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Legal statement provides guidance on status of cyptoassets & smart contracts

As has been widely reported, the Government’s UK Jurisdiction Taskforce has published its legal statement on cryptoassets and smart contracts, which aims to provide market confidence, legal certainty…

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Guest contributers: Gowling WLG

As has been widely reported, the Government’s UK Jurisdiction Taskforce has published its legal statement on cryptoassets and smart contracts, which aims to provide market confidence, legal certainty and predictability by giving guidance on the legal status of these asset classes.

The legal statement is especially relevant as we are seeing an increasing number of instructions concerning cryptocurrency and smart contracts. In particular, we are currently advising on litigation arising out of a crypto fraud involving detailed considerations of the options available to recover crypto asset losses from a variety of parties. We are also acting for several clients seeking regulatory advice in this area, and so the legal statement is a significant development which is highly material for our ongoing work.

Here, we look at the key findings of the report and what they mean for dealings and disputes involving cryptoassets and smart contracts.

Background to the legal statement

The UK Jurisdiction Taskforce (UKJT) is one of six taskforces established by the UK Government-backed LawTech Delivery Panel. The LawTech Delivery Panel aims to promote the use of technology in the UK legal sector, while the UKJT‘s specific objective is to demonstrate that English law and the legal jurisdiction of England and Wales provide a state of the art foundation for the development and use of distributed ledger technology, smart contracts and associated technologies.

In May 2019, the UKJT issued a consultation paper on the status of cryptoassets, distributed ledger technology and smart contracts in English law. The consultation paper identified that the development of these technologies has far-reaching implications for domestic and international financial markets, but that a lack of certainty around the legal status of these technologies could be hampering development. The consultation sought views of stakeholders on the principal areas of uncertainty, with a view to providing guidance and certainty in this area, and to bolster the use of English law and the jurisdiction of England and Wales in transactions involving these assets and technologies.

Scope and status of the legal statement

The legal statement addresses a number of fundamental principles around the characterisation and treatment of cryptoassets and smart contracts, including whether a cryptoasset is ‘property’ and/or ‘goods’; the ownership and transfer of cryptoassets; whether security may be granted over a cryptoasset; and whether a smart contract is legally binding and enforceable.

It does not however seek to formulate a precise definition of what cryptoassets or smart contracts are, but rather sets out to identify and describe the features of cryptoassets and smart contracts that are novel as compared to their more traditional equivalents, and to assess whether and how those novelties might affect their legal treatment.

The legal statement also expressly does not address specific legal areas including the regulation of dealings in cryptoassets, taxation, criminal law, data protection, intellectual property, consumer protection or anti-money laundering. These are matters the UKJT considers to be best dealt with by other bodies and are logically subsequent to the more fundamental questions it has sought to address.

As Sir Geoffrey Vos, Chancellor of the High Court and Chair of the UKJT, says in his foreword, “there is no doubt that some of the matters covered by the legal statement will, in the future, be the subject of judicial decision. But my hope is that, in the meantime, the legal statement will provide a foundation for the responsible future utilisation of cryptoassets and smart contracts.” While the statement has no formal legal effect, it will no doubt be treated as highly persuasive both in crypto / smart transactions, and in disputes arising out of them.

Key findings

While acknowledging that the law is highly fact-sensitive and that there are many factors which will affect the status of cryptoassets or smart contracts in a given context, the statement comes to a number of general conclusions.

The overarching conclusion is that English common law is well able to deal with and adapt to technological developments and has a strong track record of responding flexibly to new commercial mechanisms, which makes it the perfect ‘home’ for transactions involving these technologies, and related disputes. As the statement says, “rather than depending on the often cumbersome, time-consuming and inflexible process of legislative intervention, judges are able to apply and adapt by analogy existing principles to new situations as they arise… Time and again over the years the common law has accommodated technological and business innovations including many which… were at the time no less novel and disruptive than those with which we are now concerned.”

In terms of more specific findings, the statement concludes as follows:

Cryptoassets

  • Cryptoassets have all the indicia of property, e.g. they are definable, identifiable by third parties, and have some degree of permanence or stability.
  • It is in principle possible to identify who owns a cryptoasset (typically the person who lawfully controls the private key).
  • The novel or distinctive features of some cryptoassets (e.g. their intangibility, cryptographic authentication or decentralisation) do not disqualify them from being property.
  • Cryptoassets are therefore to be treated in principle as property.
  • Cryptoassets are purely virtual, and cannot be physically possessed, which limits the types of security which may be granted over them.

