A couple of years ago, there were just a few lawyers interested in cryptocurrencies handling the small number of cases in this area. Businesses using this technology had little need for legal services, as the prevailing view among them was that few aspects of their operations were subject to any legal regulation.
Now, in light of the revolutionary growth in blockchain projects as well as the booming interest in this topic on the part of state institutions, the situation is entirely different. Services of lawyers knowledgeable of blockchain technology and with practical experience in this area are in great demand.
The huge growth in the cryptocurrency market in the past year as well as the appearance on the market of hundreds of new types of tokens issued in countless initial coin offerings has generated many questions about future regulations. The debate has been dominated by two issues:
- The threats to consumers and investors arising out of risks on the cryptocurrency markets (volatility of exchange rates, unregulated activity of exchanges, and the activity of fraudsters and organisers of financial pyramid schemes)
- ICOs as a new, unregulated method for raising capital, particularly with respect to the treatment of tokens as securities or other financial instruments.
The great majority of communiqués, position papers and warnings published by financial regulators, central banks and other public institutions in numerous countries around the world have involved these two areas. In some instances words have been backed by deeds, in the form of various types of interventions by state authorities, in Poland and abroad.
These are the same areas mentioned as ones where we should expect to see legal changes.
People who are involved in blockchain technology and carefully observe the directions for development of projects realise that there will be many more issues presenting challenges for the state and the law. Examples include various types of decentralised financial services, such as decentralised exchanges, as well as application of blockchain technology in electronic identification systems.
For this reason, any new regulatory ideas need to consider the broader context. Just as the potential of blockchain two or three years ago extended far beyond cryptocurrencies, today it extends far beyond ICOs and tokens. Meanwhile, we witness hasty legislative initiatives generating unintended side effects. A good example is the current draft of the proposed new anti-money laundering and terrorism financing act in Poland, which departs from the EU’s proposed new directive.
In 2018 we will undoubtedly hear of many initiatives aimed at adopting new regulations governing the use of blockchain technology. We already know that similar measures are planned by individual countries (including Poland), in the European Union, and at the global level (e.g. the G20).
It is hard to predict where these measures may lead, but among other things we do anticipate:
- Further work on adapting the AML/CFT system to the challenges posed by cryptocurrencies and other blockchain applications, undertaken by the Financial Action Task Force and individual jurisdictions
- Attempts to extend effective coverage of tax regulations to events occurring on blockchain
- Attempts to regulate the activity of various entities, particularly cryptocurrency exchanges
- Regulations on fundraising via ICOs
- Actions aimed at protecting participants in the market for trading of cryptocurrencies and tokens, in terms of financial regulations (protection of investors) and consumer regulations (protection of consumers)
- Attempts to reach an international consensus on these and other issues.
One thing is certain: blockchain lawyers will not be bored.