Podcast: The Hearing – Doug Pepe – Partner – Joseph Hage Aaronson LLC

From the producer: You may have watched as Mark Zuckerberg explained the internet to Congress in a way that felt a bit unnecessary. Well, this episode is sort of the opposite of that. Joe Raczynski is joined by legal and mathematical macroeconomics genius Doug Pepe, to take us through blockchain, tokens and cryptocurrency in a way that’s genuinely enlightening.

The legal industry is sometimes accused of not keeping up, but we know that’s not true. Lawyers are occupying this space now. Their clients are very active and they have a crucial role to play in the serious policy issues being debated.

Doug, a partner at Joseph Hage Aaronson, started his blockchain journey by building gaming computers with his young children, and then teaching them how to mine bitcoin. Fast forward and Doug is now an expert on blockchain privacy, smart contracts and digital identity.

Apple: https://podcasts.apple.com/us/podcast/ep-68-doug-pepe-jha/id1389813956?i=1000503066806

Google/Android: https://podcasts.google.com/feed/aHR0cHM6Ly9wb3J0YWwtYXBpLnRoaXNpc2Rpc3RvcnRlZC5jb20veG1sL3RoZS1oZWFyaW5n/episode/aHR0cDovL2F1ZGlvLnRoaXNpc2Rpc3RvcnRlZC5jb20vcmVwb3NpdG9yeS9hdWRpby9lcGlzb2Rlcy9FcDY4X0RvdWdfUGVwZV9taXhkb3duLTE2MDgzMDQxMDgzMzgzNDc3MDctTXpFMk9UVXROelF6TVRNME16WT0ubXAz?sa=X&ved=0CAUQkfYCahcKEwjo-ObCpN_tAhUAAAAAHQAAAAAQAw

Find out more at tr.com/TheHearing

Podcast: The Hearing – Chris Mohr – VP for Intellectual Property and GC at SIIA

This week we talk privacy, piracy, and intellectual property. Before the lockdown, I sat down with Chris Mohr, VP for Intellectual Property and GC at Software and Information Industry Association.

Working at the heart of the US federal government in Washington DC, Chris tells us about life as a lobbyist on Capitol Hill and how he navigates the challenges posed by different global approaches to intellectual property. He also talks about the intersection between IP and privacy law and the Constitution, as most data is effectively speech for Constitutional purposes, there are fundamental conflicts when people’s privacy rights are at stake.

Chris and I chat about where AI might be taking us and what IP implications there may be, as they ponder whether machines are legally allowed to be inventors.

Listen on Apple: https://podcasts.apple.com/gb/podcast/ep-56-chris-mohr-software-information-industry-association/id1389813956?i=1000484584104

Listen on Google: https://podcasts.google.com/feed/aHR0cHM6Ly9wb3J0YWwtYXBpLnRoaXNpc2Rpc3RvcnRlZC5jb20veG1sL3RoZS1oZWFyaW5n/episode/aHR0cDovL2F1ZGlvLnRoaXNpc2Rpc3RvcnRlZC5jb20vcmVwb3NpdG9yeS9hdWRpby9lcGlzb2Rlcy9FcDU2X0NocmlzX01vaHJfbWl4ZG93bi0xNTk0Mzg4MTc0NjkzNTY5MTkzLU16QTNNamd0TlRBd01UQTFOVFE9Lm1wMw?ved=0CAIQkfYCahcKEwjQgPy9qsrqAhUAAAAAHQAAAAAQBA

Will COVID-19 Make Cash Obsolete?

Originally published on the Legal Executive Institute.

By Gina Jurva – Joseph Raczynski

Is the COVID-19 pandemic more quickly moving the world to a cashless society? One where almost all financial transactions are not conducted with physical banknotes or coins, but rather through the transfer of digital information via a smartphone?

Thomson Reuters technologist and futurist Joe Raczynski explains why cash may no longer be king and how the fear of banknotes carrying and passing the coronavirus itself may help get us there more immediately.

Legal Executive Institute: The World Health Organization (WHO) recently indicated that washing your hands after handling money, especially if handling or eating food, is a “good hygiene practice” but they stopped short of issuing any formal warnings. How can technology help guide this conversation?

