Cryptocurrency’s rise as a new asset class has created significant opportunities for business, investment, and trade. Along with this development are the inevitable conflicts that require legal action. Bringing crypto into the courtroom is especially challenging, as governments have yet to clarify its status and means of valuation. Nevertheless, lawsuits are becoming more common, and it is becoming ever more likely that judges will be forced to define and regulate blockchain assets in the absence of action by lawmakers.
Litigation involving crypto is proving to be complex, and poses many challenges to established precedents on matters such as property rights and contractual obligations. For example, earlier this week Michael Terpin filed a $224 million lawsuit against AT&T in U.S. district court. Terpin alleges that negligence by AT&T enabled hackers to steal $24 million worth of Bitcoin from a private wallet. At issue is the extent to which AT&T is responsible for securing customer accounts, as well as how cryptocurrency should be valued in the eyes of the law.
Other lawsuits are against platform teams, and involve issues such as token theft and failure to complete ICOs. Once such case is against Nano. Earlier this year hackers stole a number of XRB tokens from an Italian exchange that the Nano team had encouraged investors to use. The plaintiffs assert that Nano violated U.S. securities laws by working with the exchange. Lawsuits have also been filed against Giga Watt for alleged mismanagement of funds, and against Paragon for failure to deliver on a promised coin. In these two cases, the defendants are also accused of violating securities laws.
Resolving these lawsuits will likely require the courts to determine whether or not cryptocurrencies are securities, as defined by the Securities and Exchange Commission (SEC). Should it decide in the affirmative, then the tremendously complex issue of regulation must be addressed. Wallets, exchanges, and even platforms themselves would be open to regulation, which would be all but impossible given the international, and frequently anonymous nature of blockchain assets.
Issues such as these are due to become far more complex as advanced blockchain features move forward. Key among these are smart contracts, which are expected to soon be used by institutions and businesses across the globe, yet are not recognized by governments as legally binding. This oversight must be corrected, yet doing so will require lawmakers to accept the legitimacy of blockchain assets, and work together to create standards for liability, enforceability, and jurisdiction.
Not surprisingly, many in the legal profession have embraced blockchain and cryptocurrency as a speciality. Lawyers now offer services in such fields as ICO development, tax preparation, and cryptocurrency litigation. There are also moves to bring this emerging field into the classroom. Brigham Young University’s law school now offers a class on blockchain, and many more law schools are developing similar courses.
Although crypto advocates are deeply divided over the extent to which government should be involved in blockchain regulation, there should be no debate over the need to better incorporate the technology into existing legal frameworks. Public trust and mass adoption cannot exist without a mechanism in place to resolve disputes and ensure fair play. In this regard, courts alone cannot be expected to take the lead. Governments and their leaders must establish the laws around which important legal questions can be answered.
The number of crypto related lawsuits is all but certain to increase over the next few years. Their emergence is yet another example of how the blockchain revolution is poised have a far reaching impact on modern life. Although there are no easy solutions to the difficult questions they raise, these lawsuits are playing a key role in moving blockchain into the public sphere.
Featured image via BigStock.