Bitcoin came on to the scene in March 2009 and it took less than a decade to go from basically worthless to $20,000 a coin. Even though there has been volatility in price, there is no less momentum in the interest of virtual currencies and blockchain. Finance, banking, healthcare, real estate, corporate governance and supply chain management all have the potential to be transformed by this emerging application.
As more industries as well as investors explore blockchain opportunities, the deluge of information coming from regulators, law enforcements and civil litigants has also grown. New regulation or commentary are almost a daily occurrence, leaving legal practitioners scrambling to understand the increasingly complex and, at times, conflicting regulatory landscape.
It was with this in mind that Brad Rosen, a journalist and an analytical writer at Wolters Kluwer, and his colleagues set out to help everyone interested in blockchain and cryptocurrencies gain a better understanding of the regulatory information overload. Their new book, Blockchain, Virtual Currencies and ICOs, Navigating the Legal Landscape, was released last week.
Hehmeyer Trading + Investments had the opportunity to sit down with Brad Rosen to speak with him about the new guidebook, see what he was most surprised by when diving into his research, and which authority he believes will actually be most influential in regulating the underlying cryptocurrency market.
“My first exposure to crypto was in the fall of 2015. I went to a Chicago Legal Innovation and Technology Meet-Up where Pamela Morgan was talking about the blockchain’s private and public keys. This sparked my interest and I did some light reading,” he said.
While nowadays most people purchase cryptocurrencies through a broker type institution, for example Coinbase; ‘purists’ as Rosen calls them will use and own private keys to buy virtual currencies on the blockchain. The public key is what the world sees in relation to the transaction and the private key proves ownership of the currency.
"In the Spring of 2017 I observed an increase in virtual currency and blockchain related activity as well as regulatory developments. I saw my legal and journalist background as a natural fit to further explore and cover this burgeoning area to educate our customers,” said Rosen. “We launched editorial efforts in April and finished the writing in May. Things often get pigeonholed but this was something that was spreading to various industries, impacting various legal disciplines, and quickly, so there was a need to put the information in a sensible container.”
During his research, one thing that really stopped him in his tracks was a statement that SEC Director William Hinman said at a Yahoo All Markets Summit.
“While the market breathed a sigh of relief when Director Hinman said Ether was not a security, it did contradict earlier statements that token sales likely fell under the blanket of the securities laws,” said Rosen. “I was like, stop the presses, this is a big story. In fact the price of Ether went up more than 10% that day.”
Rosen explained there has been frustration towards the SEC in terms of providing regulatory clarity.
“Another example is that SEC Chairman Jay Clayton initially said he wanted to hold lawyers and accountants as “gatekeepers”, responsible for giving bad advice around digital assets,” said Rosen. “While there has been a thawing with respect to these types of statements, the SEC is inviting dialogue with market participants to be more accommodating, but still, they have still failed to move on approving applications for virtual currency ETFs.”
Rosen believes that the CFTC has been more accommodating when it comes to regulating cryptocurrencies and referred to Chairman Giancarlo’s nickname as “cryptodad.”
“At an Agriculture Committee meeting in front of the House of Representatives on July 18, former Chairman Gary Gensler said that the CFTC may have more authority of the underlying crypto markets down the line,” said Rosen. “So we will have to see whose jurisdiction this falls under.”
One level of government that may offer more insight in regulating this new market is the state level authorities.
“The state level is supplementing a lot of the efforts of the SEC and CFTC in terms of enforcement,” said Rosen. “Delaware’s Governor has announced that shareholder registry can be kept on blockchain, Wyoming is looking at similar initiatives and even Illinois has been looking at blockchain solutions. With respect to regulation, I believe the states will play important roles.”
As our conversation wound down, I asked him if there was anything else we should know about the book or closing remarks about blockchain and cryptocurrencies. He pointed me to a part of his book where he quotes Joshua Ashley Klayman about getting into this space early.
Summarizing her quote in the book, he said, “There aren’t any experts in this space yet. This gives many people a lot of opportunity to make a name for themselves.”
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