Joe Raczynski: Sooner than we thought, we will be moving away from the possibility of literal dirty money, meaning legal cash tender. Believe it or not, the United States was on the cusp of issuing a digital dollar on at the end of March. As part of the early draft for the COVID-19 stimulus package, bold and powerful policy makers vied for the creation of a Digital Dollar.

Having presented on this topic for the last four years, I was ecstatic to see this development. The concept was to have the US Department of Treasury issue FedAccounts to everyone in the country. Normally, FedAccounts are only issued to qualified banks.

In essence, these accounts would create digital wallets for everyone. Once released, stimulus money could be sent directly to each person in moments. Ultimately, the concerns around logistics and privacy became too significant a barrier, but clearly it is only a matter of time before we have a digital wallet issued by the US government.

Legal Executive Institute: China has taken measures to sanitize their cash. Is this really a path forward for global payment systems?

Joe Raczynski: Yes and no. Multiple news reports claimed that China was burning their paper currency to prevent passing bank notes infected with the virus. Based on the scientific evidence for how long the virus can stay on surfaces, it is logical to reduce the risk by avoiding paper or metal currency.

Fortunately, China had already transitioned to a nearly cashless society. With AliPay and WeChat Pay, nearly everyone in China is using QR Codes to exchange money digitally in person and through digital wallets online. From what I understand, payments via these two platforms make up roughly 80% of all payments in China. That’s huge! The next step will be the People’s Bank of China issuing a Digital Currency Electronic Payment (DCEP) sometime in the next six months. More than likely this will utilize the benefits of blockchain technology — immutable, secure, and transparent.

cash

This last benefit is potentially problematic for the Chinese people. When their digital currency is used, China will have direct insight into the finances of everyone in the country, and beyond, as China’s plan is to roll this out globally, especially in Asia and Africa. The Chinese government has stated that this will help them fend off money laundering, as suspicious transactions can be immediately audited and examined with ease.

Legal Executive Institute: Prior to COVID-19, how close were we to moving to contactless payments?

Joe Raczynski: Most countries in Europe and Asia currently have available some sort of contactless payment system. In the UK and the rest of Europe, the popular payment method is hovering your debit or credit card over the terminal and the payment is processed immediately. They have been doing this for years. The US is just beginning to use the contactless card payment system. Apple Pay, Samsung Pay, Android Pay, all have been around for years now, and are popular with a younger demographic.

With the virus outbreak, more establishments have been pushing for these transactions, which still use banks and credit card processers like Visa, Mastercard, and American Express.

Legal Executive Institute: How feasible it is for retailers use contactless payments as a primary payment method?

Joe Raczynski: We are at a point where most, if not all transactions could be contactless. Many startups, semi-casual restaurants, and small businesses aim to only use contactless payments — for example, like Square does.

Similarly, individuals transacting with others can send money to each other via private bank enabling systems like Zelle, Venmo, Apple Pay, or Google Pay. Clearly credit cards and virtual gift cards have been popular with online merchants for years.

The primary setback for pure contactless and credit card transactions are the unbanked — US adults who do not have a checking, savings, or money market account. According to the Federal Reserve, about 6% of US adults fall into this category.

Legal Executive Institute: Are mobile payments the answer?

Joe Raczynski: Unequivocally yes! Most semi-modern mobile devices have the capability to add credit or debit cards by mapping them to your mobile app payment system of choice. This is a partial solution, for those with access to the banking system, which is the majority in the US. However, to cover all, the idea of the Digital Dollar in a government-issued wallet would be ideal.

Legal Executive Institute: In the US, major mobile payments apps had adoption rates of less than 10%, according to the Pew Research Center. What are the major hurdles for adopting mobile payments as a primary payment method?

Joe Raczynski: While smartphone use is at roughly 81%, according to Pew, the primary hurdle for contactless payment in the US is actually habit. We are accustomed to swiping cards or inserting them into a device for chip reading.

Education is also key — many people are unaware they can hover their card over a payment terminal to do the transaction. (Look for the wireless symbol on your card to see if this is feasible.) Clearly migrating to app-based transaction on your smartphone will grow in popularity too. And with the pandemic, the push to contactless payments is a given.

Legal Executive Institute: What might payments look like in the future, and how can we protect against fraudulent activity?

