Edition No. 17
Edition No. 17
The Tornado Cash Twister rages on; Bitboy v. Atozy; UCC Amendments; an Ava Conspiracy; The Legal Implications of the Merge, and much more. Here's what happened from 8/23/2022 - 8/29/2022.
Welcome to another edition of Around the Blockchain, the weekly letter dedicated to keeping readers like you up to date on the fast-paced world of Crypto & Law by airdropping current stories and projects directly to your browser.
Table of Contents:
1. On the Docket (Top 5 Stories of the Week)
2. Podcasts, Videos, & Blogs (The faces, voices, and pens of Web3’s brightest contributors)
3. Bird Watching (Tweet, tweet!)
4. Blockchain 101 (Our new weekly educational segment! Written by law students)
5. Motion to Compel (Meant to provoke thought and action)
6. The Public Ledger (Highlights from our weekly library of sources, built by our Feedly AI)
7. Closing Statements
On the Docket
Five things you might have missed last week:
1. More Twists in OFAC’s Tornado Cash Sanctions.
Tornado Cash Update:
A lot has happened since the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added Tornado Cash, an open-source mixing service protocol, to its Specially Designated Nationals And Blocked Persons List (SDN) earlier this month.
Alexey Pertsev, a Tornado Cash developer who was recently arrested by Dutch police over suspected money laundering charges, was denied bail and ordered to stay in prison for an additional 90 days. According to Dutch law, suspected lawbreakers can stay in pre-trial holding for up to 110 days, during which charges and an initial public hearing must be set.
As of August 17, no charges have been filed against Pertsev, according to DeFi Education Fund and Decrypt. Some in the crypto community quickly took action, with a Change.org petition to protect open-source software as well as a small protest in Amsterdam in support of Pertsev.
As reported by the intelligence firm Kharon, news also broke this week alleging Pertsev was formerly employed by Digital Security OOO, a Russian company previously sanctioned by the U.S. Treasury for supporting Russia's Federal Security Service (FSB). Pertsev's wife has dismissed speculation of her husband’s links to the Russian secret service.
In light of these recent developments with Tornado Cash, U.S. Congressman Tom Emmer wrote a letter to Treasury Secretary Janet Yellen. Emmer asserts banning smart contract-powered software goes against precedent set by the Treasury’s Financial Crimes Enforcement Network (FinCEN). He goes on to pose several questions about the Treasury’s decision, and urges Secretary Yellen to rethink Tornado Cash’s designation. Emmer then took to Twitter posting “technology is neutral and the expectation of privacy is normal.”
Also, this week a cryptography professor at John Hopkins University, Matthew Green, posted an archival fork of Tornado Cash’s source code to GitHub with the support of the electronic frontier foundation (EFF). Professor Green stated “the Tornado Cash example raises the prospect that the U.S. government may use sanctions to ban source code distribution and scientific speech.” The professor says his goal is to preserve the source code’s privacy protocol for research purposes rather than for deployment.
The effect of the Tornado Cash sanctions continue to ripple throughout the world with regulators, academics, and the crypto industry at large trying to understand what’s coming next. We’ll keep you updated as this picture continues to unravel.
By: Evan Santos
2. Crypto Youtuber Bitboy Sues Another Youtuber Over Allegations of Defamation, Emotional Distress, and More
Bitboy v. Atozy: A Crypto YouTube Drama
Ben Armstrong, AKA BitBoy Crypto, is a well-known YouTuber with over 1.4 million subscribers. Drama ensued this week when news broke Bitboy sued a fellow YouTuber named Erling Mengshoel, Jr., AKA Atozy.
BitBoy’s YouTube videos contain a variety of content, from market and token commentary to interviews with other people in the crypto space. A controversial figure, Bitboy is known in the crypto community for his sensationist takes and bombastic approach.
In November of 2021, Atozy publicly denounced BitBoy for allegedly promoting pump and dump scams, such as PAMP, in a video titled This YouTuber scams his fans… Bitboy Crypto.
BitBoy responded by filing a lawsuit against Atozy on August 12 in the U.S. District Court for the Northern District of Georgia asserting a number of claims, including defamation, infliction of emotional distress, and tortious interference with business relations or potential business relations. Bitboy claims he lost $75,000 due to Atozy’s allegations.
