Cryptocurrency,ICOs and the Global Legal Framework Cedric K. - - PowerPoint PPT Presentation

Cryptocurrency,ICO’s and the Global Legal Framework

Cedric K. Wachira - Blockchain Association Of Kenya 30 May 2018

The decentralized legal world

• The global nature of Crypto and ICO’s changes the nature of regulation
• Old model - You live in one nation, you follow that nations rules, because you have no choice
• What you end up doing is to learn the rules of that one nation really, really well
• Crypto and ICO’s break this model because you are now dealing with the rules of 200 different

jurisdictions

• It’s *impossible* for any one person to comprehend all of this
• And each jurisdiction’s rules interact with other jurisdictions

Making order out of chaos

• Don’t look at the law like a lawyer
• Example: Suppose I rip off my clothes and start hitting people in the face. Is

something bad going to happen to me?

• Fishes and dolphins
• Fishes and dolphins are fundamentally different animals. But they have very much

in common because they have to address the same sorts of problems

• Different food cuisines
• Different places have different types of food, and the different types of foods reflect

different climates

• But different food has the same goals, and there are similar problems and similar

solutions

• If you want to understand food and health law, you start with food and politics

rather than law

Big companies and small companies

• Big companies have to care about the entire world. Small companies don’t
• Big companies can survive by doing nothing. Small companies will go insolvent if they do

nothing

• Big companies have existing relationships with regulators. Small companies can be much

more aggressive

• Big companies are terrified of regulations. Small companies don’t have to be

General principles

• Do something that makes business sense. The regulations may influence what you do, but

start with the business case

• Don’t do anything *bad* - There are things that you know will get you in trouble
• Pay your taxes
• Why this works…..

○Laws are different from place to place, but they have the same purpose. ○You are dealing with other business people who are all trying to make money and do deals ○The place that you care about are the places that you can find people with local knowledge

How to think about regulation

• Figure out what jurisdictions you care about (and which ones you don’t)

○Where you live ○Where your customers live ○Places that are nice to crypto and ICO’s (Switzerland, BVI/Caymans, Hong Kong) ○United States of America - It is special

• Pretend you are doing this with paper
• What is the law?
• Understand what the regulators want and the local legal culture and local language
• Avoid boundary conditions , if possible

○Example: Public offering versus private placement

• Avoid doing anything legally new, if possible
• Copy what other people have done - there is safety in numbers

How not to end up in jail

• Good news - It’s really, really hard to end up in jail accidentally

○You aren’t smuggling cocaine ○The big banks destroyed the world economy but no one ended up in jail

• Don’t do anything *bad* (like smuggling cocaine)
• Take warnings from regulators seriously
• Pay your taxes

Regulatory approaches that didn’t work

• We don’t need a stinking legal system (everything is a smart contract)!!!!

○Fails the moment you leave cyberspace and hit the real world

• Let’s create new laws and new licenses!!!!

○Bitlicense disaster - Thank you Benjamin Lawsky for showing how not to do regulation

• Let’s try to undermine existing legal framework!!!!

○NO!!!!! The empire has struck back!!!!

Regulation by existing regulation

• Ignore the fact that you are using new tech. What is the thing that you are trying to do
• Regulate the Crypto/ICO under existing legal framework
• Provide exemptions where necessary

The major classifications

• Things that look like money
• Things that look like securities (stock bonds)
• Things that don’t look like anything else (tokens)

Things that look like money

• It looks like money but it’s not money - It’s postage stamps and a commodity
• But just because it’s not money, it could fall under money transmission laws

○I convert USD to postage stamps and then mail the postage stamps to someone else, and they

convert it back to USD, Is this regulated?

• Yes in the United States. No in Hong Kong
• Easiest way of making sense of the regulations is to find out what the governments *really*

care about

○US cares about taxes. Reporting and control of money going out. Very loose regs on reported

income and money coming in

○Mainland China cares about capital controls ○Hong Kong has very liberal rules because it is a money center, and cares about reputation

Things that look like securities

• What is a security?

○Narrow definitions - Switzerland and Hong Kong ○Middle definitions - United States ○Broad (i.e. part of financial product) - Singapore and the UK

• Who is regulated?

○Usually a exception for rich people ○Usually no extra-territorial regulation (except for the US)

• How is it regulated?

○English, United States, Hong Kong - marketing and purchase ○Germany, China - issuance ○Is there a a registration requirement?

• What are the exemptions

Things that don’t look like anything

• Black list - Here are the things that you can’t do

○United States, Switzerland, Hong Kong

• White list - Here are the things that you can do

○United Kingdom, Singapore ○Regulatory sandbox

• Grey list - We want to keep you guessing as to what you can and cannot do

○Mainland China and Russia

• No list - None of our business what you do (as long as you don’t to it here)

○BVI, Caymans

Strategies

• White list - Negotiate with regulators to get a sandbox
• Black list - Try to avoid restricted activities and use regulatory arbitrage
• No list - Use as flag of convenience
• Gray list - Just do it!!! And be prepared to stop doing it!!!

Thoughts on the future

• Law will develop by evolution rather than by explicit planning
• Fundamental issue is that governments no longer have a monopoly on force or information
• “Hostes gentium” - Coordinated action against “enemies of humanity”

○To see a list of things that will make you an enemy of humanity - see definition of “specified

criminal activity” in 18 USC 1958 and subtract some stupid things

• Seals of approval for everything else

○Seals of approval ○Flags of convenience

Where to go next

• Google is your friend. You just need to know the right search terms
• Meet people. Reddit and Quora
• Marketing material from legal firms
• Q/A