Blockchain, cryptocurrency, smart contracts and the law provides a general outline of blockchain technology, cryptocurrency, and smart contracts as well as a discussion of legal issues related to these topics.

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blockchain
cryptocurrency
smart contracts
LAW
Scott D. Deatherage
Environment. Energy. Blockchain.
scott@sdeatheragelaw.com
214.983.1218

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Blockchain
Cryptocurrency
Smart
Contracts
Perspective

3. Synchronicity

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Client Server vs. Peer to Peer
Network

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§“But to me, the blockchain, the underlying
technology, is the biggest innovation in
computer science—the idea of a distributed
database where trust is established through
mass collaboration and clever code rather than
through a powerful institution that does the
authentication and the settlement.”
§“How blockchains could change the world” (May 2016).Tapscott, CEO of the Tapscott Group, is
coauthor, with his son, Alex, of Blockchain Revolution. Rik Kirkland is the senior managing
editor of McKinsey Publishing and is based in McKinsey’s New York office.

6. zThe New Economics of Institutions of Capitalism
https://medium.com/@cryptoeconomics/the-blockchain-economy-a-beginners-guide-to-institutional-cryptoeconomics-64bf2f2beec4

7. https://www.sec.gov/Archives/edgar/data/70858/000007085818000009/bac-1231201710xk.htm
Bank of America, Form 10-K, US Securities and Exchange Commission
“[C]lients may choose to conduct business with
other market participants who engage in business or
offer products in areas we deem speculative or risky,
such as cryptocurrencies. Increased competition may
negatively affect our earnings by creating pressure to
lower prices or credit standards on our products and
services requiring additional investment to improve the
quality and delivery of our technology and/or reducing
our market share, or affecting the willingness of our
clients to do business with us.”

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100 Banks And Other
Related Entities
Developing
Distributed Ledger for
Financial Industry

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Blockchain Companies in the DFW Area

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Delaware
July 2017 Law
Blockchain
and Securities
Planning to Apply Blockchain to
Land titles
Professional licenses
Birth certificates
Death certificates

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Senate Hearing on Cryptocurrency and Blockchain

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What Is a
Blockchain?
Distributed Ledger
A database that runs on
millions of computer
connected by the Internet
Uses state of the Art
Cryptography
Cryptography protects
against hacking and
other abuses
Distributed and De-
Centralized
“Miners” using computing
devices spread around
the world confirm
transactions in return for
cryptocurrency
Mass collaboration
allows the system to
confirm and protects
transactions and related
data

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Ledgers
Confirm
Ownership
Identity
Status
Authority

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Blockchain
Cryptocurrency
Smart
Contracts
Cryptocurrency

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What is
Cryptocurrency?

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Bitcoin
Bitcoin: A Peer-to-Peer
Electronic Cash System
Satoshi Nakamoto
satoshin@gmx.com
www.bitcoin.org

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What Are the Different Types of
Cryptocurrency?
Currency or Coins
Utility Tokens
Asset-Based Tokens
Security Tokens

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Initial
Coin
Offering
or ICO
Coins or Tokens are Issued
to Buyers Pre-Sale
Simple Agreement for
Future Tokens
Then they are Traded on a
Cryptocurrency Exchange

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Exchanges

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ICOs May
Become a
New Way
of Raising
Initial
Capital
May Replace
Venture Capital
Or Venture
Capital Get in
on Pre-ICO Sale

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And
This
Is
Where
the
Legal
Concerns
Arise
Concern of Sellers and SEC that the Coin or
Token is a Security
Reg D Private Placement or Registration as
Public Company Security
Crypto Types Wanted to Be Unregulated—but
there are no special exemptions
SEC Chairman Stated in Senate Hearing that
ICOs and Tokens Would Generally Be Securities
Warned Lawyers and Accountants against
Advising Otherwise
Private Litigation under securities laws and
common law, e.g., fraud or misrepresentation

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Legal Questions Arise with ICOs
Howey Test
1. An investment of money
2. in a common enterprise
3. with an expectation of profits predominantly from the efforts of others.
ICO Suggests IPO
SEC Chairman suggests Most Coins/Tokens Will Be Considered Securities
Better to Comply with SEC Rules, Than Risking Being Shut down,
Investigated, or Sued

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Complying
with
SEC Reg D
Selling to Accredited
Investors
Process for Verifying-
–”Know Your
Customer” or KYC
”Anti-Money
Laundering” or AML