Smart Contracts

  • A smart contract is capable of satisfying the requirements of a contract in English law (i.e. that there is agreement between two or more parties, those parties intend to create legal relations between them, and each has given consideration (something of benefit to the other)). Whether these requirements are met in a given case is (just as it is with traditional written or oral contracts) fact-sensitive.
  • A smart contract can be identified, interpreted and enforced using well established legal principles, just as with more traditional forms of contract. The parties’ agreement may be defined by computer code, or the code may merely (seek to) implement an agreement formed elsewhere.
  • English law is capable of addressing a situation where anonymous or pseudonymous parties contract, whether by smart contract or otherwise.
  • Smart contracts and the use of private keys can in principle meet statutory requirements for contracts to be “in writing” or “signed”, where these apply to specific types of agreement.

Impact of the statement

There has been much-agonised commentary on whether cryptoassets are, can be or should be regulated and subject to the law, or if their nature and unique features mean they sit outside traditional legal rules in the same way that, because of their decentralisation, they sit outside of traditional financial systems. This legal statement firmly (and unsurprisingly) concludes that cryptoassets are not outside the law, and demonstrates that the law is and has already shown itself able to adapt to technological advances.

It is apt that the statement’s celebration of the common law’s inherent flexibility and adaptability in fact follows on the heels of recent judicial decisions that align with its findings – judges are already making these decisions and will no doubt be bolstered by the statement in doing so. In the months prior to the legal statement, we have for example seen the English courts granting worldwide freezing injunctions to preserve misappropriated cryptocurrency, and ordering the operators of a digital currency exchange to disclose information on a digital wallet used in suspected fraud.

The conclusion that cryptoassets are to be treated as property has important ramifications in a number of areas, e.g. in the rights of liquidators in corporate insolvency, the vesting of property in personal bankruptcy, and in cases of fraud, theft or breach of trust.

Gowling WLG has pioneering experience in this area, particularly in advising on disputes involving the tracing and recovery of cryptoassets. Please contact the authors for more information on how we can help.

Source: https://www.fintechconnect.com/blockchain/articles/legal-statement-provides-guidance-on-status-of-cyptoassets-smart-contracts

Blockchain

OpenSea Crashes Following BossLogic NFT Drop via Ethernity

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The hype around non-fungible tokens (NFTs) continues to escalate as demand for primary sales is only growing higher.

The last manifestation of this was earlier during the BossLogic NFT drop that took place on the OpenSea marketplace, causing it to essentially crash under the high traffic.

OpenSea Crashes as Traffic Surges

OpenSea, touted as the largest NFT marketplace crashed last night under a serious surge in traffic caused by an NFT drop.

The platform took it to Twitter to explain what happened:

Outage notice: the Bosslogic drop caused a 2X surge in traffic at 19:30 UTC, ultimately causing two spikes of failed requests, at 19:50 and 20:40.

The issue was our servers’ ability to reclaim memory. We will have a fix out shortly, but sincerely apologize to all affected!

Naturally, this caused some users to be upset because they’d lost gas fees as a result of the outage. The team responded that they “will not have to pay gas the next time you bid, for the next auction – that cost is only for the first time you ever bid on anything (converting ETH to wrapped ETH).”

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BossLogic’s NFT Drop

BossLogic is a well-known artist with almost half a million followers on Twitter and a lot more across different social media platforms.

His latest NFT drop was through a partnership with Ethernity chain to offer 2501 pieces of art to the very first lucky community members.

The tokens were sold for 0.299 ETH and each one of them represented digital artwork that’s featured in the collection.

This latest NFT drop is the latest to create massive hype around it. As CryptoPotato reported yesterday, the interest surrounding non-fungible tokens have surpassed that of ICOs from back during their peak in early 2018. This has caused many people to believe that they are in a state of a bubble.

Featured image courtesy of Inverse

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Source: https://cryptopotato.com/opensea-crashes-following-bosslogic-nft-drop-via-ethernity/

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Norwegian Oil Mogul Sets Up $58 Million Entity to Buy Bitcoin

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The institutional bitcoin frenzy continues to spread like an epidemic. After several United States mega corporations added the digital currency to their balance sheet, the floodgates have been opened to major institutions across the world. Norwegian holding company Aker ASA said today that it will establish a new unit dedicated to bitcoin investment and the digital asset’s underlying technology.

