Future Considerations for Blockchain Laws in the United States
- Blockchain technology has revolutionized the way companies do businesses from increasing value, facilitating transactions, and optimizing internal operations.
- Within the next ten years, the World Economic Forum estimates that 10% of global gross domestic product will be stored on blockchain and that taxes will be collected by blockchain.
- Despite this progression, federal law has inconsistently regulated blockchain technology, leaving states in charge to enact legislation regulating blockchain and digital assets.
- Federal agencies have nevertheless indicated an intent to ramp up regulation and enforcement of blockchain technology.
- Nevertheless, the lack of federal coordination can create uncertainty and be complex to understand.
- Consider hiring an attorney who is experienced in handling complicated matters regarding the relationship between the law and blockchain technology.
Experienced Defense Team
Blockchain technology can facilitate transactions, help raise funds, and create value for companies investing and transacting with digital assets.
Blockchain technology is revolutionizing the world. The World Economic Forum estimates that 10% of global gross domestic product will be stored on the blockchain by year 2027. Further, it estimates that taxes will be collected by blockchain by year 2023.
At the same time, blockchain regulation is inconsistently applied. Despite this, there is a general federal agency agreement that stringent regulatory measures need to be introduced regarding blockchain technology.
You need a lawyer experienced in handling the inter-connections between the law, coding, and blockchain. Our attorneys are skilled at advising our clients on complex issues regarding blockchain technology.
Do not wait to contact a qualified attorney today. Put Oberheiden, P.C. on your side to advise you on these novel legal issues surrounding the blockchain.
What is a Blockchain?
A blockchain is a shared, distributed ledger on which transactions are digitally recorded, shared, and linked. The blockchain provides the entire history of an asset, including all transactions. Each time a transaction is validated, it is added to the record—or the block—and linked to the prior transaction. This creates a chain of block transactions—the blockchain.
Each record on the blockchain is encrypted. Once a transaction is placed on the blockchain, it cannot be altered or modified because the parties have already agreed to this exact version of the transaction.
Blockchain software can be either (1) decentralized and permissionless or (2) centralized and permissioned:
- Decentralized and Permissionless: Also called public, this type of blockchain software is open for everyone to view and to participate. It is typically used in the creation of digital assets such as Bitcoin. Anyone can send and receive funds with this system without the need to resort to a centralized institution such as a bank for processing.
- Centralized and Permissioned: This type of blockchain software limits participation to a single individual or specific group of individuals. It is generally used in the creation of high-speed recordkeeping by certain businesses and governments. Only the individuals with access can view and process records on the blockchain. This blockchain type relies on fewer computer nodes than the decentralized blockchain.
How the Blockchain Works
In a traditional sales transaction between buyer and seller, the buyer makes the purchase and records it in their financial record as a debit. The seller records the sale as a credit. Each party has their own ledger, makes their own recording, and monitors the transaction’s progress. Both the buyer and the seller’s ledgers remain private.
However, the transaction drastically changes if the parties utilize blockchain technology. In a blockchain transaction, the buyer makes the purchase—the block. The first block contains the purchase amount and additional details about the transaction. The buyer and the seller can view the block and confirm that the details are correct and that the seller received the payment.
The block created by this transaction can be shared between the buyer and seller in an online distributed ledger—the blockchain. Each new transaction, or chain, between the buyer and seller is recorded on the blockchain and added as links to the transaction’s history. The additional chains are encrypted so that no other parties can modify the transaction after it has been completed between the buyer and the seller.
Because the parties share the same ledger, the need for the buyer and the seller to keep separate accounting ledgers becomes a thing of the past.
There are many additional ways that one can use blockchain technology:
- insurance policies
- supply chain
- smart contracts
- digital currencies
- real estate documents
Laws Regulating Blockchain Technology
Federal Law and Future Regulatory Plans
U.S. Code Sections 7001 – 7006 govern blockchain law. The federal Electronic Signatures in Global and National Commerce Act (“E-SIGN Act”) of 2000 allows electronic signatures in certain business and consumers contracts to have the same legal effect as signed paper documents. The definition of “electronic signature” includes signatures made by cryptographic keys in blockchain smart contracts.
The Justice Department is coordinating efforts with the SEC and CFTC regarding the future regulation of cryptocurrencies to streamline oversight and protect consumers.
The Treasury Department has added that it is imperative to enact crypto regulations because crypto crimes are on the rise, and there is a dire need to combat domestic and international criminal activities that utilize blockchain technology.
In 2018, Treasury Secretary Steve Mnuchin announced a new working group, called the Financial Stability Oversight Council (“FSOC”) to explore the crypto marketplace and possible regulations. The FSOC was established under the Dodd-Frank Act to provide for the comprehensive monitoring of the financial system of the United States.
Federal agencies are similarly researching additional ways to regulate blockchain technology and improve efficiency and transparency. The U.S. Government Services Administration’s (GSA) Emerging Citizen Technology program recently developed a program called the U.S. Federal Blockchain program designed for federal agencies and businesses to collaborate in exploring blockchain technology limitations and solutions.
The authority for blockchain law is vested in multiple federal agencies, including the Treasury Department, the SEC, IRS, CFTC, FinCEN, and the FTC. Many agencies differ with respect to the definition of cryptocurrency and their positions as to how and to what extent cryptocurrencies should be regulated.
Despite future plans of regulation, the federal government has not exercised its constitutional power of pre-emption to regulate blockchain over state authority. Therefore, states are free to introduce their own legislation regulating blockchain.
States have introduced laws that apply to blockchain contracts in connection with digital assets and smart contracts.
More than half the states in the United States have enacted bills and resolutions regulating blockchain. Some states such as Wyoming have tried to promote blockchain technology by exempting cryptocurrencies from state securities laws to stimulate local economies. Other states have taken one step further to legalize cryptocurrencies such as Bitcoin as a payment. In November 2018, Ohio became the first state to allow state taxes to be paid with Bitcoin.
On the other hand, certain states such as California and New Mexico have warned members of their state against investing in cryptocurrencies. New York, for instance, has passed restrictive laws for companies utilizing blockchain and cryptocurrencies.
Need Advice with Blockchain Laws?
Blockchain laws can be an innovation for companies seeking to transact with digital assets, but it can also introduce legal and regulatory uncertainty.
If you need advice understanding blockchain laws or are having problems with litigation involving blockchain technology, do not hesitate to contact an experienced defense attorney today.
The attorneys at Oberheiden, P.C. have the expertise and knowledge needed to advise you on blockchain technology including the process, future federal regulation, and state laws.
Call us today or contact our office for a free consultation to help resolve these challenges.