The Regulation of Cryptocurrencies – between a Currency and a Financial Product by Hadar Yoana Jabotinsky :: SSRN

As cryptocurrencies gain popularity, the issue of how to regulate them becomes more pressing. The attractiveness of cryptocurrencies is due in part to their decentralized, peer-to-peer structure. This makes them an alternative to national currencies which are controlled by central banks. Given that these cryptocurrencies are already replacing some of the “regular” national currencies and financial products, the question then arises: should they be regulated? And if so, how? This paper draws the legal distinction between cryptocurrencies which are in fact currency and those which are securities disguised as currency. It further suggests that in cases where a token is indeed a security, regular securities regulation should apply. In all other cases anti-fraud measures should be in place in order to protect investors. Further regulation should only be put in place if the cryptocurrency starts increasing systemic risk in the general financial system.

Source: The Regulation of Cryptocurrencies – between a Currency and a Financial Product by Hadar Yoana Jabotinsky :: SSRN

Legislative Regulations to Prevent Terrorism and Organized Crime from Using Cryptocurrencies and Its Effect on the Economy and Society by Stephan Breu, Theodor G. Seitz :: SSRN

First it has to be stated that Cryptocurrencies are mostly used for legal transfers between legitimate partners and are becoming more and more popular in our society. Any heavy regime of new regulations would make all transactions costlier and less convenient. Such negative economic impact is opposing the need of monitoring the financing structures of organized criminal and terrorist organisations. With the increasing importance of cryptocurrencies, a completely new field of complex problems is arising through the implied anonymity and complexity or sheer impossibility to track transfers in the dark net. As regulations in this new financial market will be difficult to enforce, it is necessary to establish international cooperation and capacity building to implement some possibilities for law-enforcement and intelligence entities to monitor the illegal parts of the capital flowing in these systems. To solve this situation, the focus should lie on the attempts to make the risk of detection of such transfers higher for the parties involved. Without interfering too strongly with the new financing system developing, this process asks for improved compliance and cooperation on all levels and capacities.

Source: Legislative Regulations to Prevent Terrorism and Organized Crime from Using Cryptocurrencies and Its Effect on the Economy and Society by Stephan Breu, Theodor G. Seitz :: SSRN

Blockchain, Law & Policy workshop February 12, 2018, Amsterdam

The Business Law and Economics Symposium, the Blockchain &
Society Policy Research Lab at IViR, and the Center for Law & Economics at ETH Zurich presents the  Blockchain, Law & Policy workshop.

Date:  February 12th, 2018 (8:30-17:15)

Location:  IViR Documentation Room, Faculty of Law, University of Amsterdam, Roeterseilandcampus – building A, Nieuwe Achtergracht 166, Amsterdam

Program:

8:30-9:00 BREAKFAST
9:00-9:15 Opening statement by Stefan Bechtold & Giuseppe Dari-Mattiacci

Session 1

9:15-10:15 Luis Garicano (LSE): The Governance of Blockchain: Hard Forks, Cryptocurrency and Norms
10:15-10:45 COFFEE BREAK
10:45-11:45 Davide Grossi (Groningen): A Social Choice-Theoretic Analysis of the Stellar Consensus Protocol
11:45-12:45 Stefan Bechtold (ETH Zurich) & Giuseppe Dari-Mattiacci (UvA): Property Without Law: Personalized Property Rights Through New Contracting Technologies

12:45-14:00 LUNCH (served in the conference room)

14:00-14;45 Joris Cramwinckel (Ortec Finance, Rotterdam): Blockchain Technology and Smart Contracts: Potential and Limits, with an Application to Pensions
14:45-15:45 Hermann Elendner (HU Berlin): Liquidity and Resiliency of Crypto-currency Markets

15:45:16:15 COFFEE BREAK
16:15-17:15 Balazs Bodo, Daniel Gervais and Joao Quintais (Amsterdam): Who Needs Copyright When We Have Blockchain and Smart Contracts?

 

See the detailed program and the abstracts here: Blockchain Program 2018

Call Blockchain Developers What They Are: Fiduciaries | American Banker

Wow. Aside from the fact that there should definitely be a movie made of these escapades (The Anti-Social Network?), the DAO debacle spotlights something very important. It is past time to acknowledge that governance of public blockchains is happening, by actual identifiable people, and that these people’s actions impact consumers.

In other settings, such as a corporation, we call the people who take comparable actions officers, directors and controlling shareholders. Along with these titles, we burden them with fiduciary duties because we recognize that others trust them to make good decisions on their behalf. We should treat those that govern public blockchains the same way.

Throughout the DAO episode, the Ethereum core developers have made critical decisions that impact Ethereum users. These include political choices (Should the blockchain be immutable? Should we treat the code exploitation as theft?) and technical choices (How do we write the code to take back the funds?).

