Blockchain Benefits Beyond Bitcoin | Helping Companies Coordinate | CA's Crypto Executive Order | 3Y Grace Period From Sec. Laws? | NFT Nexts

This week's newsletter looks at blockchain benefits beyond Bitcoin, how blockchain can help companies work together, California's crypto executive order, a suggested 3-year grace period for crypto companies from some U.S. securities laws, and what's next for NFTs. Reminder to subscribe if you find this info helpful.

#intellectualproperty?#cryptocurrency?#defi?#NFTs?#metaverse?#blockchain?#Web30?(As always, no legal or financial advice here.)

05/02/2022        

(05/02/2022) The benefits of blockchain technology extend far beyond bitcoins.

One illustrative area is the food space. Imagine being able follow a QR code attached to a vegetable and learn everything about it (point of origin, provenance, temperatures during transit, etc.).

IBM's "food trust" program is illustrative.?https://lnkd.in/g3d8bTTT. It lists benefits such as:

1. supply-chain efficiency (eliminating bottlenecks to speed a supply chain);
2. brand trust (reputation enhancement for safety and quality);
3. food safety (ensuring safety and regulatory compliance);
4. sustainability (ensuring quality);
5. food freshness (accurately assess remaining food shelf life);
6. avoid food fraud (help eliminate food-related errors); and
7. minimize waste (minimize waste hot spots).

Blockchain helps convey data to different parties who use different systems. It's not all about Bitcoin.

05/03/2022        

(05/03/2022) Blockchain technology can help companies work together to achieve an end goal be providing a common framework to securely share desired data without giving up access to their own data.

Databases that use traditional technology are often proprietary. If not designed to interoperate with each other, exchanging data between them can be difficult. Communicating across disparate databases can be technologically difficult for many reasons. For example, someone usually must code an interface. But that interface is likely case-specific, unique to exchanging data between two specific databases.

Who bears the cost to code the interface? If the costs are to be shared, who maintains the database? If not, the developer usually has a stronger bargaining position, which can create asymmetrical negotiations in the future. Who owns the data? Who bears the cost to populate any additional databases that might be used to access mutually desired data?

Blockchain helps align the interests of multiple stakeholders and facilitates data sharing.?For example, blockchain allows content creators to contribute content to a blockchain storage mechanism without conveying the actual data or giving up control over it. This prevents one party from developing an unequal bargaining position over the other. Each owner of each respective dataset is allowed to retain control (and thus value) of each owner’s data.

If a party desires to end the relationship, they can do so without adversely affecting the remaining parties’ access to desired data.?Depending on how decentralized a database is and if it functions as a distributed ledger, no one party will have control over the system as a whole.

In short, content owners can use their own data without having to monitor other entities as they access their own respective data.?And smart contracts could be employed to enforce commitment levels.?

To Clarify the Cryptic, consider, for example, no single party controls or maintains the Ethereum blockchain. Some people add content to it. Others extract content. And no one has a bargaining-chip leg-up on anyone else. Parties are free to develop blockchains in that regard to allow for those and other desirable interactions.

05/04/2022        

(05/04/2022) Today (May 4, 2022), California Governor Newsom issued a crypto-related executive order.?

Several provisions track President Biden’s formerly announced executive order. In no uncertain terms, California aims to be the first state to establish a comprehensive and harmonized regulatory and business environment for crypto assets. Here are a few excerpts:

• “blockchain technology has laid the foundation for a new generation of innovation, spurring a rise in entrepreneurialism in sectors including financial technology, supply chain management, and the arts;”
• “the impact of blockchain technology is both uncertain and profound, with the potential to reconfigure the logic and structure of the World Wide Web and its place in modern society;”
• “the California Consumer Financial Protection Law, also enacted in 2020, strengthened the State's ability to protect consumers, respond more quickly to emerging trends, and productively engage with responsible businesses;”
• “[] responsible innovation has been encumbered by regulatory uncertainty, especially with regard to federal law, which has principal authority over financial instruments and transactions that are inherently interstate and international;”
• “California must learn the lessons from past generations of innovation by engaging earlier with emerging sectors, in order to maximize public benefit, minimize regulatory uncertainty, and promote alignment across interests and institutions;”
• “state agencies should work with, and concurrently to, the federal government to make California the first state to establish a comprehensive, thoughtful, and harmonized regulatory and business environment for crypto assets.”

