Blockchain Week in Review - July 2018 #3

by Perkins Coie
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The following summaries are available in our sister blog, The Fintech Report.

OCC Begins Accepting National Bank Charter Applications from Financial Technology Companies

New York Department of Financial Services Voices Opposition to Regulatory “Sandboxes” and OCC Charters for Fintech Companies


U.S. Developments

Regulatory Updates

New York Stock Exchange Owner to Offer New Ways to Invest in Digital Assets

On August 3, the Intercontinental Exchange, the parent company of the New York Stock Exchange, announced that it will be forming a new company which will offer a federally regulated market for Bitcoin. The new company, called Bakkt, aims to create a simple means of allowing institutional money managers to offer Bitcoin-regulated investment vehicles, including mutual funds, pension funds and ETFs. Bakkt initially plans to offer one-day physically delivered Bitcoin contracts along with physical warehousing in November of this year, subject to Commodity Futures Trading Commission review and approval.

Please click here for the press release.

Token Alliance Issues First Edition of Comprehensive Set of Guidelines for the Token Ecosystem

On July 30, the Token Alliance, a working group within the Chamber of Digital Commerce, released a collaborative report entitled “Understanding Digital Tokens: Market Overviews & Guidelines for Policymakers & Practitioners.” The report gives a regulatory overview of digital token markets in five countries and provides industry best practice guidelines for those distributing digital tokens or engaging in digital token businesses. The report was developed as part of an industry-led initiative comprised of over 350 industry participants, including blockchain and token experts, technologists, economists, former regulators and law firms. Notably, six Perkins Coie attorneys are included as expert contributing authors in the report.

Please click here for the press release and report.

Congress Introduces Valley Fever Legislation to Utilize Blockchain

On July 26, Congressman Kevin McCarthy introduced H.R. 6562, the bipartisan FORWARD Act, with fellow co-sponsor, Congressman David Schweikert. The FORWARD Act seeks to strengthen research and help advance treatment and vaccine development for Coccidioidomycosis, commonly known as Valley Fever, as well as other orphan endemic fungal diseases. The legislation plans to establish a blockchain pilot program to assist medical researchers in accessing clinical data while preserving patient privacy.

Please click here for the press release.

A House Bill Advances Designed to Target Virtual Currency Use by Terrorists

On July 27, the House of Representatives Financial Services Committee advanced the Financial Technology Protection Act, introduced by Congressman Ted Budd of North Carolina. The Act would establish several efforts designed to combat terrorist use of virtual currencies, including a Fintech Leadership in Innovation and Financial Intelligence Program, which would provide grants for innovative ideas for combatting terrorism financing. The Act would also offer incentives for information leading to convictions related to the use of virtual currencies for terrorism.

Please click here for the complete text of the bill.

Delaware Passes into Law New Legislation to Accommodate Virtual Currency Businesses

The state of Delaware passed three new bills into law designed to specifically address the legal status of blockchain records. The new laws, SB182, SB183 and SB 194, amend the state’s statutory trust, limited liability company and partnership laws, authorizing the use of distributed ledger technology for corporate recordkeeping purposes and as a means of “electronic transmission” for corporate purposes, such as to obtain or record consents. These statutory updates provide clarity regarding the use of blockchains in legal instruments and open the door for efficient use of private blockchains for operating purposes, which could also satisfy corporate recordkeeping obligations.

Please click the following links for SB182, SB183 and SB194

Litigation

The SEC Subpoenas Another Pivoting Blockchain Company

In a recent public filing, Long Blockchain disclosed that it received a subpoena from the U.S. Securities and Exchange Commission (“SEC”) seeking the production of company documents related to an ongoing investigation into the company. Long Blockchain, formerly known as Long Island Iced Tea Corp., is a beverage company that was recently delisted from the Nasdaq stock exchange following its name change and pivot into the blockchain industry. The company indicated in its public filing that it was in the process of complying with the July 10 subpoena and could not predict or determine whether any proceeding may be instituted by the SEC. Long Blockchain is the second publicly listed company this year to come under scrutiny by the SEC following a sudden decision to shift its business toward the blockchain industry. A similar subpoena was received by Riot Blockchain, formerly known as Bioptix Inc., in April of this year. Both cases reflect a broader effort by the SEC to investigate disclosures by public companies that may be attempting to benefit from the excitement around blockchain technology.

