1. Topic

The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government.  The SEC holds primary responsibility for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nations stock and options exchange, and the activities and organizations, including the electronic securities markets in the United States. The SEC’s agency director of the division of corporate finance, William Hinman, stated that Ethereum (the second biggest cryptocurrency) and Bitcoin (the largest cryptocurrency) should not be regulated in the same way as stocks and bonds. Therefore, how do business, private and public companies, tech-giants, and the public utilize an industry that will be valued at $1 trillion dollars by the end of 2018 and how does the SEC and the CFTC begin to properly integrate cryptocurrency into the exchange.

2. Audience:

This pathfinder is intended for use by law students, practicing attorneys, and law professors who seek to learn more about the developing cryptocurrency and blockchain technology. Additionally, states and local municipalities may also find this resource useful. Through this pathfinder, the reader will acquire an understanding of what cryptocurrency and blockchain is, how it has influenced the U.S. SEC to begin noticing its presence as a currency and its status in present-day law. This guide may prove to be particularly useful to law students studying securities law and business law as well as those who write for journals covering antitrust and business topics. Additionally, practicing attorneys and others working closely with the government may find this pathfinder helpful in getting a better grasp on the nuances of antitrust law

3. Purpose

The purpose of this pathfinder is to examine cryptocurrency and blockchain from its inception to its current day form. In doing so, this guide will provide a comprehensive analysis of the limited and relevant case law emerging in this industry, including the rationales the courts used in regulating the industry, if any.  Additionally, because the cryptocurrency and blockchain is a current hot button legal issue, as well as,  a popular subject, this pathfinder will explore common scholarly criticisms of cryptocurrency as a valid form of accepted payment. 

As a researcher just beginning your research into Cryptocurrency and Blockchain, secondary sources may offer an effective and efficient starting point. Secondary sources may not give you the exact answer you are looking for, or it may not go into the necessary depth required for a proper answer; however, secondary sources will at least give you a sense of direction and allow you to plan your research strategies accordingly.

1. Law Review Articles & Journals
   1. Law review articles are written by both law students and professors. Law reviews can either be broad or narrow in scope, depending on the type of publication. Law reviews are generally available in print via directly from the publication but this can be both a waste of time and cost-inefficient. Additionally, law review articles may be found online, either in LexisAdvance or WestlawNext.

2. Follow the instructions below:

1. LexisAdvance
   1. From the home screen, select the “Browse” tab.
   2. Next, select “Sources” and then “By category” and finally “Secondary Materials”.
   3. At the next screen, in the box labeled “Category” select “Law Reviews and Journals”. This will bring up every law review and journal LexisAdvance has in its database.
   4. From here, it may be helpful to use the search function to filter out irrelevant information.

2. WestlawNext
   1. From the home screen, select the link “Secondary Sources”.
   2. Next, under “By type” select “Law reviews and Journals”.
   3. Under the “By topic” heading, you can select “Cryptocurrency”.
   4. The next screen will give you a hyperlinked list of every Antitrust journal in WestlawNext’s database.
   5. From there, it may be helpful to search specifically for “State Action Immunity”.

3. Notable Law Review Articles
   1. Cryptocurrency Regulations and Enforcement in the U.S., 45 W. St. L. Rev. 1., Western State Law Review (Fall 2017)
      1. A great place to start in order to understand the beginning stages of integrating cryptocurrency into the United States exchange market.
   2. Regulating Decentralized Cryptocurrencies Under Payment Services Law: Lesson From European Union Law, 9 Case W. Reserve J.L. Tech & Internet, Case Western Reserve Journl of Law, Technology and the Internet, 2018.
      1. Cryptocurrency is global so this is a great article in order ot understand how other countries are dealing with its integration process.

2. Legal News Papers

Cryptocurrency and Blockchain Technology is hands down the fastest, newest

merging, field, therefore there is limited information available.  However, resources like legal news paper are a great way to find out more information about a legal topic from the industries leading legal minds. 

