With the use of cryptocurrencies and other digital assets increasing, many complex legal issues have developed that require in-depth understanding and knowledge to navigate.
Feldman & Feldman offers experienced legal counsel to our clients to guide them through this rapidly evolving space. Central to our cryptocurrency and blockchain practice is a thorough understanding of the technologies driving blockchain and related developments in distributed computing networks. Financial products and services integrating blockchain technology are evolving rapidly and our attorneys are ready to serve clients with specialized needs in these areas. Whether investing funds directly or indirectly in digital assets or creating new coins/tokens in association with the launch of a new distributive network, Feldman & Feldman is here to provide guidance and legal counsel.
Blockchain Technology Basics
Blockchain technology is most commonly known as shared database technology that facilitates Bitcoin, Ethereum, and other crypto-currency transactions; however, it is predicted to play a game-changing role in the future of business and law over the coming years. The term “blockchain” refers to a series of data “blocks” linked together in a chain within a larger, decentralized computer cluster instead of an individually owned computer network. An individual entity cannot directly influence the blockchain because it is decentralized. This increases the blockchain’s security, as one person is not able to manipulate it; however, it significantly complicates the regulatory process. When a machine connected to the blockchain makes a “transaction,” a new “block” is created that must be validated through the network. Users of the network have private keys for access and only individuals who have been onboarded to the system with the correct keys can access the data contained therein.
Blockchain technology is currently poised to move into mainstream applications using distributed ledger technology, which may launch new opportunities in multiple markets. This technology can record information that creates trust in the data recorded. Blockchain can prove who owns a health record, supply chain record, or digital asset and it has been adopted by more than one-third of the world’s companies. Blockchain enables features such as unalterable timestamping, transfer of assets through a payment channel, facilitation of smart contracts, and Tokenization to protect sensitive data.
Current Regulation and Legal Concerns
Lawmakers have yet to pass any significant federal laws regulating cryptocurrency and/or the use of blockchain technology in the United States. This has left compliance enforcement to finance-focused federal agencies, including the Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC), the Commodities and Future Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FCEN). The sale of cryptocurrency like Bitcoin and Ethereum is subject to federal regulation when classified as a money transmission, security sale, or a component of a money services business. The SEC’s approach to cryptocurrency is to subject digital tokens to the well-established Howey test to determine if they qualify as securities or investment contracts and take enforcement actions consistent with this guidance. The Internal Revenue Service (IRS) currently considers cryptocurrency to be “property” rather than currency when considering it for tax purposes, so individuals who own cryptocurrencies must pay taxes on the gains they make from the sale of these digital assets and the purchase of goods with cryptocurrency, as well as for the fair market value of digitally-mined cryptocurrencies.
Individuals and businesses with blockchain solutions need to comply with a legal and regulatory framework that was not conceived with this technology in mind. This is why legal guidance is crucial when investing in or engaging in business transactions involving cryptocurrency or blockchain technology.
Our legal team can provide knowledgeable guidance on the following topics:
- Regulatory status and enforcement
- Securities transactions
- Fund formation
- Corporate law
- Venture capital
- Anti-money laundering
- Launching EFTs and derivatives
- Smart contracts
- Jurisdiction concerns
- Global trade
- Data privacy
- Rights of end users
While no one can predict the future, the picture is very clear that blockchain technology will play an important role. With society now adopting new policies and procedures designed to evolve with this new technology, it is time to adapt and change business practices as well. Many industries will potentially be altered by the creative disruption of blockchain technology, including financial services, supply chain management, and healthcare, to name a few. There are also substantial opportunities in industries where intermediaries play a pivotal role, including estate planning, real estate, securities, and retail.
Houston Cryptocurrency Lawyers
If you have any questions about how state and federal blockchain and cryptocurrency laws might impact a recent or upcoming transaction, we encourage you to reach out to the Houston business lawyers of Feldman & Feldman to discuss your situation. We will provide insight into how implementing blockchain could change your business and how to best prepare for the opportunities and risks that accompany this new technology. Contact our office today to set up a consultation.