Please click here for the Long Blockchain Form 8-K discussing the SEC subpoena.

International Developments

Securities Regulators in the Philippines Proposes Rules for Virtual Currencies

On August 2, the Philippines Securities and Exchange Commission (“SEC”) published draft rules governing token sales and digital currencies. The draft rules, entitled “Rules and Regulations Governing Initial Coin Offerings (“ICO”), provide a road toward compliance for all digital tokens offered for sale through an ICO in the country. As part of issuing a new token in the Philippines, an issuer must first submit an initial assessment request with the SEC. The application would include extensive descriptions of the token’s business plan, its leadership and an opinion from legal counsel, among other things. A complete application would then be assessed by the SEC 20 days from receipt, extendible for another 20 days depending on the nature and complexity of the business model. In the event that a token is deemed to be a security token, the issuer would be required to register in accordance with the draft rules within 45 days. The SEC is seeking public feedback regarding the draft rules before they go into effect on August 31.

The complete draft rules can be found here.

Iran to Fully Legalize Virtual Currencies in Near Future

On July 31, the Iranian Financial Tribune reported that it is likely that Iran will fully legalize digital currencies. According to the report, Abolhassan Firouzabadi, head of the High Council of Cyberspace, stated that cryptocurrencies will “probably” be legalized in Iran in the near future, “The final decision has not been made yet, but a working group in the Majlis Social Commission is studying it to establish online exchanges for virtual currencies, mining of virtual currencies and what currencies will be declared legal.”

This news comes just days after Alireza Daliri, the deputy for management and investment affairs of the Directorate for Scientific and Technological Affairs of the Presidential Office, was quoted by the local ISNA news media and translated by PRESSTV, saying, “We are trying to prepare the grounds to use a domestic digital currency in the country. This currency would facilitate the transfer of money (to and from) anywhere in the world. Besides, it can help us at the time of sanctions.”

Please click here for the Financial Tribune report and here for the PRESSTV report.

Chinese Court Recognizes Blockchain as a Means of Evidence

A recent copyright dispute judgment in the Hangzhou Internet Court in China relied on a blockchain-based evidence preservation solution provided by Baoquan.com to confirm that key evidence had been infringed by the defendant. The plaintiff demonstrated through the use of Baaoquan.com software, the Factom blockchain and the Bitcoin blockchain that the defendant had republished the plaintiff’s article without a license. The court analyzed the technology used to capture and preserve custody of the infringing content and concluded that the methods used were reliable. The court also concluded that blockchain technology satisfies relevant standards to preserve and secure electronic data and ensure the integrity of the same. In its closing remarks, the court emphasized that the use of blockchain to secure data should be analyzed and determined on a case-by-case basis and should not be dismissed due to the novelty or complexity of the technology.

Please click here for a link to the judgement.

South Korean Regulators Investigating the Use of Blockchain for Stock Trading

On August 2, the Financial Supervisory Service (“FFS”), a South Korean financial regulator, published a report encouraging other South Korean regulatory agencies and companies to collaborate on the development of blockchain-based stock trading systems. The study concluded that the use of blockchain systems could substantially increase efficiency integrity and security of tracking and storing transactions. The study also emphasized the importance of cooperation between government and private companies in developing future blockchain-based systems.

Please click here for more information regarding this development.

Vietnam Announces Industry Ban for Many Virtual Currency Activities

On July 26, Vietnam’s State Securities Commission (“Commission”), the country’s financial security regulatory body, announced that it would not allow many companies and businesses to engage in virtual currency business activity. The Commission banned public companies, investment advisors and fund management companies from using or investing in any virtual currency. The announcement is in keeping with the prime ministerial directive from earlier this year prohibiting the use of virtual currencies as a means of payment within Vietnam.

Please click here for more information regarding this development.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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