How to on Westlaw Next:

1. Get to the home screen of WestlawNext

2. From there, select the “Secondary Sources” link

3. Next, under “By type”, select “Legal Newspapers”

3.  Then, under “By topic”, select “Cryptocurrency”

4.  On the next screen, you will find, a list of legal newspapers

            Notable Legal News Papers:

Cryptocurrency 2018: When the law catches up with game-changing technology., Westlaw Journal Corporate Officers & Directors Liability, By David E. Fialkow, Esq., April 2, 2018

3. Text & Treatises:

Treatises are more topic-specific and also delve into much greater detail than encyclopedias do. After getting enough background information on your topic to have a basic understanding of that area of law, a treatise may be a good next step to held refine your research. Treatises are usually written by attorneys and law professors who have a high amount of knowledge and experience in a given field. The treatise will give you more information about your specific topic and will also direct you to other cases that may be relevant. Treatises are found in both print and online.

            How to on Westlaw Next:

1.   Get to the home screen of WestlawNext

2.   From there, select the “Secondary Sources” link

3.   Next, under “By type”, select “Texts & Treatises”

4.  Then, under “By topic”, select “Cryptocurrency”

5.  On the next screen, you will find “Securities Law Handbook”

6.  You will then be prompted to select a part, select chapter VII. “Initial Coin Offerings and Digital Currency”.

7.  You may then browse by section. Section 2:36 will be of relevance:

            i.          Note this important statement from that portion:

“On January 4, 2018, NASAA issued a statement entitled. ‘NASAA Reminds Investors to Approach Cryptocurrencies, Initial Coin Offerings and Other Cryptocurrency-Related Investment Products with Caution.’ This statement provides an overview of risks associated with investing in an ICO and ominously warns investors that NASAA has identified ‘cryptocurrency-related investment products as emerging investor threats for 2018.’

In a somewhat unusual move, the three sitting SEC commissioners issued a joint statement commending the NASAA statement. 

The commissioners also cautioned the investing public that:

Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following [securities] laws. The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.”

1. Definition
   1. Cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
      • Furthermore, cryptocurrency is a kind of digital currency, virtual currency or alternative currency.

1. Cryptocurrencies use decentralized control as opposed to centralized electronic money and central banking systems.
   2. In addition the decentralized control of each cryptocurrency works through distributed ledge technology, typically a block chain, that serves as a public financial transaction database.
2. Blockchain: Is a growing list of records, called blocks, which are linked using cryptocurrencies. 
3. Private blockchains have been proposed for business use.
1. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
2. Note: The transaction date, is generally represented as a merkle tree root has. 
   1. Merkle Tree: is a tree in which every leaf node is labelled with the hash of a data block and every non-leaf node is labelled with the cryptographic hash of the labels of its child nodes. 
3. By design, a blockchain is resistant to modification of the data.
4. It is a “an open” distributed ledge that can record transactions between two parties efficiently and in a verifiable and permanent way.
5. In order to be used as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks.
   • The data is then recorded.
   • Once the data is recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority. 
4. Three Types of Blockchains
1. Public Blockchains:
   • A public blockchain has absolutely no access restrictions.
   • Therefore, anyone who has an internet connection can send transactions to it as well as become a validator.
2. Private Blockchains:
   • A private blockchain is permission.
   • Therefore, one cannot join it unless invited by the network administrators.
   • Participant and validator access is restricted.
   • Note: This is common among companies who are interested or considering blockchain technology in general but are not comfortable with a level of public networks.

3. Consortium blockchains
   • Is a semi-decentralized.
   • It is also permissioned but instead of a single organization controlling it, a number of companies might each operate a node on such a network.
   •  
4. Blockchain Integration:
   1. Blockchain technology can be integrated into multiple areas.
   2. As we know the primary use of blockchains today is as a distributed ledger for cryptocurrencies, most notably bitcoin.  
   3. Because of blockchains unpredictable nature, as well as many not being informed, business are reluctant to place blockchain at the core of the business structure.
   4. However, the following are three areas where blockchain is integrated.
      2. Smart Contracts:
         1. Blockchain-based smart contracts are proposed contracts that could be partially or fully executed or enforced without human interaction. 
         2. Purpose:  Main objective of a smart contract is automated escrow.
         3. Problem: Their legal status is unclear.
      3. Banks:
         1. Scope:  Major portions of the financial industry are implementing distributed ledgers for use in banking.
         2. Purpose:  Speed up back-office settlement systems. 
      4. Other Industries Blockchain is Being Used:
         1. In General:  Blockchain technology can be used to create a permanent, public, transparent ledger system for compiling data on sales, tracking digital use and payments to content creators, such as wireless users or musicians.
         2. Insurance Companies:  New distribution methods are available for the insurance industry such as peer-to-peer insurance, parametric insurance and micro insurance following the adoption of blockchain

As the name implies, case law is law that has been formulated by judges through court opinions. Case law is very useful to help interpret ambiguities that may be inherent in statutory language. Additionally, case law helps to shape policy in the law. Case law is especially important in the field of Cryptocurrency as it is so new building precedent is of valuable importance as the cryptocurrency field moves forward.  

