CryptoLaw Newsletter #28
Barbados opens first metaverse embassy in Decentraland; crypto law to be submitted in India soon; RBA doubts appeal of DeFi for most users; books on crypto (&law).
Your legal updates on crypto for the week, including the first ever embassy in the metaverse, and a couple of books on crypto, both legal-academic and easy-reads,:
India – The Indian government is considering banning cryptocurrencies used as payment tools, but to regulate crypto-assets. (Economic Times) That would be a step away from earlier plans to by crypto entirely. A crypto-bespoke bill is being finalized and may be submitted to parliament before the end of the year. It could bring much-needed clarity to the (still very active) crypto industry in the country. The bill was listed in the official bulletin of parliament as the “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”. (The Block)
US – The Securities and Exchange Commission is adding to the legal woes facing crypto lending company BlockFi. The SEC’s investigation into BlockFi’s high-yield products come after earlier queries from regulators at various US states. (Bloomberg)
US – The crypto lobby is adding to its war chest. Blockchain Association Raises $4M to Grow Its Presence on Capitol Hill - Kraken, Digital Currency Group (DCG) and the Filecoin Foundation participated in the round. (Coindesk)
US – The Department of Justice sold a record $56 million worth of cryptoassets – the proceeds of the crypto fraud scam Bitconnect. (Coindesk)
US – 93% of seizures by the criminal arm of the Internal Revenue Service involve crypto-assets, according to a report by the IRS.
US - Ripple’s CEO sees “good progress” in the litigation initiated by the SEC against the XRP issuance and thinks the case may be resolved next year. (CNBC)
Israel - New anti-money laundering (AML) rules entered into effect in Israel. Crypto enthousiasts hope this move to legalize crypto will make it easier for crypto companies to get (or retain) access to banking services. (Coindesk)
Argentina - Crypto-transactions in Argentina will be subject to a tax after a change of policy. (Blockchain News)
El Salvador should not make (rather keep) bitcoin legal tender, the International Monetary Fund said. Following a country visit, the IMF recommended narrowing the Bitcoin Law and pointed to the risks that the new payments system poses for El Salvador. The IMF statement made clear its team was not aware of El Salvador’s plans, announced very recently, to issue a US$ 1 billion “bitcoin bond”. Although the “bitcoin bond” made news headlines, the plan is to offer a traditional sovereign bond and use part of the proceeds for crypto-related policies, such as buying more bitcoin and increasing bitcoin mining capacity. (The Block)
Kazakhstan – Last week, we wrote about energy shortages in Kazakhstan attributed to crypto-mining and the government’s call on the crypto-industry to find greener alternatives. In a recent speech, President called for a “balanced” legal framework on crypto-assets: “Otherwise, it turns out that we are the number two country in the world for cryptocurrency [Bitcoin] mining, and we practically do not see financial returns.” (Cointelegraph)
UK – Lawyers in top-tier firms are telling their clients not to set up shop in the UK. Instead, they’re advising to target UK users from outside the UK. (The Block)
UK – A subsidiary of crypto exchange Kraken obtained a license from the Financial Conduct Authority under the Money Licensing rules. (The Block)
UK – If you’ve taken the tube in London last month, you’ve probably seen the ads for a new coin called Floki (named after Elon Musk’s dog). The UK’s advertising watchdog confirmed it’s launching an investigation into the ad after complaints. (The Guardian)
Unidroit – Unidroit showcased its work on digital assets in a 3min YouTube video.
DeFi has grown 1,700% to $247 billion in the past year alone, according to blockchain analytics firm Elliptic. This stellar growth was accompanied by equally stellar fraudulent activity: DeFi theft and fraud amounts to $10.5 billion so far in 2021, Ellipted calculated. Last year, so-called rug pulls and other theft and fraud incidents caused losses of roughly $1.5 billion.
Australia – “There might also be all sorts of use cases for DeFi…. I wonder if there will be as much of a shift to peer-to-peer transactions as seems to be envisaged by some DeFi proponents. For example, when Australians hold cryptocurrencies they usually do it through an intermediary, via a hosted or custodial wallet. They typically don't do it via unhosted or self-custodial wallets, where if they lose their private keys they have lost their funds forever. So I suspect there will still be a significant role for some form of intermediaries, even in a world where finance is more decentralised than it is currently,” said the head of Payments Policy of the Reserve Bank of Australia said.
Tether – Antitrust concerns could soon add to Tether’s legal woes, writes Thibault Schrepel. (Decrypt)
Peru – Peru is developing a CBDC, said the Central Reserve Bank of Peru. (Coindesk) The central bank has been working with several other central banks on CBDC-related projects, said the central bank’s President.