Since then, however, Bitboy suggested in a Wednesday livestream he is now dropping the complaint after Atozy managed to raise more than $200,000 for his defense with notable crypto figures like Cobie donating more than $100,000 to his cause. Bitboy stated "we are going to drop the lawsuit, 100%." He further noted "I'm sorry this became public, I'm sorry that this has been misconstrued." As most know, all federal lawsuits are a matter of public record. Bitboy’s comments escalated the drama with people pointing out it was a bad response to apologize for the lawsuit becoming public.
Later Atozy tweeted a screenshot from his lawyer saying “the Bitboy situation is not over.” Thankfully, Fine Art lawyer, Kevin Kelly shed some light on the situation and explained the legal process and why Atozy’s lawyer is wrong in believing the suit has not been dropped. The matter has since been cleared by Bitboy and Atozy. Fine Art Lawyer, Kevin Kelly points out an important lesson in response to Atozy and Bitboy’s very public feud—never share what your lawyer sends you on social media because you lose the protections afforded by attorney-client privilege regarding that information.
By: Evan Santos
3. New UCC Amendments to Establish Ground Rules for Blockchain Transactions and Crypto-Backed Secured Financings.
Commercial Crypto Regulation Coming:
The Uniform Commercial Code (UCC) is a comprehensive code addressing most aspects of commercial law in the U.S. Presently, the UCC deals with the subjects under 9 consecutively numbered Articles (with an article 2A and an article 4A). As a model code, the UCC does not have legal effect in any jurisdiction unless codified in statute by individual state legislatures. Currently, the UCC (in whole or in part) has been enacted, with some local variation, in all 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands.
The UCC text is written and submitted as drafts for approval to the National Conference of Commissioners on Uniform State Laws (referred to as the Uniform Law Commissioners or ULC), in collaboration with the American Law Institute (ALI).
In July, the joint ULC-ALI Emerging Technologies Committee’s (ETC) approved a final draft of amendments to the UCC that attempt to address the nuances of digital asset transactions and crypto-as-collateral secured financings.
The amendments include a completely new Article 12 devoted to defining various digital asset classes and setting ground rules for crypto-backed secured financings. Article 12 will dovetail with a series of amendments to previously existing Article 9 (secured transactions) and Article 3 (negotiable instruments).
The new Article 12 specifically deals with transfers of interests in a forward-looking, catch-all class of digital assets branded “controllable electronic records” (CERs)—a term intentionally crafted to go beyond current distributed ledger and blockchain concepts in order to capture future, yet-to-be-invented intangible digital assets.
Under 12-102(a), a CER is defined as “a record stored in an electronic medium” but excludes, among other things, electronic money, electronic records of promissory note debt, and electronic records of accounts receivable. Per the committee’s guidance, CERs include NFTs because NFTs do not fall into any of the excluded categories of digital assets in the article.
The proposed amendments to Article 9 largely focus on clarifying the procedures for attachment and perfection of security interests in CERs and “electronic money” including what constitutes “control” of intangible digital assets that cannot physically be “controlled.”
These UCC amendments follow several state statutes to define and regulate interests in digital assets. The regulatory response to fallout from the recent Chapter 11 bankruptcy filings of trading and lending platforms Celsius, Voyager Digital, and Three Arrows Capital has been swift.
Despite the general dearth of statutory guidance and need for regulatory clarity, some blockchain legal experts have scrutinized the one-size-fits all nature of the UCC amendments. Attorney Gabriel Shapiro pointed out the UCC's attempt to grapple with blockchain technology by creating a category of "electronic controllable records" instead of just saying “blockchain” could lead to the exclusion of some blockchains and inclusion of other digital records such as Fornite V-bucks. He identifies the problem as a desire to achieve ‘technological neutrality' in lawmaking.
As with any new significant regulatory construct, the court’s interpretation and application of these UCC amendments, if adopted by state legislatures, will take some time to play out. In the interval, digital asset transactors would do well to cautiously navigate what continues to be an uncertain legal and regulatory terrain.
By: Evan Santos
4. Ava Labs CEO Rejects Report Alleging Conspiracy with Law Firm
Loose Lips // Tight Cuffs
CEO Emin Gün Sirer of Ava Labs has refuted claims that the business bribed a law firm to file class-action lawsuits against rivals and to divert authorities. In a report published on Friday, CryptoLeaks asserted that Ava, the primary architect of the Avalanche blockchain, and attorney Kyle Roche made a covert agreement in September 2019. According to the claimed agreement, Ava gave Roche 1% of the AVAX token supply and a comparable amount of equity in return for Roche filing legal actions against cryptocurrency companies.