1. WestlawNext: WestlawNext offers several different ways to go about searching for case law in a particular area.

First, one can simply input a search term into the search box. This term can either be a case citation or case name (if you know what case you want to find) or it can be a phrase. When a search term is entered, WestlawNext first presents the researcher with an overview of all types of information that may be of use such as cases, key numbers, statutes, etc.

Using the side menu, results can be filtered by a certain type, including “cases”. Once the search results have been filtered to show only cases, you have the option of sorting cases based on four criteria: relevance, date, most cited, or most used.

Be sure to pay attention to the flags next to a case name, as they denote whether the case has received any negative treatment: -

No flag: The case is still good law –

Yellow flag: Caution, the case is not overturned but there may be conflicting laws (a common scenario is a court either refused to follow it or distinguished another case from it). –

Red flag: Overruled, the case is no longer good law Headnotes West headnotes improve efficiency by giving you the most important parts of the decision.

The headnotes are found at the top of the case. They include a brief summary of a portion of the case, together with a relevant key number and a hyperlinked headnote number.

Clicking on the key number will bring up other cases that have also cited that key number. Clicking on the hyperlinked headnote number will bring you to the part of the decision that the headnote is derived from.

2. LexisAdvance: LexisAdvance also offers multiple ways to search for cases pertaining to State-Action immunity in antitrust law.

First, with no filters on, you can run a search in the search box on the home screen. After you see your results, you have the option to select what type of results you want (cases, secondary materials, etc.,) and you may also choose various filters, such as: jurisdiction, court, state, and date.

You can achieve this result also by placing the filters on your search at the very beginning.

1. At the home screen, click the “filters” tab and a dropdown menu should appear.
2. From here, you may narrow your search by jurisdiction (federal or state, which state), category (cases, secondary sources, etc.,), and practice area (antitrust & trade regulation).
3. It is worth noting that you may add more than one filter at a time.
4. Lexis also has a code of symbols that must be observed in order to ensure the currency of the case:
   • Green diamond with plus sign: Positive treatment
   • Yellow triangle: Caution, limitations or criticism
   • Orange square with a “Q”: Validity has been questioned
   • Red circle with “!”: Warning, strong negative treatment Red stop sign: No longer good law
5. The headnotes are the major portions of the decision of the case and they contain links to the actual language in the decision from which the headnote was created. Lexis does not have key numbers, but you are able to Shepardize  headnotes, which will bring up a list of every case in its database that also cites the same headnote

Notable Cases:

1. Leidel v. Coinbase, Inc., 729 Fed. Appx. 883 (11^th Cir. 2018)
   1. Brief Facts: Alleged victim of digital cryptocurrency theft brought putative class action against provider of conversion service, alleging that two of provider's customers used conversion service to convert stolen cryptocurrency into cash, and that provider breached its duties to adequately monitor use of its service, detect theft of cryptocurrency, and report suspicious activity to appropriate authorities. The United States District Court for the Southern District of Florida, No. 9:16-cv-81992-KAM, denied provider's motion to compel arbitration. Provider appealed

2. Holding: The Court of Appeals held that nonsignatory alleged victim was not equitably estopped from avoiding arbitration clause in user agreements entered into between provider and its customers.

2. MacDonald v. Dynamic Ledger Solutions, Inc., 2017 WL 6513439 (9^th Cir. 2017).

Brief Facts: California resident Bruce MacDonald brings this putative class action on behalf of all persons who contributed to the Tezos Initial Coin Offering (“ICO”) in July 2017. MacDonald alleges defendants participated in an illegal sale of unqualified securities in violation of California's Corporate Securities Law of 1968 (Cal. Corp. Code § 25110) and California's Unfair Competition Law (Cal. Bus. & Prof. Code § 17200 et seq.). He seeks a temporary restraining order enjoining defendants1 from selling, transferring, converting, or otherwise disposing of any assets collected or derived from the ICO in advance of the preliminary injunction hearing scheduled for January 11, 2018 in related case Okusko v. Dynamic Ledger Solutions, Inc. et al., Case No. 3:17-cv-06829. Because plaintiff has failed to show that he is likely to suffer irreparable harm in the absence of injunctive relief, his application is denied

