On Thursday, March 11, a piece of digital art – a JPG file – sold for $69 million. Why would a purely digital work of art ever sell for that much? Scarcity and proof of ownership. That’s right, the underpinning of popular cryptocurrencies – blockchain – is being used to create NFTs (nonfungible tokens) to mint unique pieces of art and other digital collectibles.

The piece, titled “Everydays – The First 5000 Days” was created by Mike Winkelmann, who goes by the name Beeple. Minted as NFT last month, it consists of a collage of all of the artwork Beeple has posted online every day since 2007. You can view the work here.

Continue Reading A JPG File Sells for $69 Million and Historic Tweets Up for Auction as Blockchain and NFTs Explode

Venable’s elite Trademark Prosecution and Counseling Group recently announced the launch of its Wellbrand service, an innovative naming solution that leverages the firm’s trademark-law intelligence to accelerate the process of finding effective brand names. Currently available only to established clients of the Trademark practice, the Wellbrand service bridges the gap between marketing needs and legal know-how, drawing on a deep well of experience to identify names that are more likely to avoid refusal by the USPTO and challenge by third parties. How can we help you “get to yes” faster? Visit Venable.com/Wellbrand to learn more.

Technology facilitates legal and illicit transactions alike. Advances in payments technologies and cryptocurrencies such as Bitcoin, Monero, and Zcash allow criminal enterprises to dissect, route, and reaggregate small transactions to evade detection by regulatory and enforcement agencies. This is particularly true with international transactions where, for example, the exchange from cryptocurrency to fiat currency takes place outside U.S. financial supervision.

To address these challenges, the Federal Reserve Board and the Financial Crimes Enforcement Network (FinCEN and together, Agencies) issued a joint notice of proposed rulemaking (Proposed Rule) on October 23, 2020, to amend the Recordkeeping Rule and Travel Rule under the Bank Secrecy Act (BSA) and to define “money” as it applies to both rules. Specifically, the Proposed Rule:

  1. Lowers the threshold for collecting, retaining, and transmitting information on international funds transfers and transmittals of funds from $3,000 to $250. The threshold for domestic transactions would remain unchanged at $3,000; and
  2. Defines money to extend the Recordkeeping Rule and Travel Rule to digital assets used for legal tender and convertible virtual currency (CVC).

Written comments on this proposed rule are due November 27, 2020.

Continue Reading BSA Alchemy: While Lowering the Recordkeeping and Travel Threshold, FinCEN and the Fed Turn Virtual Currency into Real Money

On July 23, 2020, the Office of the Comptroller of the Currency (OCC) released Interpretive Letter #1170 (Letter) confirming that safekeeping and custody of cryptocurrency and crypto-assets (collectively, cryptocurrency) are traditional banking services and, therefore, are permissible activities for national banks and federal savings associations. The Letter also provides the usual admonition that banks may provide permissible services as long as they manage the risks and comply with applicable law, which, for cryptocurrency-related services, involves additional technological and practical challenges.

Banks have long provided safekeeping and custody services for their customers, and, over time, these services evolved along with the business of banking to now include safekeeping and custody of various physical and electronic assets. There is a well-established body of laws, regulations, and guidance supporting banks acting in both fiduciary and nonfiduciary capacities when performing such safekeeping and custody activities. The Letter recognizes this evolution, and states that safekeeping and custody of cryptocurrency is a logical outgrowth of national banks’ existing authority.

Key Takeaways

Custody services for cryptocurrency generally involve holding the unique cryptographic keys used to access units of cryptocurrency in “hot” or “cold” wallets and providing related services, including facilitating the customer’s cryptocurrency and fiat currency exchange transactions, transaction settlement, trade execution, record keeping, valuation, tax services, and reporting. While there is a well-developed body of law for custody services, the OCC found that the uniqueness of cryptocurrency-related services requires banks to pay particular attention to certain practices.