The publication also included many covertly shot recordings of Kyle outlining his tight bond with the CEO and COO of Ava Labs, whom he described as being like brothers and in whom he had complete faith. Apparently Mr. Roche has had his fingers in other jars as well:
“I’m one of the top 10 people in the world. I’ve seen the insides of every single crypto company.”
This one will be exciting to watch unfold.
5. Legal Implications of the Ethereum Merge and Potential Ethereum Proof-of-Work Fork
The Urge to Merge
After years of research, the proof-of-stake (PoS) switchover of the Ethereum blockchain from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model appears to be imminent. One of the biggest improvements in the history of blockchain has been cited as this move. If no unexpected technological obstacles arise, the long-under-development PoS Beacon Chain consensus layer and the Ethereum Mainnet, which serves as the platform for transaction execution and recording, are anticipated to join in September 2022. (the Merge).
Blockchain's foundation is made up of consensus processes. They serve as a method for reaching consensus on the state of the data in a decentralized network, such as a blockchain (basically, to prevent double spending and other fraudulent transactions). The Merge aims to replace Ethereum's current consensus process with one that significantly lowers energy usage, lays the groundwork for future scalability improvements, and offers additional security and technological advantages while preserving the continuity of Ethereum's transaction history.
The bulk of Ethereum ecosystem actors and the Ethereum Foundation appear to be in favor of the Merge. The Merge has drawn criticism from some, who point to a less-decentralized PoS paradigm, potential security flaws, and execution risk due to the difficult technical upgrade. These opponents also work to defend the rights of Ethereum PoW miners, who are used to receiving ETH as compensation for their support of the PoW consensus process. In order to maintain a PoW consensus process, parties are forking the Ethereum network legally. They are also trying to attract exchanges and miners to join this new, parallel network (ETHW).
Although advocates of a PoW chain must overcome practical obstacles like gaining support and avoiding a "difficulty bomb" in the Ethereum codebase that would make mining unaffordable, the risk of two Ethereum blockchains arising after the Merge still exists. End users would have duplicate tokens, one on the main version of the Ethereum network and another on the ETHW fork, because this ETHW fork would include the same transaction data as the current Ethereum network at the time of the fork.
To read more, follow the link above.
Podcasts, Videos, and Blogs
The brightest voices & sharpest pens:
Bird Watching
Tweet, Tweet, Tweet!
Blockchain 101
Blockchain 101 is the product of our team’s desire to reduce what has typically been a significant educational barrier of entry into the crypto space. Our goal is to create a digestible and understandable curriculum accessible to anyone - while simultaneously helping our own nascent members to expand their understanding of the fundamentals of Web3.
Lesson No. 1: Blockchain Technology
By: Suryavir Dawar, Tamara Szulc, and Janet Yihm
To understand the world of cryptocurrencies, you need to understand the core technology driving it: Blockchain technology is revolutionizing how we interact with data.
A blockchain is a Digital Ledger Technology (DLT) that is made up of an expanding list of data, known as blocks, that are safely connected to one another using cryptographically secured encryption. Each block includes transactional information details, a timestamp, and a cryptographic hash of the preceding block (generally represented as a Merkle tree, where data nodes are represented by leafs). The timestamp demonstrates that the transaction data was there at the moment the block was produced. Each block links to the ones before it, forming an effective chain (compare the linked list data structure). This is because each block includes information about the one preceding it. Thus, once a transaction has been recorded, it cannot be undone without also undoing all subsequent blocks, making blockchain transactions irreversible.
That’s the technical definition, but if you’re new to crypto that probably sounds like a foreign language.
To learn more and to read our law student’s breakdown of blockchain technology, READ HERE.
Motion To Compel
Thought-provoking questions and arguments for your consideration each week:
Second Chances?
By Violet Flocks
Two weeks ago, Marc Andreessen posted an artful blog post about the housing crisis to publicize a16z’s massive investment in Adam Neumann’s Flow. If the name doesn’t ring a bell, we’ll remind you that Neumann is the former CEO of WeWork.
