NH has long been a hotbed of bitcoin; we are also a hotbed of questions about the legality of bitcoin


New, complicated things often have old simple things hidden inside. Case in point: Two unrelated lawsuits in New Hampshire for alleged wrongdoing involving one of the most puzzling elements of the digital universe, blockchain-based cryptocurrencies.

While there are a lot of technical, legal and financial details in these cases, basically they are straightforward, say a few professors at a UNH law school whose expertise I sought.

“Just because you call him a playtpus doesn’t mean it’s still not a duck,” said Samson Williams, assistant professor at UNH Franklin Pierce Law School. “I would come back and refer to Tesla. It’s great technology… but the car still has to follow the rules of the road, which are very well defined. It’s very similar in the blockchain space. It’s a tool … Technology makes it easier; however, the backend, especially for consumer protection, still exists. “

I reached out to Williams and George Pullen, another adjunct professor at the school, as they are part of the law school’s interest in the digital world’s effect on the law, as evidenced by the Twitter hashtag #UNHLawBlockchain . Williams’ school bio page describes him as an adjunct professor of “tokenomics,” which is a reference to digital tokens, key to one of the cases in question.

Neither Williams nor Pullen gave an opinion on guilt or innocence in these cases, for that matter. Their role was to help me understand the issues.

The simpler of the two New Hampshire cases involves half a dozen people, many of whom are associated with the extremely libertarian Free Keene cluster, who were accused by the FBI last month of operating an “illegal cryptocurrency exchange.” “. The FBI claims to have sold bitcoin for what cryptocurrency fans love to call “fiat currency” – you and I call it cash – which is a perfectly legal activity. But the federal government says it has sometimes sold more than the trigger point of around $ 10,000 that requires reports to financial or legal authorities, without ever filing such reports.

The FBI has claimed that Ian Freeman, who is prominent in the state’s bitcoin community (I interviewed him in the past about Bitcoin ATMs), had $ 178,000 in cash in his safe when his house was searched.

Law enforcement officials are wary of using bitcoin in money laundering or other nefarious activities because technology makes it easier to avoid being notified. Bitcoin fans believe this is a positive feature, which is part of a structure that bypasses the need for a central authority, such as a bank.

These claims are fairly straightforward. The fact that it’s bitcoin instead of, say, Canadian dollars is almost incidental.

The other case is more difficult to understand. These are LBRY, a New Hampshire-based peer-to-peer video sharing service that I mentioned in 2018, and fees from the Securities and Exchange Commission, the group that oversees stocks and bonds and other financial instruments.

My article was about LBRY’s desire to be an unrestricted YouTube competitor, but the SEC doesn’t care. They are interested in its financing.

LBRY uses tokens or credits, a digital item that people can buy, sell, or accumulate. They were used to save files on the LBRY network, which is scattered among users’ computers instead of residing only on a central server, or to strengthen their presence. In that sense, they can act like “karma” earned on social media sites like reddit, or ratings accumulated by customers on eBay, except they can be bought and sold. Between 2016 and 2020, according to the SEC, LBRY sold 13 million of its LBRY credits for the bitcoin equivalent of around $ 5 million, in order to finance itself.

More importantly, the value of credits or tokens is not set in stone. Williams compared it to the physical tokens you buy from Chuck E. Cheese for a shift to play their video games. You can keep the token and impress your friends with it, assuming your friends are easily impressed, but there is no hope that it will ever be worth 26 cents. “There is no secondary market for this token,” he said.

In contrast, LBRY credits had a secondary market, as they could be sold separately and bought by people who expected their value to rise like any other cryptocurrency. If you doubt that people would exchange something useful only on a small video platform, you are applying the wrong kind of thinking. Consider dogecoin, a cryptocurrency that started out as a joke but is now worth several million dollars, depending on how you define ‘value’.

The SEC argues that such trading makes LBRY credits the functional equivalent of stocks and other securities (this veers into deep legal waters around things like the Howey test) and therefore LBRY should have register with the SEC and follow elaborate laws and regulations. around securities trading over the past eight decades. The SEC filed a civil action in late March that aims to end the practice and “also seeks the restitution of any ill-gotten gains,” a phrase I’ve never encountered outside of detective stories.

LBRY is not the only subject in such a lawsuit. More importantly, the SEC has made similar claims against Ripple Labs Inc. for its tokens, called XRP.

For his part, LBRY is not going quietly. He says his credits are just a commodity that “facilitates the LBRY protocol” and allows people to operate within his video service, called Odysee. Basically, they argue that their platypus is, indeed, a platypus and not a duck, and the laws of yesterday cannot be applied to the technology of tomorrow.

It goes further by saying that the lawsuit could undermine “the blockchain and tech industry.” This is quite a statement since blockchain, the technology behind bitcoin, is becoming a big business: the recent IPO of Coinbase, a company that operates like a cryptocurrency exchange, hit 80 billion. of dollars.

Williams and Pullen do not find this statement convincing. “You’re going to see more SEC stocks coming,” Williams predicted. “It’s not that we’re against innovation or entrepreneurship, but we already have a mechanism for people to fundraise for startups.”

And, they add, we shouldn’t let these legal issues hurt the intrinsic value.

“Blockchain is one of those technologies that has a ton of amazing use cases,” Pullen said, citing supply chains as perhaps the most prominent example. “There is so much he can do that is not fundraising… This is what people should want to know.”

David Brooks can be reached at 369-3313 or [email protected] or on Twitter @GraniteGeek.

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