permanently enjoined Ooki DAO from operating its website and awarded the CTFC $643,542 in monetary damages. The court found that Ooki DAO’s lack of participation in the litigation and refusal to appear in court contributed to the default judgment. This decision brings to a close the closely-watched case that establishes new precedents for the legal liability of decentralized autonomous exchanges.

The intersection of retail sales and blockchain technology is a current “hot” topic. But what does this actually mean for retailers? Is the time and money needed to invest in new technology worth the cost? What intellectual property (IP) protection is available?

The World Bank Group recently published a “FinTech Note” on Smart Contract Technology and Financial Inclusion in its “Finance, Competitiveness and Innovation” series. The note explores the potential of smart contracts to spur economic development and financial inclusion around the globe. The note explains the key technical and legal characteristics of smart contracts, delves into potential uses of the technology and, ultimately, raises important considerations for policymakers to weigh when implementing smart contract legislation. Below, we highlight a few of the key takeaways on the potential benefits of smart contracts and discuss how policy and legal decisions will impact the use of this technology.

In the fall of 2018 we posted a state-by-state summary of smart contract legislation which included an overview of legislation passed in Arizona, Tennessee and Vermont, as well as an update on legislation pending in other states at the time. Over the past few years, a multitude of states have tackled smart contract legislation with varying degrees of detail and success. Most state smart contract legislation has fallen into three broad categories: formation of exploratory committees, recognition of basic smart contract concepts and comprehensive treatment of smart contracts and related technologies.

On March 9, 2020, Rep. Paul Gosar (R-AZ) introduced H.R. 6154, the Crypto-Currency Act of 2020.  The bill is the latest effort to provide federal oversight to the burgeoning market for crypto-assets.

Most retailers have yet to fully embrace blockchain technology. Perhaps for good reason. Applying new technology, particularly that aimed at changing legacy systems, comes with certain risks. That being said, cryptocurrencies and blockchain have the potential to transform retail and commercial real estate. As previously shared by the Hunton Retail Industry Law Blog, blockchain can be used to streamline inventory management, administer consumer loyalty programs and authenticate high-value assets or the supply chain, generally. Blockchain can also be used more simply to boost consumer sales or process tenant rent payments. Shifting away from the consumer end of retail, below are some novel ways blockchain technology, specifically tokenization, can modernize real estate acquisitions, dispositions and financing.

On January 1, the Blockchain Technology Act went into effect in the state of Illinois, creating a statewide framework for the use of blockchain technology and blockchain based contracts, or “smart contracts.” Similar to other recent state legislation addressing the use of blockchain and smart contracts, the Act recognizes the validity of smart contracts and blockchain based records and signatures in commerce. The legislation also prevents smart contracts both from being denied legal effect and from being excluded as evidence in a legal proceeding solely because a blockchain was used to create, store or verify the contract.

As reported last week on the Hunton Insurance Recovery Blog, crypto-asset losses continue to rise and the industry is taking steps to protect clients and investors through insurance. Crypto-exchange and custody provider, Gemini Trust Company, LLC (“Gemini”), recently launched its own captive insurance provider, Nakamoto, Ltd. Captive insurance is an alternative to self-insurance whereby a company creates a licensed insurance company to provide coverage for itself.

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In 2019, Hunton Andrews Kurth LLP’s structured finance and securitization team closed a number of substantial transactions, developed novel structures for our clients and advised on important tax, regulatory and other industry developments, including emerging uses of blockchain solutions.

As reported last week on our Privacy and Information Security Law Blog, 2019 was the “Year of the CCPA” as companies around the world worked tirelessly to comply with the California Consumer Privacy Act of 2018.

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Writing with former SEC commissioner Troy Paredes, Hunton Andrews Kurth partner Scott Kimpel provides a complete survey of the federal securities laws’ impact on offerings of security tokens.

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The Commodity Futures Trading Commission (“CFTC”) recently published a detailed primer on smart contracts. The Primer discusses their functionality, use cases, regulatory environment and potential risks. It describes a “smart contract” as a set of coded computer functions that (1) may incorporate the elements of a binding contract (e.g., offer, acceptance, and consideration), or (2) may execute certain terms of a legal contract, or (3) allows self-executing computer code to take actions at specified times or based on reference to the occurrence or non-occurrence of an action or event (e.g., delivery of an asset, weather conditions, or change in a reference rate). The Primer also observes that a smart contract may not be a legally binding contract, which is a critical distinction for developers and entrepreneurs (and their counsel) in the digital economy.

On October 11, 2018, the Senate Banking Committee held a wide-ranging hearing entitled “Exploring the Cryptocurrency and Blockchain Ecosystem.” The hearing featured testimony from Dr. Nouriel Roubini, an NYU professor who famously predicted the 2007-2008 financial crisis, as well as a counterpoint from Mr. Peter Van Valkenburgh, the Director of Research from Coin Center.

For many public companies, the annual meeting voting process is littered with intermediaries and inefficiencies that can result in a lack of shareholder engagement. Proposals are often voted on by proxies instead of by shareholders, oftentimes weeks in advance of the meeting. Few shareholders attend annual meetings in person. Large institutional shareholders may be granted engagement opportunities with management of the company that are not afforded to individual shareholders. These factors can result in a lack of transparency in the voting process and asymmetrical voting power amongst shareholders. Blockchain technology has several potential applications that can remedy these inefficiencies and restore shareholder trust and engagement.

Recently, several states have passed legislation allowing the use of smart contracts and blockchain technology in various commercial contexts. A “smart contract” is commonly defined in such legislation as an event-driven program or computerized transaction protocol that runs on a distributed, decentralized, shared and replicated ledger that executes a contract or any provision(s) of a contract by taking custody over and instructing transfer of assets on the ledger. 

Enterprises around the world are actively implementing a wide variety of blockchain solutions to improve efficiencies, enhance user experiences and lower transaction costs.  But the private sector’s development of distributed ledger technology is often outpacing the legal and regulatory regimes that impact it.  In the United States, numerous regulators have asserted jurisdiction over blockchain applications, frequently in redundant or even contradictory ways.  With the Blockchain Legal Resource blog, we at Hunton Andrews Kurth plan to keep track of the most notable legal ...

Blockchain’s impact is often misunderstood as narrowly affecting the financial sector. We discuss with Law360 why “retail and consumer products companies can no longer afford to ignore blockchain as a passing trend.”