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Are New
Rules with
New
Exemptions
Needed?
Could Reg A Work
Here?
Two caps $50 million
for a Tier 2 offering
and $20 million for a
Tier 1 Would Cover
Most Token Sales
Includes Disclosure
Requirements
May Require
Transfer Agent;
Blockchain Makes
This Unnecessary
and Inefficient
$75 Million Float
Limitation May Need
to Be Raised or
Eliminated
Jonathan Rohr, Tennessee College of Law, &
Aaron Wright, Cardozo School of Law

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Blockchain
Cryptocurrency
Smart
Contracts
Smart Contracts

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Smart Contracts
Smart contracts
are based on the idea of
“if-this-then-that”

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A Vending
Machine Is Not
a Contract

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Smart
Contracts –
Revenue
Sharing—
Money Sent
Shared with
People on List
§contract Token {
§ mapping(address => uint256) public balanceOf; string public name;
§ string public symbol; uint8 public decimal;
§ event Transfer(address indexed from, address indexed to, unt256 value);
§ function Token(uint256 intialSupply, string tokenName, string tokenSymbol,
uint8 decimalUnites){
§ balanceOf(msg.sender) = initialSupply; totalSupply = initialSupply
§ decimal +tokenSymbol; name = tokenName;
§ }
§ function transfer(address _to, uint256 _value){ If(balanceOf [msg.sender] <
_vlaue) throw;
§ //253, 8 bit, 10 253+10 =8 ; 8
§
§

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Oracles
Software
Hardware
Inbound
Outbound
Consensus

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Digitization of Contracts
Can Smart
Contracts
Be Legal?
Can Legal
Contracts
Be Smart ?

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Smart Contracts
The term “smart contract”
refers to computer transaction protocols that
execute the terms of a contract
automatically based on a set of conditions.
With the advent of Ethereum, means code
that runs on Ethereum Blockchain.

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Applications
Securities
Reduce time for trading securities,
reduce counterparty risk
Insurance
Automate claim process, automatic
payment to policyholder, bypassing
the claims process
Manufacturing
Smart contracts replace current
supply-chain processes--bills of
lading, proof of origin, or quality
control

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Commercial
Reality:
Smart
Contracts
Must Retain
Legal
Enforceabili
ty to
Remain
Commercial
ly Viable
Exchange
Involves
Value
Parties
Retain Right
to Seek
Judicial
Assistance
Commercially
Viable
• Not Only
Technically
Viable
• But Legally
Enforceable

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Contract on
the
Blockchain
Not Outside
the Legal
System
Must Be
Compatible
with
Jurisdiction’s
Legal
Framework
Not Insulated
It from Laws
of Relevant
Jurisdiction
Constitutions,
Statutes,
Regulations,
and Case
Law Still
Apply

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“In effect, smart contracts must simply be
seen as programs operating in distributed
computing environments and not as a semi-
mythical technology liberating the
contracting parties from the shackles of
traditional legal and financial institutions.”
Eliza MIK, Singapore Management University, “Smart
contracts:Terminology, Technical Limitations And Real World
Complexity.”

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Future?
Code of Law/Law of
Code
Companies are
developing computer
languages that allow
coding of contracts
Allow switching back
and forth between
code and contract
language

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Could Identification of Bugs Occur in Code and
Contracts?
Codex/Stanford Law School
https://www.youtube.com/watch?v=1Fa_2FXBAjA
In drafting smart contract
in Solidity, software shows
errors when code not
drafted properly.
What if code could tell
lawyers they have errors,
ambiguities, contradictions
or inconsistencies, or legal
issues in provisions that
are being drafted?

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Questions
of Coding
and Law
Can Machine
Learning and
Natural Language
Processing
Convert Contracts
into Code?
Are Contracts
More Than
Conditional
Statements, of If,
Then Provisions?
Does Direct
Coding Require
Coders to Be
Lawyers?
Can Ambiguity Be
an Advantage,
Not a Bug, to
Allow Leeway for
Parties to
Contract?

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What Do
Machines
Have a
Hard Time
Dealing
with?
“use best efforts”
“good faith”
“commercially
reasonable”

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Don’t Kill All the
Lawyers
Just Yet

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Blockchain
Cryptocurrency
Smart
Contracts
Concluding Thoughts

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blockchain
cryptocurrency
smart contracts
LAW
Scott D. Deatherage
Environment. Energy. Blockchain.
scott@sdeatheragelaw.com
214.983.1218