Joe Raczynski: I honestly believe some dramatic shifts are about to take place with our primary forms of money. With the advent of blockchain technology, there will be a fission between state-sponsored fiat money and privately-run currencies. The philosophical and theoretical concerns, challenges, and opportunities are innumerous, but not insurmountable.

Facebook’s Libra project, for example, is an effort by a private company to issue a global currency. The idea is to create a permissioned blockchain where a set number of trusted participants (100 or so) control the rules and define total circulation of the coin. While Libra has met with significant headwinds, this is very likely our future, in some incarnation. Facebook, or more likely, a large private company outside of the US will succeed here. If Facebook perseveres, it could create a global currency usable by half the world population overnight, which is extremely powerful, albeit a bit threatening to sovereign nations.

What will be fascinating to watch is the push by governments around the world to issue their own digital currency in the next few years to counter the private company coins. According to the International Monetary Fund, 50 countries are now exploring issuing their own digital currency.

The major dilemma for state-sponsored digital money, however, is the question of whether they pursue blind payments or clear payments. That means, will they allow people to use the digital currency like paper currency by concealing private information through cryptography? Or will they wander down the Chinese model and make it all traceable by the government, which would certainly help curtail nefarious transactions but could ebb civil liberties.

Podcast: The Hearing – Meredith Williams-Range – Chief Knowledge and Client Value Officer at Shearman & Sterling

In this week’s episode, I am joined by the preeminent thought leader in legal tech, and Chief Knowledge and Client Value Officer at Shearman & Sterling, Meredith Williams-Range.

Taking us on a journey from her small-town, rural upbringing just outside of Memphis (where you’ll find the absolute best BBQ) to the bright lights of New York, Meredith tells how family tragedy and a decade-long lawsuit led to a career in law.

Meredith talks about her career at Baker Donelson, where she worked with colleagues steeped in American history, including President Reagan’s Chief of Staff, and eventually became involved with legal tech. The hustle led to a fascinating new position at Shearman & Sterling, a position that Meredith notes was designed on a napkin! The firm’s great vision and wonderful people meant that Meredith knew from the start that she could do great work there… and have the best geeky conversations.

In a fascinating discussion about the growth – and the daunting pace of growth – of legal tech and big data analytics, Meredith and Joe consider the biggest legal tech changes of recent years, and talk about the exceptional new tools that serve a true need, with the added bonus of giving the enormous power of data to lawyers.

‎The Hearing – A Legal Podcast: EP. 45 – Meredith Williams-Range (Shearman & Sterling) on Apple Podcasts

The vice grip of cybersecurity concerns on law firms

Originally published on Legal Insights UK & Ireland

By Joseph Raczynski

Law firms stand in a very precarious position in the cybersecurity world. Next to financial institutions, private legal institutions are a virtual honey pot for cybercriminals. Any breach, no matter the size, impacts the client, and certainly could destroy a firm’s reputation.

Four years ago, I toured over 50 law firms discussing cybersecurity with chief information officers (CIO), managing partners, lawyers and support staff. Each year since, it remains one of the hottest legal technology topics with my clients. The unfortunate situation is that, while law firms have dramatically shored up the barriers of defence, criminals have new methods to circumnavigate the ramparts.

Why law firms now?

Recently, I was at a CIO conference with 350 medium and large law firm CIOs in attendance. The keynote speaker stunned the crowd with a singular statement: “do you realise you [CIOs] are the gatekeepers to 71 percent of the non-public intellectual property (IP)?” The first reason law firms are attacked is because of IP. Criminals of all sorts see law firms rife with IP that can be pilfered.

One Asian country has allegedly lifted massive amounts of IP from technology companies, not from the companies themselves, but rather their law firms. Once obtained, they pass the IP to their nation’s internal network of state owned companies for development. Apple could have trade secrets stolen and then developed and sold in China before Apple could get it to market in London. To this end, Joe Patrice, Editor of Above the Law, once called law firms “the soft underbelly of the cybersecurity world”. The good news is that law firms have fortified their gates more recently to stymie the IP raiders.

The second reason why law firms are attacked is business information. Last year a known hacker in Russia targeted the top 25 law firms in the world to pull out any merger and acquisition (M&A) information. The criminals silently slip past firewalls, identify M&A documentation of companies set to merge, then can use that information to purchase stock—all before it is publicly announced.