Miss Out? “No Way”!

Asian smartphone giants, Meitu yesterday joined the league of institutional bitcoin adopters, as reported by CryptoPotato. With the future of modern-day finance hanging in the balance, companies investing reserve cash in bitcoin is widely becoming a norm rather than an exception. The latest to embrace bitcoin is Norwegian holdings, Aker ASA. It made the announcement in a press release this morning.

Aker ASA is going a step beyond investing in the leading digital currency. It will set up a company devoted to investing in bitcoin and blockchain technology. The new company called “Setee AS” will actively participate in the cryptocurrency space by collaborating with other industry players. It will also invest in other companies with healthy prospects in the blockchain and cryptocurrency industry.

The company which majors in offshore fishing, construction, and engineering said it would convert all its liquid assets to bitcoin. The new dedicated bitcoin unit will have a capital of around 500 million Norwegian crowns (approximately $58.6 million).

.. With Great Power Comes Great Responsibility

According to Aker, the operation of the new entity will span beyond bitcoin investment. The unit is expected to leverage the capabilities of its parent organization to pursue innovations in cybersecurity, financial transactions, and emissions-free verification operations. As part of the latter, the company will research and work on alternative ways to verify bitcoin transactions in a more environmentally friendly manner.

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To set the ball rolling, Setee is collaborating with a Canadian global leader in Bitcoin and blockchain technologies, Blockstream. President and CEO of Aker ASA, Øyvind Eriksen, spoke on the launch of Setee and its first partnership.

“With the launch of Seetee, the Aker Group makes another move into software and fintech. We are very excited about the industrial opportunities that will be unlocked by Bitcoin and blockchain technology, and want to contribute forcefully to that effort. These technologies have the potential to reduce frictions in our day to day lives, enhance the security of our digitally driven economies, and unlock new business models for innovation. We look forward to addressing these and other applications together with Blockstream and other partners”

Aker AS is owned by Norwegian billionaire businessman Kjell Inge Rokke. Rokke shared a letter concerning the latest development to the company’s stakeholders. In the letter, he wrote:

First, we will use bit­coin as our trea­sury as­set and join the com­mu­ni­ty. In Bit­coin speak, we will be hodlers. We will be dif­fer­ent, but ad­di­tive.

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Source: https://cryptopotato.com/norwegian-oil-mogul-sets-up-58-million-entity-to-buy-bitcoin/

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ETC Group adds Ethereum ETP on Deutsche Borse

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Exchange-Traded Products [ETPs] are gaining prominence and crypto investment firm ETC Group announced the launch of an Ethereum ETP on Deutsche Borse’s Xetra on 9 March. This ETP will go live with the ZET ticker and will be its second crypto investment product after Bitcoin ETP, as per reports.

The firm launched Bitcoin ETP in June 2020 and its assets under management have surged to $1 billion since. Since ETP’s value depended on the underlying security, this growth was a given for Bitcoin. Now that Ethereum has also joined the bandwagon, the results of its growth will also reflect positively for the investment firm.

Xetra, operated by the Frankfurt stock exchange, noted that more than 90% of trading in German shares goes through the marketplace, along with 30% of trading in exchange-traded funds [ETFs]. As per its website, more than 30 new ETFs and 4 ETCs are tradeable on Xetra since January.

However, ETC Group was not the only one listing ETPs on Deutsche Borse. 21Shares AG also announced the launch of the world’s first centrally cleared Ethereum [ETH] and Bitcoin Cash [BCH] ETPs a few days back.

According to reports, this was done to further push the institutionalization of crypto assets. Subject to approval by the Frankfurt Stock Exchange, the 21Shares Ethereum ETP [21XE] and 21Shares Bitcoin Cash ETP [21XC] will list on Deutsche Boerse on 9 March, with annual management fees of 1.49% and 2.50%, respectively.

The institutional interest has been increasing for Ethereum ever since the market has been rallying. The second-largest crypto and the most popular altcoin, Ethereum has managed to carve a niche for itself with the addition of decentralized finance [DeFi] and dApps.

Source: CoinStats

At the time of writing, ETH was going strong at $1,713, despite the high volatility in the market. It is returning 142% year-to-date to its investors as more people flock into the Ethereum ecosystem.


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Source: https://ambcrypto.com/etc-group-adds-ethereum-etp-on-deutsche-borse

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