The Bank of Russia reportedly wants to charge fees for using the digital rouble. (Cointelegraph)
Australia - The Reserve Bank of Australia doesn’t see a CBDC policy case yet, but still steps up its CBDC research. A central bank official thinks it’s plausible that crypto becomes “niche” once stablecoins and CBDCs are in full force. (Coindesk)
China - The China’s CBDC “clearly” plays “a key role in furthering China’s long-term national strategy—the internationalisation of Chinese Yuan and its ability to compete with other major currencies”, according to the academic authors of “The Cross-Border Use of Central Bank Digital Currencies (CBDCs): China’s Experiment and Regulatory Challenges”, posted on the Oxford Business Law Blog. Lerong Lu (lecturer at King’s College London) and Alice Lingsheng Zhang (PhD candidate, Shanghai University of Finance and Economics) point out three areas of major regulatory concern over the cross-border use of digital yuan that merit attention from the PBOC and financial authorities in other countries:
Reconciling regulatory conflicts between enforcing anti-money laundering (AML) regimes and data protection law,
Maintaining financial stability: liquidity spillovers, balance-sheet reorganisation, and floating interest rates, and
Revising settlement rules: weakening financial intermediaries or strengthening central counterparty clearing.
ConstitutionDAO lost its bid for the historical copy of the US Constitution to Citadel Founder Ken Griffith. The DAO members are now discussing whether and how to re-purpose the more than $40 million collected in a matter of days.
Barbados – I didn’t expect to have this topic in our CryptoLaw newsletter, but here it is: Barbados became the first nation on the planet to establish an embassy in the metaverse. The country bought a virtual plot of land in Decentraland. (Coindesk)
As promised, here are a couple of my favourite crypto- and blockchain-related books. Both easy-read intro’s and academic titles.
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For an easy-read intro to Bitcoin: NYT journalist Nathaniel Popper’s Digital Gold: The Untold Story of Bitcoin tells the story of the early days of Bitcoin. A page-turner.
Former Bloomberg journalist Camilla Russo wrote another easy-read story, this time of the early days of Ethereum and the path that led Vitalik Buterin to come up with the idea: The Infinite Machine - How an Army of Crypto-hackers is Building the Next Internet with Ethereum (Harper Business, 2020). I’ve only just started reading it, but can’t wait to read the rest.
Wharton’s Kevin Werbach’s book Blockchain and the New Architecture of Trust takes a critical look at the claim that blockchain does away with the need for trust. Instead, it shifts trust what we need to trust, he explains. Although written by an academic, the book targets a broad non-technical audience and is an easy read.
For the academics or practitioners among us:
Blockchain and the Law: The Rule of Code by P. De Filippi and A. Wright, Harvard University Press (2018). A book written when Bitcoin and Ethereum were at much earlier stages, but it remains a very helpful introduction for beginners to the general legal questions raised by blockchain, digital assets and smart contracts.
Blockhain Regulation & Governance in Europe by M. Finck, Cambridge University Press (2018). A relatively short, high-level overview of legal issues and challenges for a non-expert legal audience. Very good starting point for beginners.
Regulating Blockchain: Techno-Social and Legal Challenges, edited by P. Hacker, I. Lianos, G. Dimitropoulos, and S. Eich, Oxford University Press (2019). A collection of chapters on various legal challenges of blockchain, including ICO regulation, blockchain in financial markets and the question whether core developers should have fiduciary duties.
Cryptoassets: Legal, Regulatory, and Monetary Perspectives, edited by C. Brummer, Oxford University Press (2019). Also a collection of chapters on various topics, including the law and finance of ICOs, blockchain tech for derivatives markets, cryptoasset valuation and crypto-assets in a historical context.
Cryptocurrencies in Public and Private Law, edited by D. Fox and S. Green, Oxford University Press (2019). This book goes beyond the regulatory questions and offers chapters on how conflicts of laws could apply in the crypto-context, taxation, the property aspects of cryptoassets and cryptoassets in public international law.
Blockchain + Antitrust by Dr. Thibault Schrepel explores the linkages between blockchain and antitrust (how can blockchain help achieve antitrust goals and how can it be used for anticompetitive purposes?). The e-book is freely available online and the most recent one in this list.
Oxford University Press has a Handbook on smart contracts in the pipeline: Smart Legal Contracts, edited by Jason Allen and Peter Hunn. Expected April 2022.
I’ve probably missed some excellent books - feel free to let me know if I did! I’ll update this list periodically.
That’s all for this week! Enjoy and stay tuned for more cryptolaw news next week!