Insight Recap: 2022 Idaho Crypto Summit
(Updated 7/25/2022: View Update)
Industry leaders convened on Tuesday, May 24th, 2022 to discuss crypto from a regulatory and legal perspective. If you were unable to attend this event and are curious about crypto, here’s what you need to know. . .
Opportunities of Web3
Christopher Rowlison, Chief Executive Officer and Board Director at MCX Technologies, kicked off the morning with a discussion about Web3.
First, what’s Web3? It’s a decentralized version of Web2.
What’s Web2? Web2 describes the current state of the internet. Think Facebook and Instagram. Web3 is different because it’s peer-to-peer, which means people can send information without requiring a central server. Why is that good? Because centralization of the internet has led to digital authoritarianism, big tech oligopolies, and large personal data scraping and selling schemes.
It’s not just crypto bros who believe that Web3 will empower communities of network participants to reclaim their content and private data. Investors also anticipate that Web3 will be big. In 2021, folks invested $17.9 billion into blockchain startups. Why the fandom? Web3 could revolutionize the way we go about our daily lives and do our daily business.
Although the prospect of Hawley Troxell acquiring a digital twin on the Metaverse is an unlikely event in the foreseeable future, it’s not an impossible one. As the adage goes: the future is now.
The Current Legal Environment: Crypto Beyond Idaho
Hawley Troxell Associate Jonathan Wheatley presented a brief overview of federal regulations concerning all things crypto.
Today cryptocurrency and digital assets are subject to a patchwork of regulation in the United States. What kind of regulation applies and who enforces the regulation largely depends on what the entity is and what it is doing. The primary federal regulators include: the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), the U.S. prudential bank regulators, the Internal Revenue Service (IRS), and the Department of Justice (DOJ). This year President Joe Biden issued an executive order calling on federal agencies to coordinate on policy for crypto.
A Regulator’s Approach to Crypto
Next ensued a panel discussion moderated by Hawley Troxell Partner Brad Frazer.
Panelists included:
Patti Perkins, Director of the
Idaho Department of Finance
Salvador Cruz, Bureau Chief of the Idaho Department of Finance
Robert Moore, Bank Section Supervising Examiner of the Idaho Department of Finance
The panel discussed Idaho’s approach to regulating crypto and emphasized that Idaho is a crypto-friendly state. State legislators want to develop a cohesive policy pertaining to state regulation of crypto.
And, if you didn’t know, there is such a thing as PotatoCoin.
What Do You Get When You Buy an NFT, Really?
Frazer rounded out the summit by asking one simple question: what do you get when you buy an NFT, really? The answer lies at the intersection between copyright law and NFTs.
Frazer began by explaining that a copyright is a noun, not a verb. You receive a copyright when you have a sufficiently creative idea and reduce that into or onto a tangible medium. Upon doing so, you are now the author and owner of the copyright. Pursuant to 17 U.S.C. Section 106, you may also stop others from copying, distributing, making derivative works, publicly performing, and publicly displaying your work.
A non-fungible token, or “NFT,” is also a noun. An NFT is, essentially, a line of code. It is created when, typically, a digital representation (be it a URL, URI, code snippet) of a creative work of some kind, like a picture, is captured (“minted”) in a blockchain.
It’s important to understand that an NFT is usually separate from the underlying work. The line of code, which is the NFT, exists on the blockchain. The underlying creative work exists separate from the blockchain. Buying an NFT will usually bestow its acquirer a URL or URI that links to the underlying image.
For example, take Beeple’s digital work of art, Everydays: The First 5000 Days, which was minted as an NFT. Beeple owns the copyright to the underlying digital image as the author of the work. Does, however, the owner of Beeple’s NFT also own the copyright to Beeple’s digital image? No! The mere minting and selling of an NFT is not an assignment of a copyright because it is not recognized as a valid transfer under 17 U.S.C. Section 204(a).
What about so-called “smart contracts”? Could those operate as copyright licenses? Maybe.
Smart contracts are automated programs that execute agreements on the blockchain. Smart contracts enable the transfer and selling of NFTs. Well, per current authority, automated systems such as Artificial Intelligence cannot enter contracts because only a person with a mind can be an agent in law. When parties utilize smart contracts as a license for copyrights, it’s unclear whether the smart contract is legally valid because it is also an automated system.
If you don’t receive the copyright when you buy an NFT, then what are you buying really? You’ll receive immutable proof of provenance of the NFT, that is, usually the URL or code snippet that was minted into the blockchain (but remember, not the underlying image). You may receive other benefits depending on the utility of the underlying work, such as the ability to join exclusive clubs or events. And, of course, you may just want clout in the crypto community.
Until case law says otherwise, just know what you’re getting when you buy an NFT. You don’t get Section 106 rights unless you negotiate a signed contract of some kind with the owner of the underlying copyright or (maybe) the smart contract grants you an exclusive license. While it’s an exciting space, it’s also one ripe for misuse. Before you join the Bored Ape Yacht Club, buyer beware.
Update (7/25/2022): Hawley Troxell attorneys Brad Frazer and Jonathan Wheatley have each recorded their full presentations, which can be viewed below:
(1:13 – 21:48)
“The Current Legal Environment: Crypto Beyond Idaho”
Jonathan Wheatley
(22:03 – 53:44)
“What Do You Get When You Buy an NFT, Really?”
Brad Frazer