The powerful miners of Ethereum, in voting for the hard fork by running the new software, made similarly critical choices for the network.

With millions of dollars of other people’s money on the line, these were enormous decisions for this small group of people to make. This exercise of power makes them look an awful lot like fiduciaries of ether holders, and maybe even of investors in the DAO. Notably, the core developers and big miners have been making similarly consequential decisions since the blockchain’s creation — the hard fork drama just makes this more transparent.

Treating the core developers and big miners of public blockchains as fiduciaries would set a clear standard for performance, make them accountable for actions that significantly impact other people, and ensure that they take their creation and operation of these public systems seriously.

Source: Call Blockchain Developers What They Are: Fiduciaries | American Banker

Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law by Philipp Hacker, Chris Thomale :: SSRN

Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law

44 Pages Posted: 30 Nov 2017 Last revised: 13 Dec 2017

Philipp Hacker

Humboldt University of Berlin; WZB Berlin Social Science Center

Chris Thomale

Ruprecht-Karls Universität Heidelberg; Heidelberger Akademie der Wissenschaften

Date Written: November 22, 2017

Abstract

Cryptocurrencies, such as bitcoin and ethereum, have not only risen to public attention as novel means of payments. Rather, the current hype is fueled by financial applications built on top of these currencies that stand to potentially upend consumer and investment markets. The most remarkable and economically relevant of these applications are tokens sold via initial coin offerings (ICOs, also called token sales). In 2017 alone, the equivalent of more than $ 3 billion have been raised through ICOs. In these entirely online-mediated offerings, startup entrepreneurs sell tokens registered on a blockchain in exchange for cryptocoins traded on that blockchain (typically bitcoins or ethers). Investors receive tokens that can be understood as cryptographically-secured coupons which embody a bundle of rights and obligations.

In July 2017, the SEC released an investigative report that highlighted that such tokens can be subject to the full scope of US securities regulation. As a result, issuers increasingly structure ICOs such as to prevent US citizens and residents from obtaining tokens in order to exclude the reach of US securities regulation. However, for the time being, EU citizens and residents are free to invest in tokens. This raises the question to what extent EU securities regulation is applicable to ICOs and, particularly, whether issuers have to publish and register a prospectus in order to avoid criminal and civil prospectus liability in the EU. In conceptual terms, this depends on whether tokens are considered “securities” under the EU prospectus regulation regime. The question is of great practical relevance since, despite the high stakes involving more than $100 million in some ICOs, to our knowledge, up to now not a single token issuer has published or registered any such prospectus.

Against this background, this paper develops a nuanced approach that distinguishes between three archetypes of tokens: currency, investment, and utility tokens. It analyzes the differential implications of each of these types, and their hybrid forms, for EU securities regulation. While the variety of tokens offered necessitates a case-by-case analysis, the discussion reveals that at least some types and hybrid forms of tokens are subject to EU securities regulation. By and large, pure investment tokens typically must be considered securities, while pure currency and utility tokens are exempted from securities regulation in the EU. In identifying these archetypes, regulation and market oversight will have to put substance over form. Finally, we spell out criteria for the application of EU securities regulation to hybrid token types.

The paper closes by offering two policy proposals to mitigate legal uncertainty concerning token sales. First, we suggest tailoring disclosure requirements to the code-driven nature of token sales. Such an ICO-specific safe harbor would offer a clear and less burdensome path to EU law compliance for token sellers who suspect that their tokens may qualify as securities. This only requires the Commission to amend its delegated 2004 Commission Prospectus Regulation. Second, we propose that, on an international level, governments form a compact to bestow certainty about the application of their respective securities regulation regimes to token sales. This is, first, to avoid regulatory overkill on the one and regulatory lacunae on the other hand in online-mediated, global token sales. Second, overlapping, and partially contradicting, securities regulation regimes can nullify each other. In the end, only a joint international regulatory regime can efficiently balance investor protection and investor access in the face of the novel generation of decentralized blockchain applications.

Keywords: blockchain, ICO, token sale, initial coin offering, bitcoin, ethereum, prospectus, EU law, smart contracts, DAO, utility token, investment token, safe harbor, cryptocurrencies

Source: Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law by Philipp Hacker, Chris Thomale :: SSRN

Virtual Currencies: A Hazard or a Boon? A Perspective from the Digital Finance Ecosystem and Associated Legal Issues by Nakul Sharma, Rahul Vyas :: SSRN

National Journal of Multidisciplinary Research and Development, Volume 2, Issue 3, September 2017

7 Pages Posted: 30 Nov 2017 Last revised: 6 Dec 2017

Nakul Sharma

Pacific University (India), Students

Rahul Vyas

Pacific University (India)

Date Written: September 12, 2017

Abstract

Digital India is a flagship program of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy. “Faceless, Paperless, Cashless” is one of professed role of Digital India. As part of promoting cashless transactions and converting India into less-cash society, various modes of digital payments have been put out.

