Intro/Disclaimer: In late 2022 I started preparing updates for the attorneys at my firm practicing in the Web3 space regarding what legal stories people were talking about the prior week. I believe eventually we are going to do monthly or bi-weekly posts on the award winning BitBlog summarizing the top stories with tl;dr breakdowns on the stories’ importance and general thoughts on their ripple effects on the industry. In the meantime, I thought I would start putting the weekly updates on my personal blog as well on Tuesdays. Note, any opinions from these (or any of my other) blogs are mine alone, and are not adopted or endorsed by my firm.
Another week of relatively slow news in blockchain law as the high-profile court cases in the industry are quiet and we have reached a lull in the regulatory and legislative seasons as the House was largely out of session last week. But the White House couldn’t let a week go by without doing something to make crypto supporters unhappy and Coinbase’s offensive tactics against regulators are heating up.
Here’s everything that happened last week in Web3 law:
Whitehouse Proposes Tax on Certain Uses of Computer Electricity
The White House’s latest proposed budget includes a Digital Asset Mining Energy (DAME) excise tax which creates a tax equal to 30 percent of the cost of the electricity used in crypto-mining. It doesn’t matter where the electricity comes from, even if from 100% renewable. The proposal cites to a 2019 staff report to support its claim that crypto-mining increases residential electricity prices. It also supports the tax as a good idea because “China banned such activity completely in 2021…”.
Tl;dr– I am obviously biased, but creating political precedent whereby disfavored industries or organizations are taxed based on their energy consumption seems bad? It also ignores the fact that Bitcoin mining (and other forms of crypto mining) is increasingly carbon neutral and often used to optimize stranded energy (because machines can easily be turned on/off during period of high/low power demands unlike most other energy users) which reduces the amount of greenhouse gas emissions caused by drilling oil wells and improves rates of return on renewable energy production. But don’t let facts get in the way of a good story.
With NFT trading platform Blur announcing use of NFTs as collateral in peer-to-peer lending, it seems like a good time to remind people that things like federal lending laws and the UCC still apply even when you are putting up your monkey .jpg for some play around ETH. Seems like a bunch of people are getting set up to get legally wrecked.
People got excited that the Supreme Court took up a case to review the “Chevron Doctrine” which gives deference to administrative agencies reasonable interpretations of unclear statutes. It doesn’t change the SEC’s enforcement powers using the Howey “investment contract” analysis, but every erosion of administrative agency carte blanche is good for crypto right now.
Both Gemini and Coinbase launched their offshore derivatives platforms for users outside of the US to be able to long and short assets like ETH and BTC. Makes total sense to create such a regulatory log jam that US companies are forced to go overseas to offer services that US consumers (and the US tax base) would benefit from.
Sports Illustrated has gotten into the NFT event ticketing game, focusing on smaller events which are currently serviced by ticketing sites such as Eventbrite. Use cases like event tickets and video game in-game assets which people are already familiar with being primarily digital are a huge use case for blockchain technology and some of the industries I can see shifting to Web3.
Sotheby’s has already hosted regular NFT auctions, so it’s not a surprise they are launching their own secondary marketplace.
As if Coinbase hasn’t had enough legal issues, it has now been hit with a BIPA case for collection of user’s facial scans during KYC checks. Don’t KYC enough, get hit by regulators. KYC enough, get his by Plaintiffs’ class action firms. Welcome to 2023. Add it to the list of private attacks against the company, as others also sued Coinbase for alleged insider trading by executive.
Speaking of Coinbase, the SEC has been ordered to respond to Coinbase’s Writ of Mandamus Complaint regarding the SEC’s failure to respond to Coinbase’s request for rulemaking. The SEC is almost certainly going to respond with a nothing-burger jurisdictional defense, but still a positive development for Coinbase’s legal strategy.
We finally got a ruling in the ex-OpenSea manager’s NFT insider trading case with a jury issuing a finding of guilty on both fraud and money laundering charges. I honestly feel kind of bad for the guy. He bought art he liked before he featured it on OpenSea’s front page. He then sold that art when it went past what he thought it was worth. I feel like the jury might have been fooled into thinking something that is a common digital security practice (using multiple wallets to buy/sell) was evidence of wrongdoing?
For the IP/AI people, I found this article discussing the legal issues and applicability of existing copyright/right of publicity laws to AI music very interesting.
A16z filed an amicus brief in support of the challengers to the Tornado.cash OFAC sanctions. I’m just happy because finally the briefing cites to Fourth Amendment right to (financial) privacy (see fn. 14)! It’s just a footnote, but my argument appears to be gaining traction.
Democratic presidential hopeful Robert F. Kennedy Jr. released a series of tweets in opposition to the current administration’s crypto policies. Whether he has a meaningful chance of winning the nomination is yet to be seen, but it shows a divide in the Democratic party over the issue.
If you have any questions or would like me to write about anything else, let me know on either of my twitter pages! As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.
One thought on “Off the Blockchain+, May 1-8, 2023”
Great summary of the latest developments in Web3 law! It’s interesting to see the ongoing legal challenges and debates around cryptocurrency and its various use cases.