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| vol 16, num 1 | January, 2019 |
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| ► IN THIS ISSUE: All Things Cryptocurrency & Blockchain
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| Are Cryptocurrencies True Currencies? Evaluating Cryptocurrencies Under § 550 |
| The “bitcoin.org” domain name was registered on Aug. 18, 2008. Two months later, on Oct. 31, 2008, a link to a paper purportedly authored by Satoshi Nakamoto was posted on the website and distributed to a cryptography mailing list. In the paper, Nakamoto “propose[d] a … peer-to-peer network … forming a record that cannot be changed … [a]s long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network[,]” eliminating the need for third-party authentication to prevent “double-spending.”The following January, Bitcoin was released as open-source software, implementing the first “open,
distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way” — i.e., the first blockchain —then became the first circulating cryptocurrency. |
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| Bankruptcy Valuation Issues in Respect of Cryptocurrencies |
| Value is everything in bankruptcy: finding (or creating) it, preserving it, maximizing it, and ultimately allocating it in accordance with statutory priorities among many (and often competing) constituencies. Value can exist in many forms, including in the form of new technologies that have produced “cryptocurrencies.”
What Are Cryptocurrencies?
Defining what a cryptocurrency “is” in the regulatory or judicial context is not so simple. A cryptocurrency exists digitally and/or virtually, using cryptography and resting on “blockchain” technology, which purportedly makes it secure and difficult to counterfeit. |
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| Blockchain — Not Bitcoin — in Bankruptcy |
| In the past several weeks, we have seen an uptick in crypto-related insolvencies; most recently Giga Watt, a Bitcoin-mining firm, filed for chapter 11 relief in the Eastern District of Washington. Often, the questions arising out of a crypto-related bankruptcy revolve around the value of Bitcoin or other cryptocurrency. However, while cryptocurrency is certainly how blockchain technology was first deployed, it is by no means its only utility. For example, in the organics food industry, retail giants like Walmart have employed blockchain technology to shore up their supply chains. If there is a need to identify precisely from where a SKU of
organic lettuce was sourced, blockchain technology now affords Walmart the ability to do so in a matter of seconds instead of days. Thus, while often discussed in connection with Bitcoin, blockchain technology in the bankruptcy context is not exclusively a conversation about a bitcoin’s worth. |
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| Cryptocurrency as Collateral in Financing |
| Bitcoin’s rise in popularity has disrupted many areas of commercial law. Agencies and industries have spent the last few years trying to classify cryptocurrencies using current formalities, which has proven difficult given the unique characteristics of cryptocurrencies and the growing distinction between coins and tokens. Classification under the Uniform Commercial Code (UCC) is no different. The uncertainty around UCC classification is an issue for secured lenders who need to ensure that any security interest in cryptocurrency is properly perfected. Without judicial clarification or formal changes to the UCC, the appropriate classification
of cryptocurrencies under the UCC for perfection purposes is at best a question of informed speculation. |
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| Extraterritorial Regulation of Cryptocurrency and Initial Coin Offerings |
| Over the past few years, U.S. regulatory agencies have significantly increased their exertion of authority to regulate virtual currencies as well as their enforcement efforts over cryptocurrency transactions. This is not surprising given the potential for and actual abuse of the cryptocurrency markets, as well as the volatility of such markets. Cryptocurrency values have experienced significant volatility over the past year, the prime example being Bitcoin, which saw its highest value ever of $20,089 on Dec. 17, 2017, suffering a steady loss of value to its current value of $3,696.06 as of Dec. 18, 2018. |
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