Some consider the roughly $350 million investment a glimmer of sunshine during the economic downturn because it signals hope for startups seeking VC attention. However, others view Andreessen’s investment as tone-deaf, feeding off of and fueling frustration against Silicon Valley at large. Why invest hundreds of millions into a project backed by a man erratic enough to be portrayed by Jared Leto? Why insist that “shelter is one of our most basic needs” when Andreessen advocated against multi-family rezoning in his own hometown of Atherton?
The answer is clear: real estate makes money.
Whether or not Neumann can revolutionize apartment living with a16z’s investment is questionable. Although, it is certain that all eyes will be on Flow in 2023.
The Public Ledger
Highlights from the hundreds of sources gathered each week by our research AI. Always DYOR - but in case you don’t have time, here’s some of ours:
General News and Opinion
Stolen Cryptocurrency Is Not Covered Under Homeowners Policy
Celsius calls out Prime Trust in court, alleging firm didn't turn over $17M in crypto
Losers Will Sue Promoters and Mark Cuban Will Face the Fall: Says Peter Schiff
How the Market, Not Government, Regulates Cryptocurrency Crimes
U.S. - Federal
Crypto Banks Are One Step Closer to Reality Under New Fed Guidance
Leading US Crypto Exchange up to Face Legal Actions Regarding Security Issues
Lauren Boebert didn't file required reports on stock and cryptocurrency transactions
Crypto Exchange Coinbase Faces Class Action Lawsuit Over Alleged Lapses in Security
U.S. - State Law
A crypto mogul’s hidden hand in Vermont’s congressional race stunned observers. It’s a common trick.
International
Introduction to the Metaverse: Regulatory Outlook in China and Singapore
Indian Agency Raids Crypto Exchange CoinSwitch Kuber for FX Law Violations
Singapore Steps Up Crypto Questioning As Firms Brace for Changes
Abu Dhabi set to unveil blockchain and virtual assets strategy
Bitcoin same as cash for the Law Society of England and Wales
Afghan Authorities Shut Down 16 Crypto Exchanges in One Week: Report
El Salvador's President keen on 'Bitcoin City', but residents say plan is not working
Closing Statements
We want to hear from you:
If you enjoyed what you read today, subscribe to receive the weekly publication and give the authors a follow on Twitter for updates on what’s next for the newsletter!
If you didn’t enjoy it, let us know why! We value the opinion of our readers above all else. After all, this letter is for you. - Kyler & Chris
Voices of Women in Crypto:
Keep an eye out for our interview with Jessica Neer McDonald, coming next week!
Blockchain 101
We hope you enjoyed our newest segment Blockchain 101! Blockchain 101 is the product of our team’s desire to reduce what has typically been a significant educational barrier of entry into the crypto space. Our goal is to create a digestible and understandable curriculum accessible to anyone - while simultaneously helping our own nascent members to expand their understanding of the fundamentals of Web3.
Be on the lookout for new features!
We’ve been listening to your feedback, and we’re excited to announce we will be launching our new Around the Blockchain Twitter, Discord, and Website in the very near future.
Quote of the Week:
“10y ago I thought that the market of resources, property rights, trade, etc are the most important processes in the world. Today I think much more about the ecosystem of discussion and spread of memes / culture / ideas. The latter follows quite different laws from the former!” - Vitalik Buterin
Ok, all done! You can go ahead and check your P/L now (Coin Market Cap)
This newsletter is written, curated, annotated, and edited by Christopher Foreman (@CryptlessInSEA), Kyler Wandler (@KylerW56), Nicole Prada (@octopape); Nick Corso (@nick_corso2); Evan Santos (@evansantos4); and Kleb (@kleb_33); with consultation and input from Jacob Robinson of the Law of Code Podcast; editing courtesy of TΞxas ₿l◎ckchain LawyΞr ; in collaboration with Ann Sofie Cloots; and support from the Blockchain Barristers Law Student Collective.
The articles and opinions in this newsletter are not legal or financial advice. For legal and financial guidance, please consult a qualified attorney or financial advisor.
Special thanks / image credits:
Law / Scale Image; Twitter Image; Blockchain Image; Podcast Image; P / L Image; Tea GIF; Stable JPEG; Law JPEG; Hacker GIF; Folder GIF; Angry GIF; Celsius GIF; Rose PNG; Rocket GIF; No GIF; Speech GIF; Mask Png; Pyramid GIF; Wrestling JPEG; Book GIF; Sword JPEG;
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Great newsletter! Thank you, team for all the hard work compiling all the facts that matter.