New York State has taken measures this year to modernize its approach to regulation for blockchain-based companies. Even before Assembly Bill A8783B established a government task force to study the effects of blockchain and digital assets on financial markets in the state, in October, the New York State Department of Financial Services (“NYSDFS”) announced that it would allow companies engaged in “virtual currency business activity” (as defined in the New York State “BitLicense” requirements) to utilize the Nationwide Multistate Licensing System and Registry (“NMLS”) to apply for, update, and renew their operating licenses, including BitLicenses. The NMLS was created in 2008 by the Conference of State Bank Supervisors to act as a central licensing repository and has expanded over the past decade from servicing non-bank mortgage companies to including a variety of non-bank firms. The system is intended to allow for enhanced supervision, as license applications and registrations can be managed by a number of governmental agencies through NMLS. In addition to businesses engaged in virtual currency business activity, other nonbank financial institutions currently under the oversight of the NMLS platform include licensed check cashing companies, budget planners, sales finance agencies, money transmitter licensees, and mortgage providers.
Blockchain and sports gambling seem to be a natural fit. Sports gambling has been at the forefront of the news cycle since the U.S. Supreme Court struck down a federal statute that banned states from authorizing sports gambling in Murphy v. NCAA. Since then, New Jersey, Delaware, Mississippi and West Virginia have passed laws allowing wagering on the results of certain sporting events. New York, Pennsylvania and Rhode Island are quickly moving towards the legalization of sports gambling and a number of other states are expected to follow.
Blockchain has already proven to be a reliable partner for online casino gambling. In the past few years, a fruitful relationship between online casino gambling platforms and blockchain technologies has developed. Satoshi Dice, which first gained popularity in 2012, allows users to gamble their cryptocurrency through a blockchain-based, peer-to-peer dice prediction game. Virtue Poker, a ConsenSys-backed, decentralized poker platform, uses blockchain to ensure that casino operators (the “house”) cannot tamper with the integrity of a wager. And ZeroEdge uses smart contracts and blockchain to eliminate the “house” fee that is typically passed on to gamblers.
Thus, given the opening for sports gambling, it is easy to imagine a relationship forming between sports betting and blockchain technologies. Blockchain may allow casino operators and other entities to reduce transaction fees, speed up payment processing, increase gambler anonymity and flag problematic transactions. Some sports betting entities, such as daily fantasy sports behemoth FanDuel, have already begun exploring such opportunities.
However, even within states that have already legalized sports gambling, there are still a number of factors to consider for those aiming to utilize blockchain technologies within their sports betting platforms. Such considerations include, for example:
On April 17, 2018, the New York Attorney General’s Office (“OAG”) launched a Virtual Markets Integrity Initiative and sent letters to thirteen cryptoasset trading platforms requesting, through a questionnaire, disclosures on their operations, internal controls, and safeguards to protect customer assets. The questionnaire focused on six major topic areas, including: 1) Ownership and Control, 2) Basic Operation and Fees, 3) Trading Policies and Procedures, 4) Outages and Other Suspensions of Trading, 5) Internal Controls, and 6) Privacy and Money Laundering. The OAG characterized the initiative as a mechanism to “increase transparency and accountability” on “platforms used by consumers to trade virtual or ‘crypto’ currencies like bitcoin and ether.” Notably, the thirteen trading platforms were only given two weeks to respond to the questionnaire.
While cryptoasset exchanges already face regulatory scrutiny from the SEC, the CFTC, and certain state regulators (including other agencies within New York), among others, the OAG determined that their mandate to protect customers/ investors and ensure the fairness of New York’s financial markets necessitated further action. Two of the targeted trading platforms – Coinbase and Kraken – publicized markedly different responses to the OAG’s inquiries, the content of which sheds light on how some of the industry’s key players are approaching regulation; and perhaps, how regulators should be approaching some of the industry’s key players.
Earlier this month, Judge Jack B. Weinstein of the U.S. District Court for the Eastern District of New York entered a preliminary injunction order against Patrick McDonnell and his company, CabbageTech, Corp. (together, the “Defendants”). In a landmark ruling, the order upheld the CFTC’s position that “virtual currencies”…
On a daily basis, companies are announcing new developments on the adoption of blockchain in core business operations. However, many of these use cases present unique legal issues. In order to provide some clarity on some of these issues, and perhaps to offer a blockchain-friendly environment for the operation of blockchain companies, state legislatures around the country are rushing to adopt blockchain-friendly laws. Among the latest states to join are Florida and Nebraska.
GMO Internet Inc. (“GMO”) is a Japanese-based tech conglomerate with over 4,700 full-time employees and a market cap of over 200 billion yen. Since May 2017, the organization has taken steps to enter the cryptocurrency space, including the creation of a cryptocurrency exchange targeted towards institutional investors and retail traders and the formation of a cryptocurrency mining business in Northern Europe.
Recently, GMO released a statement that domestic employees will have the option to receive part of their salary payment in bitcoin. This announcement is both interesting and important for a multitude of reasons, particularly because Japan is one of the primary players in the cryptocurrency world. According to jpbitcoin.com, a Japanese website serving as a central hub for cryptocurrency news and information, yen-based bitcoin trades accounted for nearly half of all bitcoin trades in November. And while Japan’s Finance Minister recently remarked that bitcoin “has not yet proven to be credible enough to become a currency,” Japan’s Financial Services Agency confirmed that that bitcoin can be used as legally accepted payment in the country.
As cryptocurrencies surge in value and enter mainstream consciousness, an increasing number of employers may consider compensating their employees with bitcoin, ether, or other cryptocurrencies. While a cryptocurrency compensation scheme may proliferate everyday usage of these currencies and attract tech-savvy labor talent to organizations, it may also put an employer at risk of wage and hour violations, and implicate additional regulatory regimes such as the securities laws. Although lawsuits on such “crypto-compensation” issues have yet to materialize, employers should stay ahead of the curve by protecting themselves against these potential pitfalls: