Bench & Bar

SEP 2018

The Bench & Bar magazine is published to provide members of the KBA with information that will increase their knowledge of the law, improve the practice of law, and assist in improving the quality of legal services for the citizenry.

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11 BENCH & BAR | of no regulation or oversight, regulation is coming. Currently, regulators struggle to fit Bitcoin and other cryptocurrencies into existing regulatory framework. Is crypto- currency a commodity or a security? e U.S. Securities and Exchange Com- mission (SEC) has already indicated that it views "initial coin offerings" (ICOs) as tra- ditional securities and is enforcing existing laws against companies offering and trading them. 17 Generally, ICOs are new, alterna- tive cryptocurrencies similar to Bitcoin that are created new but initially controlled by a single person or business and then sold to raise capital for a variety of businesses and projects. Regulation of more popular cryptocur- rencies like Bitcoin has been more of a challenge. Regulators from both the SEC and the Commodity Futures Trading Com- mission testified before a Senate committee in February, 2018. 18 ey signaled their intention to treat Bitcoin exchanges as "money transmitters," which must observe federal prohibitions on money laundering and the financing of terrorist organiza- tions. 19 A few states (not Kentucky, not yet) require licenses for Bitcoin exchanges housed there—not something the novice cryptocurrency user will be overly con- cerned about. Many others provide no possess the token, then you have title. is isn't just speculative theory. In February 2017, the Republic of Georgia "committed in a signing ceremony … to use the bit- coin network to validate property-related government transactions." 16 The tech- nology was tested there first using land title registrations but is presently being expanded "to purchases and sales of land titles, registration of new land titles, dem- olition of property, mortgages and rentals, as well as notary services." To be sure, Bitcoin and the blockchain technology behind it are still far from changing Kentucky's real estate transaction recording process. However, the value of having a public ledger with title transfers recorded on the blockchain for anyone to view and inspect or transfer may be what the future of land and automobile title records looks like. Imagine transferring an automobile or real estate with the click of a button on your smartphone and for others to be able to immediately verify that trans- action from anywhere in the world, nearly simultaneously. at technology is already being tested. We lawyers may have some catching up to do. REGULATION IS COMING. ough Bitcoin has enjoyed what some would consider a "wild west" atmosphere is not connected to any traditional bank. Lawyers interested in locating, tracking, seizing, or calculating an individual's assets would do well to be mindful of Bitcoin (or other cryptocurrencies) as a store of wealth. If you are not already searching computer hard drives, smartphones, tablets, and e-mails for evidence of virtual currencies like Bitcoin, then it may be good to include inspections in your next set of discovery requests or deposition questions. 14 At a current market price of nearly $7,000 per Bitcoin, the extra step could be well worth your while. BITCOIN PRESENTS PRACTICE OPPORTUNITIES. Perhaps more accurately, the blockchain (or "ledger") technology that makes Bitcoin work could change the legal profession. For example, primarily alternative crypto- currencies have proposed "smart contracts," whose aim is to make contractual agree- ments work with the accuracy of a computer program. Essentially, parties would record a public, transparent but semi-anonymous computer code to a public blockchain that can trigger a payment or series of pay- ments once other, predetermined events take place. To illustrate, a "smart contract" may assure that a payment is made once a certain date is reached (e.g. automatic rent payments or property closings) or when a publicly traded stock reaches a certain price. Ordinarily, these type of contracts would require an expensive lawyer or finan- cial services professionals to perform and verify. "Smart contracts" promise to elim- inate some of the middlemen—at least in theory. Last summer, insurance giant American International Group (AIG) reported that it was partnering with IBM to "develop a 'smart' insurance policy that uses blockchain to manage complex inter- national coverage[.]" 15 Many other large companies are experimenting with similar technology as well. Bitcoin's blockchain technology could change property law as well. Blockchain "tokens" promise to be able to replace real estate or other title records with public, dig - ital "tokens" that are recorded on a public blockchain. Basically, it works like this: a digital "token" serves as the title. If you

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