Continue Reading Crypto Custody: OCC Confirms That National Banks Can Provide Custody Services for Cryptocurrency

Introduction

Are digital tokens issued by blockchain companies securities under U.S. law? Much of the industry, including several prominent law firms, has taken the position that they are not. The Securities and Exchange Commission (SEC) has consistently stated that many or even most are securities. It recently issued a “Framework” that laid out a host of criteria that will guide the agency’s analysis. With the framework and its first blockchain no-action letter, the SEC has now articulated three scenarios where a digital token may not be a security: 1) if the token is merely a store of value like Bitcoin; 2) pursuant to its no action letter, if the token exists in essentially a closed system designed for consumptive use only and has a fixed value pegged to the dollar; or 3) where the “efforts of others” prong from the Howey test is not met. The framework focuses mostly on the third case.

We will review the framework, and suggest a way to strengthen the SEC’s standard to clarify how a digital token could transition to a non-security even if initially issued as a security. We believe that if a clear and workable regime is not adopted soon, the U.S. risks being left behind in the race to unlock blockchain’s transformative potential.

Continue Reading Improving upon the SEC’s Blockchain “Framework”: Toward a Reasonable Regulation of Digital Tokens

Last week the SEC offered its clearest guidance yet on when blockchain tokens and other digital assets would be classified as “securities” under U.S. securities law and subject to SEC regulation.

Specifically, the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub) issued its first-ever “Framework for ‘Investment Contract’ Analysis of Digital Assets.

Continue Reading SEC Clarifies Application of Securities Regulation to Blockchain Tokens, ICOs

As they say, everything’s bigger in Texas, including initial coin offerings. A Texas federal court recently unsealed a complaint filed by the Securities and Exchange Commission (SEC) against a Texas-based company (the “Company”) that presents itself as the “world’s first decentralized bank” and claims to have provided “the largest ICO to date.”1 Among other things, the Company is accused of engaging in the offering of securities without properly registering with the SEC and defrauding investors in the process.

Continue Reading Texas-Sized Initial Coin Offering Faces Multiple Allegations in SEC Lawsuit

CU Ledger, a consortium of U.S. credit unions, announced on Monday, March 11, that it will work with IBM to develop blockchain solutions to improve services such as identity authentication and know-your-customer (KYC) compliance. CU Ledger also indicated it is looking to blockchain to improve payments and lending.

Marie Wieck, General Manager, IBM Blockchain explained that through their collaboration, “credit unions will be able to cooperate and receive shared value from quickly exchanging sensitive data in a permissioned, individually controlled, and transparent way. This decentralized approach using blockchain helps put the customer in control of their own identity.”

CU Ledger is a credit union-owned CUSO (credit union service organization), formed in 2017 by a consortium of U.S. credit unions interested in exploring and developing blockchain solutions for their business needs.

CU Ledger expects its blockchain network to be available to credit unions beginning later in 2019.

On August 30, 2018, Andrew MacArthur and Ralph Dengler published “How to conduct a blockchain IP audit” in World Intellectual Property Review. Here is an excerpt:

The rise of blockchain technology and its many applications, including banking and supply chain, continues to disrupt business. Blockchain provides the benefits of being immutable and decentralized, among others. It integrates distributed networks, cryptography, and consensus algorithms in potentially new and complex ways, forcing companies to reconsider how IP—patents, trade secrets, trademarks, trade dress, and copyright—should be optimized.

Continue Reading How to Conduct A Blockchain IP Audit

While industry watchers in Washington, DC eagerly await the next fintech charter pronouncement from the Office of the Comptroller of the Currency (OCC), the Federal Trade Commission (FTC) has quietly established itself as one of the main federal fintech regulators. The FTC was not the first federal agency active in the space—that was the Bureau of Consumer Financial Protection (Bureau) with Project Catalyst; and it has not been the splashiest either—the OCC probably has that honor. But with a combination of enforcement actions, industry outreach, and strategic appointments and initiatives, the FTC has developed a consistent fintech presence.

Continue Reading Is the FTC the Federal Fintech Regulator to Watch?