Joshua Ashley Klayman is co-head of global law firm Morrison & Foerster LLP ‘s Blockchain + Smart Contracts Group and chairs the Wall Street Blockchain Alliance Legal Working Group.
The following article is an exclusive contribution to CoinDesk’s 2017 in Review, and represents the author’s personal views, not necessarily those of her employer.
The year that just ended was transformational.
Blockchain and cryptocurrency entered the common vernacular. Previously, my family and friends, many of whom likely viewed me as earnest and well meaning – yet nonetheless tinfoil hat-wearing – politely tolerated my attempts to regale them with tales of how “blockchain can change the world.” But now, dinner conversations regularly revolve around digital tokens and exchanges – and the ever-popular question, “Why didn’t you tell us sooner?” I find myself smiling at the realization that, now, sometimes I am the one at the table who tries to change the subject when cryptocurrency come up.
Those exchanges aside, geeking out about blockchain remains one of my favorite pastimes, and, happily, in 2017, I had the pleasure of meeting many like-minded people. This time last year, however, I had no idea that many of my closest crypto-collaborators, my blockchain sounding boards, and, truly, some of my best friends, would be lawyers I’d meet in the market.
Lawyers at large firms, small firms, no firms, in-house. Lawyers from across the United States, and from around the world. Whether formed in think tanks and legal working groups, or forged on social media platforms, like LinkedIn, those blockchain legal relationships have proven to be meaningful, real and enormously valuable.
Perhaps that is my take-away: 2017 was the year that individual lawyers and law firms got over themselves and worked together, at least in the blockchain space.
My prediction: In 2018, the speed and scale of technological developments will make non-traditional legal teaming not just nice to have, but critical.
Lawyer as artist?
In recent years, the legal profession has not exactly been known for its imagination or its cross-firm collaboration.
Lawyers as a group are famously risk averse – intense legal training designed to illuminate potential hazards and liabilities also may make it hard to un-see or look beyond those identified risks. Lawyers often are applauded – or, at least, self-applauded – for their abilities to guide entrepreneurs down well-worn deal paths, sticking to precedent, doing things the way they are supposed to be done.
In fact, a more experienced lawyer once cautioned me, “the last thing any client needs is a creative securities lawyer.“
But 2017 was a year that turned this and other conventional law firm wisdom on its head, at least in the blockchain and cryptocurrency space. For me and likely many other lawyers, this was the year that I rediscovered a life of the mind and the law became fascinating and fun again.
At the end of 2016, the idea that the next twelve months would bring with them more blockchain and crypto-related work than one law firm, or even several law firms, could possibly handle, may have sounded to many like a wild and unrealistic hope. To the contrary, in 2016, at least one major financial institution had openly expressed an intention to develop smart contracts with a goal of reducing legal spend.
Could any of us have predicted how many new legal questions and theories would arise, or how many old and supposedly settled areas of the law would awaken and pose exciting new puzzles? Technological innovations and the proliferation of token sales and cryptocurrency trading have transformed deal planning into veritable law school issue-spotting exams.
Who knew that technologists and founders would be discussing the Howey test at cocktail parties, that legal panels would be standing room only, or that the SEC’s Cyber Unit would exist, let alone achieve a sort of celebrity status?
Alongside many brilliant founders, we lawyers in the crypto world have been given the tremendous opportunity and privilege, and the awesome responsibility, of being on the legal front lines of this exciting new ecosystem. We get to interpret and sometimes even shape the various regulatory frameworks that will or may apply. Shoulder-to-shoulder with our clients and each other, we lawyers have been given the chance to be co-artists and co-designers of compliant and truly transformative technological and commercial endeavors, and not just deal jockeys and naysayers.
New legal models
What has driven so many lawyers to band together as thoughtful, well intentioned allies?
Is it risk aversion? Partially. Many responsible lawyers may hesitate to give legal advice about novel questions without seeking the views of others whom they respect. Few lawyers may want to risk being the outlier, giving out-of-step advice. There may be a perceived safety in numbers.
Is it a matter of self-selection? In other words, are those lawyers who are most deeply immersed in the blockchain community naturally more open to new experiences, more collaborative, creative, and trusting, more inquisitive? Possibly. (Admittedly, as one of those lawyers, I kind of like that idea, because it paints a favorable picture. We all like to be special.)