Financial market regulators and central banks around the world regularly warn consumers about the risks related to virtual currencies. The Institute for Development & Research in Banking Technology (IDRBT), the research arm of RBI had published a report in which it stated that the time had come to adopt the blockchain technology in India, in the bid to evolve towards a cashless society.
As regards non-fiat crypto currencies, the RBI is not comfortable; the intrinsic value of the VC seems to be a matter of speculation, moreover the legal status is definitely missing, finally, the usage of VCs for illicit and illegal activities in the dark net has been reported to be hitting the roof across the world. The present paper takes into perspective the rapidly evolving Technology of the Digital Virtual Currency landscape from the Indian standpoint and the related Legal Conundrum.

Source: Virtual Currencies: A Hazard or a Boon? A Perspective from the Digital Finance Ecosystem and Associated Legal Issues by Nakul Sharma, Rahul Vyas :: SSRN

Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law by Philipp Hacker, Chris Thomale :: SSRN

Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law

44 Pages Posted: 30 Nov 2017 Last revised: 13 Dec 2017

Philipp Hacker

Humboldt University of Berlin; WZB Berlin Social Science Center

Chris Thomale

Ruprecht-Karls Universität Heidelberg; Heidelberger Akademie der Wissenschaften

Date Written: November 22, 2017

Abstract

Cryptocurrencies, such as bitcoin and ethereum, have not only risen to public attention as novel means of payments. Rather, the current hype is fueled by financial applications built on top of these currencies that stand to potentially upend consumer and investment markets. The most remarkable and economically relevant of these applications are tokens sold via initial coin offerings (ICOs, also called token sales). In 2017 alone, the equivalent of more than $ 3 billion have been raised through ICOs. In these entirely online-mediated offerings, startup entrepreneurs sell tokens registered on a blockchain in exchange for cryptocoins traded on that blockchain (typically bitcoins or ethers). Investors receive tokens that can be understood as cryptographically-secured coupons which embody a bundle of rights and obligations.

In July 2017, the SEC released an investigative report that highlighted that such tokens can be subject to the full scope of US securities regulation. As a result, issuers increasingly structure ICOs such as to prevent US citizens and residents from obtaining tokens in order to exclude the reach of US securities regulation. However, for the time being, EU citizens and residents are free to invest in tokens. This raises the question to what extent EU securities regulation is applicable to ICOs and, particularly, whether issuers have to publish and register a prospectus in order to avoid criminal and civil prospectus liability in the EU. In conceptual terms, this depends on whether tokens are considered “securities” under the EU prospectus regulation regime. The question is of great practical relevance since, despite the high stakes involving more than $100 million in some ICOs, to our knowledge, up to now not a single token issuer has published or registered any such prospectus.

Against this background, this paper develops a nuanced approach that distinguishes between three archetypes of tokens: currency, investment, and utility tokens. It analyzes the differential implications of each of these types, and their hybrid forms, for EU securities regulation. While the variety of tokens offered necessitates a case-by-case analysis, the discussion reveals that at least some types and hybrid forms of tokens are subject to EU securities regulation. By and large, pure investment tokens typically must be considered securities, while pure currency and utility tokens are exempted from securities regulation in the EU. In identifying these archetypes, regulation and market oversight will have to put substance over form. Finally, we spell out criteria for the application of EU securities regulation to hybrid token types.

The paper closes by offering two policy proposals to mitigate legal uncertainty concerning token sales. First, we suggest tailoring disclosure requirements to the code-driven nature of token sales. Such an ICO-specific safe harbor would offer a clear and less burdensome path to EU law compliance for token sellers who suspect that their tokens may qualify as securities. This only requires the Commission to amend its delegated 2004 Commission Prospectus Regulation. Second, we propose that, on an international level, governments form a compact to bestow certainty about the application of their respective securities regulation regimes to token sales. This is, first, to avoid regulatory overkill on the one and regulatory lacunae on the other hand in online-mediated, global token sales. Second, overlapping, and partially contradicting, securities regulation regimes can nullify each other. In the end, only a joint international regulatory regime can efficiently balance investor protection and investor access in the face of the novel generation of decentralized blockchain applications.

Keywords: blockchain, ICO, token sale, initial coin offering, bitcoin, ethereum, prospectus, EU law, smart contracts, DAO, utility token, investment token, safe harbor, cryptocurrencies

Blockchain Regulation by Michèle Finck :: SSRN

Michèle Finck

Max Planck Institute for Innovation and Competition; University of Oxford

Date Written: August 7, 2017

Abstract: This paper examines the emergence of blockchain technology and evaluates regulatory techniques designed to regulate the technology in its early stages.

Keywords: Blockchain, Distributed Ledger, Smart Contract, Law, Regulation, Co-Regulation, Law & Technology, Innovation

Source: Blockchain Regulation by Michèle Finck :: SSRN