Crypto And Blockchain’s Surging Wave Of Data Laws (Part I Of IV) – Technology

Just as Web3 is a catch-all term for digital assets and
infrastructure – as highlighted at last month’s Cryptopia
pop-up – crypto is a catch-all for digital currencies
used as a medium of exchange over the internet. This exchange
occurs through technology that permits transactions to be gathered
into blocks of data (i.e., blockchain technology). 

While crypto and blockchain technology have spurred seemingly
limitless amounts of innovative data use – total transaction
volume grew to $15.8 trillion in 2021, up 567% from 2020’s
totals – crypto crime is also way up. Illicit addresses
received an estimated $14 billion over the same time period.
(See The 2022 Crypto Crime Report by
Chainalysis.)

Part of the problem is, unlike traditional technologies, blockchain is not maintained by a single
individual or centralized entity– anyone can download a copy
of it – leading to numerous data innovation, privacy and
security challenges. As to the latter,
incidents that occurred last year were monstrous. For
example:

• Poly Network (August 2021): $610 million
  – stemming from a security hole in the ‘cross chain’
  smart contracts used by the platform company.




• Cream Finance (October 2021): $130 million
  – crypto hackers stole all liquid assets owned by this
  lending platform on the Ethereum blockchain.




• Vulcan Forged (December 2021): $140 million
  – play-to-earn blockchain platform’s biggest users were
  hacked and had tokens stolen.




• BitMart (December 2021): $200 million –
  half of loss occurred via a “large-scale security breach”
  on the Ethereum blockchain.

These incidents highlight the severity of cybercrime in a
dynamic industry. As crypto continues to grow and “comprise an expanding part of the U.S. financial
system,” cybercrime will follow suit unless there are laws
and regulations to bolster the security and structure of crypto and
blockchain technology.

States are trying. Last year, 33 states considered crypto and blockchain legislation. In prior
years, Georgia, Tennessee, Delaware, Illinois and Wyoming adopted
laws recognizing the legal authority to use blockchain technology
for electronic transactions (i.e., smart contracts). As the
frontrunner, Wyoming has more than 20 laws relating to blockchain. A
bill pending in New York would recognize the use of blockchain
technology and smart contracts in commerce. (AB 3760 and SB 1801
allow signatures, records and contracts secured through blockchain
technology to be considered in an electronic form and to be an
electronic record and signature; and allow smart contracts to exist
in commerce. The Senate passed the bill on Feb. 10, 2021.)

Significantly, in 2017, Delaware amended the Delaware General
Corporation Law to authorize the use of distributed ledgers or
blockchain technology for the creation and maintenance of corporate
records, including a Delaware corporations’ stock ledger (8
Del. C. § 224). While arguably federal legislation already
exists which legalizes smart contracts, these legislative efforts
help to clarify and promote their use. (The fact that smart
contracts are written in code without a physical signature does not
prevent their enforceability due to the United States Electronic
Signatures in Global and National Commerce (E-SIGN Act) and the
Uniform Electronic Transaction Act (UETA). See 15 U.S.C.§
7001, et seq.)

But ultimately, the federal government will have the most
impact. As noted last August by the Chairman of the
Securities and Exchange Commission (SEC), Gary Gensler,
“right now, we don’t have enough investor protection for
crypto. Frankly, at this time, it’s more like the Wild
West.” Last year, Congress introduced 35 bills targeting this
technology including:

The federal agencies vying to determine the most direct way
forward for the laws and regulations governing crypto and
blockchain technologies include:

• The Securities and Exchange Commission




• The Commodity Futures Trading Commission




• The Federal Trade Commission




• The Department of the Treasury




• The Office of the Comptroller of the Currency




• The Financial Crimes Enforcement Network

Not to be left out, a few weeks ago the United States Secret
Service launched a cryptocurrency public awareness hub. On its
hub the Secret Service highlights the “ongoing
growth in decentralized financial ecosystems, peer-to-peer payment
activity and obscured blockchain ledgers” that “are
abused and used in illicit ways.” 

As noted by leading technology innovators at Cryptopia, laws,
regulations and industry standards are coming, and that’s not necessarily a bad thing.
For further information about crypto and blockchain technology,
contact the authoring attorneys at Armstrong Teasdale, or sign up
for their upcoming webinar on March 16, 2022, titled “The Intersection of Blockchain, Crypto and DeFi
with Data Innovation, Privacy, and Security.”

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.