Methods of attack

There is a myriad of tried and true means to crack networks and computers. Having been a white hat hacker script kiddie, years ago, I recently dipped my toe back into the space to see what has changed. My conclusion: it is easier to hack now than it was 10 years ago.

I bought a £4 specialised USB the other day, which will load any sort of script onto a computer in under four seconds. Simply choose the script from 100’s publicly available on the web, convert the code through a free compiler, load it onto the USB stick—and voila! In my testing, I could scrape the user names and passwords entered on my computer, and have it automatically sent to a test email account, simply by placing the ’bad USB’ or ’Rubber Ducky’ into my drive for a few seconds. Does your firm lock down USB ports? Perhaps it is worth considering as an attack of this nature can be executed with relative ease.

There are countless other ways to hack a computer or IoT (Internet of Things) device, but no greater risk is higher than email. Allen Paller, of the US-based SANS Institute, cites 95 percent of all malware and breaches start with email. Phishing attacks, discussed in a new government report published by the National Cyber Security Centre: ‘The cyber threat to UK legal sector’, states that 80 percent of law firms in the UK have had attempted phishing attacks in the last year. These sorts of attacks can be prevented in several ways:

  • Have processes in place when dealing with accounting so emails are not approval for funds transfer—use an internal application for requests and verification
  • Use software to distinguish ‘external’ emails from ‘internal’
  • Link protection—use real-time analysis of URLs and domains so that the user is safely redirected to valid domains when clicking ‘unknown’ links in emails
  • Assuring that all applications are running their most up to date versions

One of the largest law firms in the world, DLA Piper, was hit by ransomware last year. Fortunately, DLA Piper survived, though weeks of recovery at a tremendous cost. Still, these types of attacks can be devastating. They encrypt all files on your computer or network—leaving you two options: pay the ransom to get the password, or delete everything off the computer and rebuild with your backup files. Either option can leave a law firm, for a short or long period of time, with limited ability to address client needs.

The future of cybersecurity will be a multi-pronged approach. No longer is antivirus software the ultimate defence. Instead, law firms will need tools that detect intruders using artificial intelligence infused algorithms to figure out abnormal activity on the network. Blockchain will help securitise information and identities with a distributed network—compared to a central repository of sensitive information. Lastly, the General Data Protection Regulation has already, and will continue to, force all parties to take security more seriously or risk significant fines.

Risk Management in the Cryptosphere: A Talk with Gibson Dunn’s Judith Alison Lee

Originally published in the Legal Executive Institute 

By Joseph Raczynski

Cryptocurrencies and its underlying blockchain technology is upending the traditional paradigm for financial institutions and regulators around risk management. This disruption includes unique challenges around identity association and verification in the cryptosphere, specifically around decentralized exchanges, applications (DApps), and identities. We discussed these topics with Judith Alison Lee, a partner at Gibson Dunn & Crutcher, who advises on issues relating to virtual and digital currencies, blockchain technologies, and distributed cryptoledgers.

Judith, what are the legal challenges in identity-linking and verification in the cryptosphere?

Judith Alison Lee: Given the pseudonymous nature of cryptocurrencies, there needs to be a framework — most likely at the exchange level — to identify the individuals that transact in cryptocurrencies. Most exchanges do collect and attempt to verify customer identifying information; however, depending on the exchange, the information collection and verification may not be robust, and customers may engage in various location- or identity-masking services that pose challenges.

Additionally, there may be jurisdictional challenges regarding privacy laws and the transfer of identifying information. Finally, as we are seeing more and more decentralized platforms supporting peer-to-peer transactions, linking customer identity to particular transactions will likely become more difficult.

How are regulators starting to deal with identity and blockchain?

Regulators are requiring licensing or registration for money transmitter licenses at both the federal and state levels, which requires such entities to comply with Know your Customer and anti-money laundering (KYC/AML) requirements and is one way regulators are addressing identity.


blockchain

Judith Alison Lee of Gibson Dunn & Crutcher

Given the pseudonymous nature of cryptocurrencies, there needs to be a framework — most likely at the exchange level — to identify the individuals that transact in cryptocurrencies.

