Law Commons^™

Crypto-Counterfeiting, Joshua Fairfield

Scholarly Articles

The current crypto winter has given rise to a range of legal challenges. One of the most important sets of legal challenges goes to the heart of cryptocurrency. Cryptocurrency was intended to be non-duplicatable at will, that is, not to be counterfeitable. Blockchain technology is supposed to prevent token counterfeiting through a combination of game theory and cryptography that prevents normal users from simply ordering the system to generate more tokens for their benefit.

The difficulty is that blockchain software is still software. People in charge can order and program the software to generate many more tokens for those individuals’ …

Legal Issues In Blockchain, Cryptocurrency, And Non-Fungible Tokens (Nfts), Christa Laser

Law Faculty Articles and Essays

When do new technologies require changes in the law? Judge Easterbrook argued in 1996 that there is no more need for a "Law of Cyberspace" than there ever was for a "Law of the Horse." Rather, existing laws spanning multiple fields are often sufficient to cover niche factual applications and even new technological change. The same is true now for "The Law of Blockchain." Nonetheless, blockchain marketplace participants lack any cohesive, useful analysis to tum to that is neutral in outcome and performs a comprehensive analysis spanning the multitude of laws affecting the whole ecosystem. We might not need a …

Emerging Technology's Unfamiliarity With Commercial Law, Carla L. Reyes

Faculty Journal Articles and Book Chapters

Over the course of a three-year, collaborative process that was open to the public, the Uniform Law Commission (ULC) and the American Law Institute (ALI) undertook a project to revise the Uniform Commercial Code (UCC) to account for the impact of emerging technologies on commercial transactions. The amendments, approved jointly by the ULC and ALI in July 2022, touch on aspects of the entire UCC, but one change has inspired ire and attracted national media attention: a proposed revision to the definition of “money.” The 2022 UCC Amendments alter the definition of “money” to account for the introduction of central …

After Ftx: Can The Original Bitcoin Use Case Be Saved?, Mark Burge

Faculty Scholarship

Bitcoin and the other cryptocurrencies spawned by the innovation of blockchain programming have exploded in prominence, both in gains of massive market value and in dramatic market losses, the latter most notably seen in connection with the failure of the FTX cryptocurrency exchange in November 2022. After years of investment and speculation, however, something crucial has faded: the original use case for Bitcoin as a system of payment. Can cryptocurrency-as-a-payment-system be saved, or are day traders and speculators the actual cryptocurrency future? This article suggests that cryptocurrency has been hobbled by a lack of foundational commercial and consumer-protection law that …

Making Virtual Things, Joshua A.T. Fairfield

Scholarly Articles

People value virtual things—such as NFTs—because such assets trigger and satisfy deep-seated narratives of property and ownership. The cause of the recent series of failures to regulate virtual assets, and the resulting crashes, has been a failure to take seriously the ways people perceive and use the assets. Current legal frameworks fail to support buyers’ and users’ expectations of ownership in virtual things they purchase.

Making virtual things is a matter of social construction of value. Virtual things, like real-world things, have value because a community values them for a purpose. It therefore makes no sense to discount how and …

The Failure Of Market Efficiency, William Magnuson

Faculty Scholarship

Recent years have witnessed the near total triumph of market efficiency as a regulatory goal. Policymakers regularly proclaim their devotion to ensuring efficient capital markets. Courts use market efficiency as a guiding light for crafting legal doctrine. And scholars have explored in great depth the mechanisms of market efficiency and the role of law in promoting it. There is strong evidence that, at least on some metrics, our capital markets are indeed more efficient than they have ever been. But the pursuit of efficiency has come at a cost. By focusing our attention narrowly on economic efficiency concerns—such as competition, …

The Private Law Of Stablecoins, Kara J. Bruce, Christopher K. Odinet, Andrea Tosato

Faculty Scholarship

Stablecoins are one of the cornerstones of the crypto world. They’ve attracted significant attention over the past few years, ranging from Wall Street to kitchen table investors, and even the White House. As a less volatile alternative to crypto-assets like bitcoin, stablecoins have the potential to change the way we make payments, unlock the groundwork needed for more blockchain-based applications, and even reorient the economy toward private money. But how stable are these stablecoins, really? Can they be relied upon in the way their many proponents claim? And how much of the popular beliefs about stablecoins match their realities? That’s …

The 'Merge' Did Not Fix Ethereum, Hilary J. Allen

Popular Media

The Ethereum blockchain that facilitates much of the crypto world last month finally accomplished the long-promised and oft-delayed “Merge”, a technical switch in the way it works.