1. Though the securities exchange laws have been developed mostly through case law, administrative agencies have played a large role in shaping securities law in the past and now will place a role in shaping cryptocurrency as they go hand and hand with securities law. In the United States, prosecutions for securities exchange violations are generally handled by two executive agencies, either the Federal Trade Commission (FTC) or the Securities Exchange Commission (SEC). Both agencies tend to issue administrative materials relating to securities exchange fraud and conversion and judges tend to be highly deferential to these materials. As such, administrative materials can be a great source for research on topics relating to antitrust law.

2. Additionally, because the FTC and SEC handle securities exchange enforcement, it is likely that a significant amount of relevant case law will come in the form of administrative decisions.

3. Administrative Decisions and Guidance

1. Since the DOJ and FTC are likely to be the first (and maybe the only) entities to hear a case regarding antitrust violations, administrative decisions from those agencies can be highly instructive.
2. Using WestlawNext:
   1. Method One:
      1. From the home screen, with both state and federal options selected, type in a search term. (Recommended terms: “cryptocurrency”). Click enter.
      2. On the left hand side of the search results, select the link entitled “Administrative Decisions & Guidance”, to filer the results to show only administrative materials
      3. From here, you can filter results by agency, relevance, date, parties, etc.,
2. Method two:
   1. From the home screen, select the link entitled “Administrative Decisions & Guidance”.
   2. From here, you may select to continue your search by agency, state, or topic.
   3. The next screen will give you the ten most recent documents under that topic. If you wish to search further, simply type your search term into the search bar.

2. Using LexisAdvance: LexisAdvance is used only when searching for a specific term. The LexisAdvance Method:

i.   From the home screen, type in your term in the search bar

ii.  Next, click the filters tab, then the tab labeled “category”.

1. From here, you may select multiple categories to filter your results by. The two that are relevant in the Administrative context are Administrative Codes and Regulations and Administrative Materials.
2. At the next screen, all results from Administrative Materials can be filtered by date, document title, agency and relevance 

1. 1. State Regulators Launch Sweep of ICOs and Cryptocurrencies

   Legal update: archive Published on 23-May-2018 National/Federal
    
2. • Toggle Options Menu
   •  

   SEC and CFTC Issue Statements on Cryptocurrencies and Initial Coin Offerings

   2. SEC and CFTC Issue Statements on Cryptocurrencies and Initial Coin Offerings

   Legal update: archive Published on 29-Dec-2017 National/Federal
    
3. • Toggle Options Menu
   •  

   SEC's Divisions of Enforcement and Trading and Markets Issue Statement on Cryptocurrency Exchanges

   3. SEC's Divisions of Enforcement and Trading and Markets Issue Statement on Cryptocurrency Exchanges

   Legal update: archive Published on 08-Mar-2018 National/Federal
    
4. • Toggle Options Menu
   •  

   Cryptocurrency

   4. Cryptocurrency

   Glossary Maintained International, National/Federal

1.  RSS Feeds
   • Information:  Setting up an RSS feed allows a researcher to get frequent updates from a specific source, or group of sources, that may be relevant to the topic being researched. There are many RSS feeds available, but I used the following RSS feeds in preparing this pathfinder:
     • coindesk.com/feed
     • cointelegraph.com/feed
     • cryptocoinsnew.com/feed
     • blog.blockchain.com

2. WestlawNext Alerts

1. Information: Just like RSS feeds allow a researcher to stay current, using the alerts function on WestlawNext also draws attention to updates that may be important to the researcher. Using WestlawNext, I have set up alerts for the search “blockchain’; ‘cryptocurrency”; ‘bitcoin’; and ‘ethereum.’ Using this function, WestlawNext will notify me of any changes or additions to cases (state & federal), statutes and court rules (state and US Code), administrative decisions & guidance (looking for FTC, SEC, CFTC, specifically), secondary sources, briefs, news & legislative history. WestlawNext is set to update me via email, weekly with a list of added documents with the “more detail” setting.

3. Social Media

1. Social media can be another great way to stay up to date on current issues surrounding cryptocurrency. Especially because cryptocurrency is driven by social media trends.