 


It gets a bit more complicated when we start to talk about linking participants to particular transactions, particularly since the transactions in spot-market cryptocurrencies are not regulated in the same way as transactions in securities or derivatives. As a result, regulators have focused on fraud and manipulation in those markets and have relied on asking the exchanges for transaction-level information, including any identifying information they have collected.

With regard to KYC/AML, terrorist financing, and anonymous transactions, what does the legal landscape look like and how are states or the federal government handling this currently or planning to in the future? 

At the federal level in the US, entities that exchange cryptocurrency may be required to register as money services businesses, while at the state level, many (but not all) states require them to obtain a money transmitter or equivalent license. Both the states and federal government have been involved in enforcement actions to protect against fraudsters in the cryptocurrency space.

In the future, we will have to wait and see if the next Congress will issue legislation on cryptocurrencies.

Is there a way to utilize blockchain for customer due diligence?

It certainly seems that there is a role for blockchain in customer due diligence. The permanent and transparent nature of the blockchain makes it a logical tool to streamline the KYC process. The blockchain would likely be a good way for regulators to have a single source of data and access to the latest information. However, it seems unlikely that a blockchain solution could be utilized for all customer due diligence — though it could certain help to simplify it, particularly for financial institutions.

Clearly, these are the embryonic stages of regulation and oversight for identity management and verification in the crypto space. As adoption of these token rise, global banks and government agencies will further adapt under this decentralized technology-driven revolution.

Legislating for the future: Drones in the UK

Portions originally published in The Guardian.

by Joseph Raczynski

 

1. What are your thoughts on the UK’s drone regulations/regulatory approach, and how does it compare to other approaches around the world? Are there any ideas we should borrow from Australia, the US, etc?

 

Drone enthusiast beware, a new era of regulation is about to hit the air.  On July 31, 2018 a new set of laws will go into effect in the UK.  The rules are more restrictive than in the past, stating:

  • Do not fly higher than 400 feet
  • Stay at least one kilometer outside of the airport walls
  • Keep the drone in constant direct eyesight
  • Fly no closer than 150 metres from crowds of 1,000 or more people (think stadiums)
  • Kept it 50 metres away from people and private property

 

  • On November 30, 2019 everyone who owns a drone that weighs 250 grams or more will need to study up. After that date you will need to register your drone with the Civil Aviation Authority (CAA) and then pass an online drone safety test.  Failure to do both will land you a fine of £1,000.
  • There are multiple sights that drone owners can go to understand the landscape better. Drone Safe UK is one of them.

 

These rules are not the most restrictive found around the world, but they are certainly not the most lenient either.  In fact, if you strictly adhere to these rules, it is more than likely that your drone will remain grounded, unless you live in a very rural location.  The most challenging of the above is keeping the quadcopter 50 metres away from people and private property.  Just launching your drone in an urban or suburban area will break this rule.  Operators will need to do considerable research before taking flight.  To that end, numerous mobile apps are available to assist in your planning before you fly.

 

Every country around the world seems to have issued guidance in this area.  While the UK is more restrictive than most, the norm, also the rules in the US, seems to be keeping the drone within eyesight, flying no higher than 400 feet, staying away from crowds, possibly registering the device, and not flying closer than five miles from airports.  There are more restrictive countries like Morocco where drones are now completely banned.  If you bring a drone into the country without declaring it, they will confiscate the device.  Australia has very similar rules to the US which are less onerous than the new UK rules.  I have flown in UAE, Costa Rica, US, UK, Colombia, Switzerland, and several other countries and most allow you to fly following the aforementioned rules.

 

All countries are grappling with their policies on drone usage.  The concerns range from privacy to safety.  Privacy issues will always be a concern with a small minority of pilots flying over private property recording video where a private citizen has the expectation of privacy.  The safety concern is one most likely to fade away over the next five years, when the devices become even more reliable and safe.  Currently there has been marked improvement in the way the software on drones handle a dying battery, location awareness, and object avoidance.  These are now standard on most new drones, so that the devices can return home safely and therefore tend to drop out of the sky far less frequently than a few years ago.

 

2. How do we balance regulation and technology to ensure drone innovation isn’t held back? Do we have a good balance so far?