Blockchain Networks As Knowledge Commons, Ilia Murtazashvili, Jennifer Brick Murtazashvili, Martin B. H. Weiss, Michael J. Madison

Articles

Researchers interested in blockchains are increasingly attuned to questions of governance, including how blockchains relate to government, the ways blockchains are governed, and ways blockchains can improve prospects for successful self-governance. Our paper joins this research by exploring the implications of the Governing Knowledge Commons (GKC) framework to analyze governance of blockchains. Our novel contributions are making the case that blockchain networks represent knowledge commons governance, in the sense that they rely on collectively-managed technologies to pool and manage distributed information, illustrating the usefulness and novelty of the GCK methodology with an empirical case study of the evolution of Bitcoin, …

A Proposal For Taxing Cryptocurrency In The Midst Of The Covid-19 Pandemic, Richard Thompson Ainsworth, Xiuyuan (Tony) Hu

Faculty Scholarship

In this article, the authors present the case for a globally effective remedial tax on cryptocurrency transactions that could help fund multinational relief efforts, such as providing aid to jurisdictions affected by the COVID-19 virus and countries fighting the opioid crisis.

Payments Failure, Hilary Allen

Articles in Law Reviews & Other Academic Journals

The processing of retail payments has traditionally been the domain of regulated banks, but technologically sophisticated players like Venmo, AliPay, Bitcoin and Ripple (and potentially Facebook’s Libra) are making incursions into the market. Even within regulated banks, payments processing is becoming increasingly reliant on new technologies – JPMorgan Chase’s “JPMCoin” is just one example. However, limited attention has been paid to the new kinds of operational risks associated with these complex new methods of processing retail payments. This Article argues that technological failures at a payments provider (bank or non-bank) could be amplified in unexpected ways as they interact with …

The Human Element: The Under-Theorized And Underutilized Component Vital To Fostering Blockchain Development, Joshua A.T. Fairfield

Scholarly Articles

This Article constitutes a lightly edited transcription of Joshua Fairfield's oral remarks at the April 6, 2018 Cleveland State Law Review Symposium on Blockchain Law and Technology.

The author posits that there is a tendency to think that technology will emerge triumphant in resolving physical problems, including banking and transactional recording; that there is sort of a "tech-bro utopianism," epitomized by Mark Zuckerberg, suggesting that what we need is a technological, not a human, solution. He states that one major problem is that social technologists, psychologists, historians, linguists, and cultural anthropologists are not on the development teams that are building …

Law And The Blockchain, Usha Rodrigues

Scholarly Works

All contracts are necessarily incomplete. The inefficiencies of bargaining over every contingency, coupled with humans’ innate bounded rationality, mean that contracts cannot anticipate and address every potential eventuality. One role of law is to fill gaps in incomplete contracts with default rules. The blockchain is a distributed ledger that allows the cryptographic recording of transactions and permits “smart” contracts that self-execute automatically if their conditions are met. Because humans code the contracts of the blockchain, gaps in these contracts will arise. Yet in the world of “smart contracting” on the blockchain, there is no place for the law to step …

Coin-Operated Capitalism, Shaanan Cohney, David A. Hoffman, Jeremy Sklaroff, David A. Wishnick

All Faculty Scholarship

This Article presents the legal literature’s first detailed analysis of the inner workings of Initial Coin Offerings. We characterize the ICO as an example of financial innovation, placing it in kinship with venture capital contracting, asset securitization, and (obviously) the IPO. We also take the form seriously as an example of technological innovation, where promoters are beginning to effectuate their promises to investors through computer code, rather than traditional contract. To understand the dynamics of this shift, we first collect contracts, “white papers,” and other contract-like documents for the fifty top-grossing ICOs of 2017. We then analyze how such projects’ …

If Rockefeller Were A Coder, Carla L. Reyes

Faculty Journal Articles and Book Chapters

he Ethereum Decentralized Autonomous Organization (“The DAO”), a decentralized, smart contract-based, investment fund with assets of $168 million, spectacularly crashed when one of its members exploited a flaw in the computer code and stole $55 million. In the wake of the exploit, many argued that participants in the DAO could be jointly and severally liable for the loss as partners in a general partnership. Others claimed that the DAO evidenced an entirely new form of business entity, one that current laws do not contemplate. Ultimately, the technologists cleaned up the exploit via technological means, and without engaging in any further …

Fintech And The Innovation Trilemma, Yesha Yadav, Chris Brummer

Vanderbilt Law School Faculty Publications

Whether in response to roboadvising, artificial intelligence, or crypto-currencies like Bitcoin, regulators around the world have made it a top policy priority to supervise the exponential growth of financial technology (or "fintech") in the post-Crisis era. However, applying traditional regulatory strategies to new technological ecosystems has proven conceptually difficult. Part of the challenge lies in the tradeoffs involved in regulating innovations that could conceivably both help and hurt consumers and market participants alike. Problems also arise from the common assumption that today's fintech is a mere continuation of the story of innovation that has shaped finance for centuries.