In my view, however, these collaborative legal communities and relationships are emerging because they work and, I’d argue, are necessary for lawyers to continue to provide meaningful legal advice.
In the face of rapidly developing, expanding universe-scale innovations and ecosystems, we cannot go it alone. Even a single token sale, for instance, typically requires a team of lawyers from multiple jurisdictions, covering myriad legal content areas – among others, securities, commodities, money transmitter and other financial services, investment company and investment advisor, broker-dealer, tax and intellectual property – and many, if not all, of those legal content areas are changing or being re-examined in real time.
Fortunately for the crypto community, many talented lawyers have been brave enough to take stands and make them public, resulting in groundbreaking legal analyses and proposals – including “A Securities Law Framework for Blockchain Tokens,” “The SAFT Project: Toward a Compliant Token Sale Framework,” “Not So Fast – Risks Relating to the Use of a “SAFT” for Token Sales” and “Conceptual Framework for Legal and Risk Assessment of Blockchain Crypto Property (BCP).”
These are not mere vanity projects. In a legal landscape filled with risk and few bright lines, we still need to provide practical advice to our clients now.
Rather than analytically wrestling alone with, for example, the U.S. Securities and Exchange Commission’s The DAO enforcement action or Munchee cease and desist order, by understanding, critiquing and building upon our legal peers’ views, we arguably collectively can come to better reasoned views, and do so more quickly. Our learning in this space is incremental; why not build a knowledge ladder together and climb it?
Perspective sharing among lawyers (and interested non-lawyers) may take place in working groups (like the Wall Street Blockchain Alliance), “think tanks” like Wharton RegTech, panel discussions, LinkedIn posts or even just quick calls to across town (or across-the-world) colleagues or so-called competitors. To my mind, it matters less how these discussions take place than that they take place.
Blockchain technology has enabled us to form new communities that transcend geographic, socioeconomic and other traditional boundaries. Maybe it makes sense that the old, siloed law firm models need to evolve, as well.
We are experiencing a technological tidal wave of new business models and novel legal questions, and regulators, market participants and lawyers all are trying to navigate the current. The entire blockchain ecosystem arguably benefits when lawyers focus some of their energies outward, beyond their individual firms – advancing legal discussion and theory and grappling together to interpret and apply legal frameworks – rather than solely inward.
This shift in priority from maximizing at all costs an individual firm’s competitive advantage to developing a shared, industry-wide understanding may yield powerful economic, intellectual and interpersonal benefits, just as blockchain technology itself promises.
Aligning and realigning ourselves in flexible, nimble teams, across organizations and areas of expertise, may result in better thinking, more refined reasoning, a deeper combined knowledge reservoir. Not to mention more fun.
The future is fast
In our blockchain space, the very speed of change appears to be accelerating.
What we tinfoil hat wearers hoped for in 2016 is beginning to happen. Bitcoin futures exist in our present. Hedge funds are trading cryptocurrency. Governments around the globe are moving forward with blockchain technology initiatives. The United Nations’ pilot program reportedly has sent vouchers to refugees using the ethereum blockchain.
The token sale genie is not going back into the bottle, and many predict torrents of self-described security tokens next year, particularly once a sufficient number of alternative trading systems have been launched.
Entrepreneurs and investors, eager to devise imaginative capital-raising techniques, are exploring mini IPOs and the intersection of equity crowdfunding and token sales. Chambers and Partners released its first-ever list of blockchain and cryptocurrency lawyers globally. Legal white papers are quoted like bestsellers, and just about everyone has a view about the SAFT. It is an exciting time to be a crypto lawyer.
In my view, 2018 is likely to bring with it types of technological and economic artistry that we cannot presently envision, and nearly all of those innovations will need to be understood and analyzed through a legal lens. The global blockchain and cryptocurrency community needs a strong, yet quickly adaptive, base of legal understanding on which to build and blossom. We need an informed regulatory climate that protects individuals, while encouraging technological innovation to flourish.
The future is fast, and our legal advice must be sound. In 2018, cooperative and creative thought leadership by blockchain lawyers (and non-lawyers) will be key.
Have a different vision for blockchain in 2018? CoinDesk is now accepting submissions for its 2017 in Review. Email [email protected] to share your industry outlook.
Renaissance image via Shutterstock.
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