 

The newest drones are amazing!  My current version can fly four miles away, shoots in 4K video, and can go at least a mile high – not that I have flown it that far.  The technology is well beyond what we are currently allowed to do.  The alarm bells sounded recently, and subsequent regulation created when some operators did dumb things.  People have been caught flying over football stadiums during games, others have flown in the path of airplanes or over forest fires putting emergency helicopter workers in danger.  The issue is that these devices are powerful and now put into the hands of the masses, some have made poor decisions, which could impact general safety and people’s privacy.  I think in the short term we are going to see more restrictive rules like what the UK is enacting now, but in the long term these will ease.  They will relax, as the devices become safer with newer technology – software and sensors.  They will have better obstacle avoidance and baked in no-fly zones will be a norm across all manufactures.  Currently a handful of drone producers have software that if you try to take off next to Big Ben, the drone won’t even move because it uses GPS.

 

Since we have people sometimes making poor decisions, the current set of normalized rules found in most countries make sense.  I would suggest that the UK has gone a bit further than I would deem reasonable, but still generally acceptable.

 

3. How do you see drones influencing city planning? What do drones mean for residential development (delivery pads on apartment roofs)? What about noise considerations and safety?

 

The next great leap into the future that is happening at an exponential rate will be service drones in densely populated areas.  Clearly delivery drones are coming.  Amazon is testing this now.  So you will be able to purchase your bag of crisps and soft drinks via your mobile and have them delivered via drone in short order.  This will impact how buildings are constructed.  You will see more landing pads off of balconies.  In addition, non-balcony flats will have landing pads on the roof, with autonomous rolling rovers which will pick up the drone dropped package and deliver it to your front door.   If you live by a beach, drones are starting to be used in saving lives.  Instead of a lifeguard having to jump off from their perch, run across the hot sand, battle the waves to get to the struggling person, they will launch a drone fly it above the person in distress and drop the life preserver.  The first water rescue of this manner happened in March down in Australia.  Another plan is to have drones help guide you to open parking spaces in the city.  Do you want to get a closer look at out of reach parts of London Bridge as a tourist?  You will be able to dawn a headset and a mini drone will take you to parts of the bridge unseen by most.  Drones might monitor traffic.  Helping with real-time incident reports for accidents, and giving real-time feedback about troubled areas.  We will also see drones watching over as police helpers. Making sure that areas which might have more crime are being monitored more closely.

 

The noise issue is also temporary.  Companies are now creating “props” or propellers that make far less noise than even a year ago, and this will continue to improve until we have something that is nearly silent.

 

There are countless other areas that will be impacted with drones.  Fire and rescue, compliance for real estate ordinances – did you build a deck without a permit?

 

4. How can drone rules be enforced? What good technologies have you seen in use so far?

 

Right now drone rules are being enforced by the drone companies.  They are baking into their software all of the rules and regulations mentioned earlier based on your location and common standards.  This is being done proactively for fear of the Morocco situation – an outright ban of recreation drones.  Every time I turn on my drone, it asks me to update my software, it adds new “no-fly zones” as more and more areas around the world request a no drone area.  Companies are simply trying to self-regulate.  On the other side, honestly it is very difficult for enforcement to go after operators.  They essentially need to witness a drone flying in a restricted area, then find the person flying the device.  They typically find them as the drone runs low on battery and the pilot brings it down.  It is only a matter of minutes for the enforcement to find that person before they take off.  In very restricted areas, some countries have devices to scramblers the communications of the drone operator, which can do a few things to the misguided drone; drop it out of the sky or take over the flight from the owner.

 

5. How do you see drones actually being used in the next five years? What use cases are over hyped and which are realistic?

 

I believe in some areas we will have drone delivery.  I actually think in the next 5 to 10 years we will have the flying vehicles people always dreamed about.  The first human drone vehicles have been made.  The major hurtle will be regulation of these devices.  Drones will routinely monitor forests looking for hot spots to prevent massive forest fires.  I think we will start seeing some policing with drones, observing areas with high crime.  Selfie drones, the size of a deck of cards will be in most tourist’s pockets.  They will have a very limited distance and primarily take pictures and video from cool new perspectives… like you rock-climbing 500 feet above a ravine and you simply call it out to take a video and then returns to your momentarily free hand.  I think you will also start to see ambulance drones – is someone having a heart attack near you.  You call 911 and the drone is dispatched much faster and arrives in a few minutes compared to the ambulance itself.

