HomeNewsBlockchain-based legal practices thriving
Blockchain-based legal practices thriving

Blockchain-based legal practices thriving

Last updated 30th Nov 2022

With a law and accounting background and 15 years of experience in compliance, Robert Musiala brings strong qualifications to his role as blockchain counsel at the law firm BakerHostetler.

A member of the firm’s Blockchain Technologies and Digital Currencies Team, Mr. Musiala helped found the blockchain practice at Price Waterhouse Coopers where his work included helping the U.S. intelligence community understand risks associated with the technology.

His past lines of work neatly converge into blockchain technology, Mr. Musiala explained. As blockchain becomes more widely used, firms like BakerHostetler are delivering value in establishing true digital identities.

“If you have a blockchain system where data is fully secured and transported, the critical vulnerability becomes how to confirm the person writing the data is whom they purport to be,” Mr. Musiala said.

His practice focuses on key aspects including data protection and security, taxation, meeting with federal regulators, use of enterprise applications, anti-money laundering and compliance, and patent protection. Because these areas are so new, the technology is ahead of the law, but a look back at the history of technology and law shows the law will slowly and methodically catch up, Mr. Musiala said.

Look to Europe for an interesting example of how the law can clash with technology. The European Union’s General Data Protection Regulation (GDPR) was designed for a centralized computer authority and did not contemplate decentralized ledger technology. One of the GDPR’s provisions is the right to take data with you are erase it from systems. How can the person requesting erasure be confident a company has fully complied with its request?

Taxation is another tricky area, Mr. Musiala explained. When cryptocurrency is cashed out it must be taxed at the proper rate, but sometimes one cryptocurrency is traded for another and real gains are pushed down the road. Investors need to be aware of the implications and develop an effective taxation strategy.

Bodies like the SEC and FINRA have to maintain a tricky balance between watching and action when it comes to cryptocurrency regulation, Mr. Musiala noted. Their role is to protect U.S. investors while enforcing regulations and with the amount of fraud occurring with ICOs, they’ve done a fantastic job of protecting investors while not stifling the new industry. With more guidance expected early in 2019, the path will be even more clear.

There are jurisdictions in Europe and Asia which are taking the lead in establishing blockchain and cryptocurrency innovation centers. That has caused some speculation that established financial centers like New York, Tokyo and London risk losing their premier status as (if?) the world shifts to a tokenized economy. Mr. Musiala isn’t that worried.

“Some say if we’re too heavy handed we’ll drive innovation off shore. Our markets are the envy of the world because the SEC is enforcing regulations to ensure the markets are protected from fraud. They are helping establish credible markets.

“Ultimately the SEC has to put investor protection first.”

ICO proponents touted them as a new method to raise needed capital, but they are fraught with risk, so much that BakerHostetler’s ICO-related work is limited to getting companies out of ICO-related trouble. It’s a sad story when a startup with a good business plan chases easy capital and then has to divert valuable time and money to address an SEC subpoena.

“We will not help companies conduct an ICO,” Mr. Musiala said.

ICOs are no more than a distraction away from the exciting possibilities created by blockchain technology, Mr. Musiala said. What did attract him was its ability to serve as a new means to manage, transfer, store and authenticate pieces of digital information, including between previously untrusted parties. That, and the fading of ICOs into the past, will allow the industry to further the groundbreaking aspects of blockchain.

“We were distracted by two things, the Bitcoin price spike and ICOs,” Mr. Musiala said. “As both distractions are starting to fade away I see the industry getting back to some of the more valuable propositions of the technology.”

ICOs will have a lasting effect, however, and will likely take one of two forms, Mr. Musiala said. A security token offering can easily comply with securities laws and is simply a more efficient way to manage, transfer and audit securities. It can be adopted by players ranging from the NYSE and NASDAQ down to a basic fintech startup. Another option is the establishment of an exception allowing some level of token sales up to a prescribed limit.

Other interesting topics the industry is just beginning to face include patent protection, where what is actually patentable is still being discussed, Mr. Musiala said. Some companies are aggressively filing patents in hopes of establishing competitive advantages in such areas as bank security and anti-money laundering protection, data privacy and others.

“The issues of data management and security are paramount in the next few years,” Mr. Musiala said. “Blockchain can solve them, but can also cause difficulties. There is a need for firms to have a good understanding of GDPR and the new California Consumer Privacy Act.

“And how to get entities to work together to build a blockchain solution which affects all of them.”

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