This Article …

Lessons From Case Study Of Secured Transactions With Bitcoin, Xuan-Thao Nguyen

Articles

There has been some discussion about the flaws in using secured transactions law, Article 9 of the Uniform Commercial Code (U.C.C.), to govern commercial transactions involving Bitcoins as collateral. Flaws necessitate the urgency of immediately fixing of the existing law. In the case of Bitcoins there is still much to learn about the marketplace for secured transactions with Bitcoins as collateral. The rapid change in technology, the speed of new ideas proposed, the constant announcements of adoption and adaptation of smart contracts in transactions, the volatility in cryptocurrency value, the endless reports of scams, and the rise of dark pools …

Blockchain, Bitcoin, And Vat In The Gcc: The Missing Trader Example, Richard Thompson Ainsworth, Musaad Alwohaibi

Faculty Scholarship

Blockchain is coming to tax administration and will cause fundamental change. This article considers the potential for blockchain technology as it applies to the introduction of a value added tax in the Gulf Cooperation Council.

Blockchain technology disrupts centralized ledgers. Blockchain improves efficiency, security and transparency. Perhaps no centralized ledger system presents more challenges than that of the modern tax administration. The central data storage system of a modern tax authority contains all return, payment, and audit activity for all taxpayers arranged tax-by-tax for three years or longer periods of time.

It is likely that blockchain will come first to …

Conceptualizing Cryptolaw, Carla L. Reyes

Faculty Journal Articles and Book Chapters

Sweden transfers its real property recording system to the blockchain, a software protocol that enables public, cryptographically secure transaction verification without reliance upon a trusted third party. Dubai plans to issue blockchain-based government documents. The United States Department of Health and Human Services investigates blockchain-based systems for managing health data. Illinois explores blockchain-based applications for use in the Illinois government. News of governments and public-private partnerships developing blockchain-based legal applications increasingly splash across the headlines; however the law-makers using blockchain and other Distributed Ledger Technology (DLT) systems to implement legal processes do not systematically consider the broader implications of their …

Distributed Governance, Carla L. Reyes, Nizan Geslevich Packin, Bejamin Edwards

Faculty Journal Articles and Book Chapters

Distributed ledger technology enables disruption of traditional business organizations by introducing new business entities without the directors and officers of traditional corporate entities. Although these emerging entities offer intriguing possibilities, distributed entities may suffer significant collective action problems and expose investors to catastrophic regulatory and governance risks. Our essay examines key considerations for stakeholders and argues that distributed entities must be carefully structured to function effectively.

This essay breaks new ground by critically examining distributed entities. We argue that a distributed model is most appropriate when DLT solves a unique corporate governance problem. We caution against ignoring the lessons painstakingly …

Vatcoin: The Gcc's Cryptotaxcurrency, Richard Thompson Ainsworth, Musaad Alwohaibi, Mike Cheetham

Faculty Scholarship

Bitcoin is the world’s first peer-to-peer cryptocurrency. VATCoin is similar, but it is used in tax compliance. Both Bitcoin and VATCoin are distributive ledger applications built upon blockchain technology. Bitcoin’s ledger is public; VATCoin’s is private. If adopted, VATCoin could well become the world’s first government-mandated cryptotaxcurrency. Unlike Bitcoin, VATCoin will not be a speculative currency. It is always fixed to the home currency.

This paper proposes that the Gulf Cooperation Council (GCC) adopt VATCoin in its VAT Framework. The GCC is expected to have multiple 5% VATs in place by January 1, 2018. There is an ample amount of …

Moving Beyond Bitcoin To An Endogenous Theory Of Decentralized Ledger Technology Regulation: An Initial Proposal, Carla L. Reyes

Faculty Journal Articles and Book Chapters

Current regulation of decentralized ledger technology leaves industry actors in confusion, facing high risk, and confronting significant disincentives to innovate. This Article argues that an endogenous regulatory approach offers an avenue for alleviating these obstacles while still providing sufficient tools for government oversight. In particular, this Article proposes regulation that is endogenous at two levels: first, in that it is created through an iterative, cooperative process involving both regulators and industry actors, and second, that it is implemented as regulation-through-code, that is, regulation written into the code itself. In so doing, this Article also investigates whether successful implementation of such …