2. Indeed, as social media becomes increasingly popular, news outlets and even the US government are using it to communicate with followers. Of all the social media sites, Twitter seems to be the best and most frequently used platform. Social media sites could prove especially useful if a case dealing with an especially important issue is soon to be decided, as news outlets and governmental agencies are sure to be talking about it.

1. Notable Twitter “Handles” to watch:

                            The Federal Trade Commission: @SEC.

The official Twitter handle of the SEC. This is probably the best Twitter handle to follow, as the SEC is likely to have the greatest amount of oversight with regards to cases involving state action immunity in antitrust law.

Also recommend following Commodity Future Trades Commission: @CFTC

As I have stated cryptocurrency and block chain is emerging as we speak, therefore there is only so many statutes out there regulating it. However, for New York the following is some information in regards to their regulation of cryptocurrency through 23 NYCRR 200:

1. The New York State Department of Financial Services established a comprehensive regulatory framework for virtual currency businesses called “BitLicense” that requires operations related to transactions involving any form of virtual currency to obtain a license from the state. 23 NYCRR 200. Before being granted a license, the state requires applicants to have strict compliance and supervisory policies and procedures in place, including, among other things, anti-money laundering/know-your-customer and cybersecurity programs in place. 23 NYCRR 200.
2. Several new bills regarding blockchain have been introduced in the New York Legislature, many seen as attempts to soften or study the negative impact the BitLicense had on blockchain and virtual currency innovation in the state.
3.  On March 13, 2018, the New York Cryptocurrency Exchange Act (A9899) was introduced. If enacted, the Bill would amend create a more manageable auditing system for virtual currency businesses that is intended to replace the BitLicense scheme and do away with its fee-based licensing requirement in favor of one earned by an audit.
4. Other legislation pending before NY’s legislature: AB8780 revises New York’s technology law by defining "blockchain technology" and "smart contract;" AB8792 directs the state board of elections to study the use of blockchain to prevent voter fraud; A08793 creates a task force to study whether blockchain can be used to store state records; and AB8783 creates a digital currency task force to determine the impact of cryptocurrencies on New York financial markets.

Best way to stay up-to-date on cryptocurrency is via Google search.

A great source for information about “Cryptocurrency” is:

https://www.investopedia.com/terms/c/cryptocurrency.asp

1. About: Investopedia is the largest financial education website in the world. Powered by a team of data scientists and financial experts, Investopedia offers timely, trusted and actionable financial information for every investor, from early investors to financial advisors to high net worth individuals. Investopedia is operated by IAC Publishing, a collection of some of the web’s largest and most trusted digital media brands.
    

1. v. Coinbase, Inc.

   1. Leidel v. Coinbase, Inc.

   United States Court of Appeals, Eleventh Circuit. April 23, 2018 729 Fed.Appx. 883 2018 WL 1905954
    
2. MacDonald v. Dynamic Ledger Solutions, Inc.

   2. MacDonald v. Dynamic Ledger Solutions, Inc.

   United States District Court, N.D. California. December 20, 2017 Slip Copy 2017 WL 6513439
    
3. Commodity Futures Trading Commission v. McDonnell
   

   3. Commodity Futures Trading Commission v. McDonnell

   United States District Court, E.D. New York. March 06, 2018 287 F.Supp.3d 213 2018 WL 1175156
    
4. UNITED STATES OF AMERICA, Plaintiff, v. 2013 LAMBORGHINI AVENTADOR LP700-4, VIN: ZHWEC1476CLA01032, BANGKOK PLATE NUMBER: 4 KOR KAI TOR TUNG, et al. Defendants.

   4. UNITED STATES OF AMERICA, Plaintiff, v. 2013 LAMBORGHINI AVENTADOR LP700-4, VIN: ZHWEC1476CLA01032, BANGKOK PLATE NUMBER: 4 KOR KAI TOR TUNG, et al. Defendants.

   United States District Court, E.D. California. August 08, 2018 Slip Copy 2018 WL 3752131
    
5. TELEGRAM MESSENGER INC, Plaintiff, v. LANTAH, LLC, Defendant.

   5. TELEGRAM MESSENGER INC, Plaintiff, v. LANTAH, LLC, Defendant.

   United States District Court, N.D. California. August 08, 2018 Slip Copy 2018 WL 3753748