 

This tech is just about to take off.  The next few years are going to be a mix of tech pushing the boundaries and regulators having to make new decisions.

Podcast: The Hearing With Kevin Poulter & Joseph Raczynski – Future Legal

Episode 2 of THE HEARING is now live!

In episode 2 of The Hearing Podcast Kevin Poulter speaks to futurist Joseph Raczynski on #legaltech #AI #blockchain and the future of the robot lawyer.

Listen now and subscribe to #thehearingpodcast on:

iTunes – https://tmsnrt.rs/2swyzmz

Spotify – https://tmsnrt.rs/2kOOpVw

SoundCloud – https://tmsnrt.rs/2Js4deI

Harvard Business School Panel: How Should ICOs and Cryptocurrencies Be Governed?

Originally published in the Legal Executive Institute

by Joseph Raczynski

BOSTON — Recently I moderated a session at Harvard Business School surrounding its first annual Business, Regulation and Technology of Blockchain Conference. It was held in conjunction with the MIT China Innovation & Entrepreneurship Fund and the Harvard Law Entrepreneurship Project’s Blockchain Initiative.

Before a crowd of 175 attendees — comprised mostly of members of the legal and financial cryptocurrency communities, and MBA and law students — the panel focused on the governance of cryptocurrencies in 2018. The panel experts consisted of Kendrick Nguyen, CEO of crowdfunding platform RepublicCaitlin Long, self-described blockchain enthusiast and former Chair and President of Symbiont; and Anil Advani, Managing Partner of Inventus Law.

The Difference between a Utility Token and a Security

In pushing to help people understand the Initial Coin Offering (ICO) market, I posed the most hotly debated question in the crypto community: What is the difference between a Utility Token and a Security?

Advani jumped into the conversation by discussing how Jay Clayton, the Chairman of the Securities and Exchange Commission (SEC), defines the distinction, “If you are running a laundromat it is a utility, but if you are raising capital that is a security.” Advani went on to explain, if the token is designed to serve as a prepaid service, or it allows you to access a company’s service, e.g. a loyalty points system, it is a token. However, if you are simply trying to use an ICO to raise capital, that is a security and hence subject to SEC regulation.

HBS-Raczynski

Nguyen agreed, speculating that he “expect to see this space to be litigated in court” and added that he hopes “that a lot more tokens will be determined to be utility tokens rather than securities.”

Long emphasized that it may take some time for regulators to sort this out, but companies need to be cautious in the meantime. “Most of the cryptocurrency platforms are not functional yet,” she noted. “So the token currently is not exchangeable for a good or service until that platform is built.” Therefore, these tokens need to be locked up until the companies are operational and not sold until they are ready, she explained, adding that if a company sold its tokens sold ahead of being functional, those tokens could well could be considered a security.

A Token Can Change its Stripes

As this topic is of paramount interest to a $500 billion cryptocurrency industry, the panelists continued the conversation, noting several recent developments. Long described a recent interaction she had with SEC Chairman Clayton. “A token can change it stripes,” Long mentioned, outlining the two stages of a company’s build. In the first phase, because there is no product the tokens are likely considered Security tokens; however, once the platform is running, and the tokens can be exchanged for goods or services, they could be converted to a Utility Token. The key, Long said, is not to “market it as an investment.”

Finally, one of the points noted by Advani was that “Chairman Clayton’s off-remarks during events are similar to Trumps tweets.” It is creating a lack of clarity in this market, thus leading to confusion and consternation, he said.

Privacy Tokens & Taxes

Some of the cryptocurrencies listed among the 1,600 currently available are completely anonymous. I posed the question about its impact on anti-money laundering (AML) rules and the market. Advani is concerned about the ability to track these sorts of assets and said it raises a deep level of concern about how any government would be able to account for this.

Another question that I presented to the panel was on taxes, prompting Long to respond: “This is clear as mud.” There is very little guidance on how to tax hard forks of a cryptocurrency and mining operations, for example, and Long went on to say that this will require legislation to help understand the various facets of the new tokenized society and tax.

While the panel covered a wide spectrum of the impact of regulation on cryptocurrencies, the primary theme that emerged is that though there are glimmers of definition from various agencies in the United States, considerable guidance is still necessary for people to better understand how to invest, create new companies, and work with cryptocurrency.