The goals of the EO include creating a transparent business environment for companies to operate in, collect input regarding regulatory approaches and learning about blockchain applications and ventures; developing a comprehensive regulatory approach to crypto; seek regulatory clarity consistent with the processes outlined in the federal executive order; explore opportunities to use blockchain technologies to address public-serving and emerging needs; and identifying opportunities to create a research and workforce environment to power innovation in blockchain technology, including crypto assets.

The EO can be found here:?https://lnkd.in/gEi-akpS.

05/05/2022        

(05/05/2022) In April 2021, SEC Commissioner Hester Peirce published an updated version of a "token safe harbor proposal" that she had originally suggested in February 2020.?See?https://lnkd.in/eQgetMR4?and?https://lnkd.in/eHp8QPVT.

Even though Commissioner Peirce notes that the views expressed in her proposal are her own and do not necessarily represent those of the SEC or her fellow Commissioners, her proposal is worth being aware of because it seeks to provide network developers with a three-year grace period within which, under certain conditions, they can facilitate participation in and the development of a functional or decentralized network, exempted from the registration provisions of the federal securities laws.

The update reflects feedback from the crypto community, securities lawyers, and members of the public. In the post above, she notes three significant changes from her prior version.

• First, to enhance token purchaser protections, the safe harbor proposal would require semi-annual updates to the plan of development disclosure and a block explorer.
• Second, in response to concerns about the lack of clarity at what would happen at the end of the three-year grace period, the safe-harbor proposal includes an exit-report requirement. The exit report would include either an analysis by outside counsel explaining why the network is decentralized or functional, or an announcement that the tokens will be registered under the Securities Exchange Act of 1934.
• Third, the exit report requirement provides guidance on what outside counsel’s analysis should address when explaining why the network is decentralized. The guidance is not a bright-line test, but rather attempts to strike a balance between providing a manageable number of useful guideposts while maintaining sufficient flexibility for the facts and circumstances of each network to be considered in the analysis.

Commissioner Peirce invites comments, modifications on GitHub, and sending feedback to her at?[email protected].

05/06/2022        

(05/06/2022) Some NFTs are links to mere pictures, sound files, etc. Some are used as profile pics ("PFPs"). But what are recent or upcoming uses for NFTs?

(1) Utility. Utility NFTs provide their owners utility. Perhaps it is early access to new projects or exclusive meetups. Beyond a mere media file, the NFT works as functional piece of code that provides real-life benefits as well. The "Proof Collective" is one example, and technically, so too is owning an ape from the BAYC inasmuch as it enables things like reception of air drops and more.

(2) Land Ownership. Many projects are in the works that link an NFT to a real-world asset, including real property. Some projects offer tokenized ownership of properties. Some municipalities are also exploring ways to use blockchain technology to store land records.

(3) Medical. Coupled with blockchain technology, an NFT could link to a person's medical records. Depending on how the information is stored, users might be able to selectively provide only such data as they wish and depending on the circumstance.

(4) Loyalty Programs. These programs could interact cross-functionally with disparate programs, sort of like a frequent-flyer-rewards program that would reward points based on any flight with any company. Disparate users could interact with a common blockchain.

(5) Ticketing. Similar to the utility aspect, NFTs could be useable to authenticate users to enable them to access to information or locations.

Remember, an NFT is technically a token--that is what the "T" stands for--and thus, is more of a record linked to a thing than that thing itself. It is an ownership record that demonstrates proof-of-ownership or association. Many believe that the future use cases of NFTs are immense and broad.

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