Episode 167 sees blockchain take over the podcast again. With Stewart traveling, Alan Cohn hosts another of the podcast’s periodic deep dives into all things blockchain and digital currency. Our guest is Meltem Demirors, Director of Development at Digital Currency Group. Podcast regular Maury Shenk joins members of Steptoe’s Blockchain and Digital Currency Practice, including financial regulation practitioner Matt Kulkin, tax guru Cameron Arterton, and author of several recent smart contracts blog posts Jared Butcher, in breaking down the current state of affairs in the blockchain world.
Our episode begins by looking at the brewing controversy in the tax world. Cameron skillfully takes us through IRS Notice 2014-21, which provided initial guidance for how virtual currencies would be treated for tax purposes, as well as the charmingly-named TIGTA Virtual Currency Report, released in September 2016, which told the IRS that it hadn’t done much beyond issuing this guidance to flesh out what it actually meant to consumers and businesses. The IRS responded with the notorious Coinbase Summons, a John Doe summons that requested records of over 500,000 Coinbase subcribers. Needless to say, this led to Coinbase users challenging the summons in court and moving to quash, while Congressional leaders question the wisdom of the IRS summons. Cameron and Alan consider this an opportune moment for the IRS to work with the industry to develop additional guidance.
We then take on the emerging phenomenon of token sales, nicknamed Initial Coin Offerings or ICOs. Matt and Alan tell us what in the world this is, how token sales work, and some of the legal challenges, including whether ICOs constitute sales of securities under the Howey test and the question of fiduciary duties. Matt and Alan conclude that ICOs can vary significantly from each other and that ultimately virtual currencies and tokens may simply be a new asset class.
Steptoe has done a lot of writing lately on smart contracts, and Jared takes us through several recent Steptoe Blockchain Blog posts on reasons to put an arbitration clause in your company’s smart contracts, tips for drafting arbitration clauses in smart contracts, and best practices for limiting liability arising from smart contract vulnerabilities. Jared and Alan discuss the new approach companies need to take in considering issues like dispute resolution and liability limitations in the context of smart contracts.
We then go across the pond to Europe, where Maury gives us the status of the delayed EU proposal to extend AML regulation to virtual currencies. Maury predicts that the legislation will pass this year forcing companies that provide virtual currency related services, such as exchanges and wallets, to comply with very burdensome requirements.
Finally, in the lightning round, Alan tells us about the recent surge in the price of bitcoin and other cryptocurrencies; Matt tell us about the future of leadership at the Commodity Futures Trading Commission and gives us an update on the Office of the Comptroller of the Currency’s proposed Fintech Charter, including a lawsuit by state regulators to head off this initiative.
In our interview, Meltem takes us through the current landscape of virtual currencies, including DCG’s recent launch of blockchain accelerator DCG Connect. Meltem tells us about the current state of play for blockchain use cases and blockchain companies, and gives her thoughts on the ICO craze. Meltem shares her thoughts on what she thinks are the most interesting things that she sees coming in the future, and she tells us what we should be looking for as signals that we’ve moved to the next stage of technical adoption of blockchain technology.
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The views expressed in this podcast are those of the speakers and do not reflect the opinions of the firm.