GM. Welcome to Degen Lawyer's Newsletter, where we bring you your weekly dose of legal insights, and regulatory updates in the emerging tech and law space. Our expert lawyers serve up curated analysis, hot takes, and expert commentary, sprinkled with a healthy dose of the wacky and meme worthy. Enjoy!

In this week’s edition:

1. Updates From Around The World

2. Courtroom Watch: Greyscale win against SEC

3. Weekly Explainer - ‘Consensus Mechanism’

4. Crazy Crypto News - Fraternidade Crypto and Private Keys.

Updates From Around The World

• X all set to integrate Digital Payments:

  Elon’s X (formerly Twitter) has been granted licenses for storing and transferring digital assets in several US states. In his push to make X the ‘everything app’ the former PayPal owner is making a large play for digital assets. With monetisation already paying out dividends to existing content creators on X, this seems like a home run, and given Elon pre-disposition to Doge coin, it looks like maybe the creators should keep an eye in their new ‘X’ wallets for a dog shaped surprise. (fyi: we’re still waiting for our monetisation to hit our accounts, any day now 🥲 )

• SEC action against NFT Company:

  For the first time ever the Securities and Exchange Commission of the USA has levied an enforcement action against Impact Theory alleging the company sold unregistered securities. Apparently they told their customers they would ‘profit’ from sale of the NFT if the company was sold down the road. The company agreed to a cease-and-desist order and paid $6.1 million in penalties. It also agreed to destroy all the NFTs in question still in its control. This is a massive outcome that NFT founders - NFT Founders, take careful note , gone are the days when you can get away with shilling and promising returns and 🚀 emojis. This is why it’s so vital for founders in the Web 3 space to understand the basis of how their offerings interact with the law.

• Chinese Court declares virtual asset as property:

  A Chinese court has came out with a report declaring virtual assets as legal property. The report acknowledges that virtual assets have economic attributes and thus can be classified as property, it also suggests that crimes involving virtual assets should be dealt with separately to achieve a balanced protection of personal property rights and social and public interests. While Private Crypto is banned in China, the Chinese Courts have not been shy in expressing their views on Crypto. Big Win for Crypto Users in China, they’ve had it rough.

Courtroom Watch

Greyscale v. SEC and the tale of Regulatory Overreach

Greyscale just won a historic decision in the appeal court in the United States. This is particularly relevant because the Securities Commission of the USA (SEC) and Chair Gary Gensler are generally viewed as the most important decision-makers when it comes to the Decentralised Finance space.

First some context:

Greyscale is one of the largest crypto asset managers, they applied for a Bitcoin Spot ETF with the SEC, the SEC promptly denied this application. Bitcoin Spot ETF's have been in the spotlight the last few months because financial behemoths like Blackrock have applied for the same and the consequence of SEC acceptance would be a huge boost to the whole crypto space. It would essentially bring institutional money galore into the space and bring Bitcoin investing on par with traditional investing like say, Stocks or Gold.

The observation of the court was as follows:

1. The SEC failed to explain its differential treatment of similarly placed products.

2. The SEC did not act consistently and the burden of proving the difference in approach between similarly placed applications lay on the SEC.

3. The court made reference to 2 recent BTC future ETFs that were approved.

4. On analysis of Greyscale's application, the court came to the conclusion that the evidence submitted was similar to the approved Futures ETF's.

5. The court held that the SEC made an arbitrary and capricious decision, and on analysing the reasoning for denial; the court found it inadequate.

Takeaways:

Important victory for the space as a whole. Either the SEC now realises that Spot Bitcoin ETF is inevitable (esp with the bigwigs getting involved) and simply agrees with the court. OR Gary decides that he ain't backing down and denies the application for some other reason.

Either way, a rap on the knuckles is exactly what the SEC needed especially after the recent Congress and CFTC tussles.

Their response to this will be interesting to see and even more interesting will see how regulators in other parts of the world react to this. Once the US grants a spot Bitcoin ETF its only time that financial companies like Blackrock with massive pull with regulators worldwide will do so elsewhere.

The important point here is the bigger picture, a big chunk of the most important crypto protocols are based in the USA and the SEC has refused to give clear directions on how the space can grow or adhere to regulations, similar to the Ripple and Coinbase case, the only way that regulation is being clarified is through the courts. It's a sorry state of affairs that affects the global markets.

Following the Greyscale drubbing the SEC were supposed to decide on several other ETF’s , but have asked for more time to decide.

Weekly Explainer

Consensus Mechanisms

Blockchain’s trust comes from the reliability and immutability of data (transactions) added on the blockchain. No one is permitted to randomly add data on to the blockchain. The data has to be verified first. Participants have to consent, before new data can be added on the blockchain.

Each blockchain network follow a set of rules, by which data is permitted to be added on the blockchain.

This validation process for each blockchain may depend on the consensus mechanism, they have adopted.

Here is a diagram of various Consensus Mechanisms:

Different mechanisms have relative pros and cons. Check out this link to understand more.

Crazy Crypto News - Fraternidade Crypto and Why you need to protect your Private Keys

This week we bring you a tale of drama, deception, and, believe it or not, redemption!

Fraternidade Crypto, a prominent Brazilian crypto influencer. found himself in the crosshairs of a scammer on live broadcast no less.

The Play by Play breakdown:

Fraternidade innocently opened a notepad file on his computer during a livestream and accidentally flashed his private key (the virtual key which gives us access to our crypto wallets)

As the livestream unfolded, panic set in. Fraternidade realized what had transpired and desperately tried to transfer his funds before the scammer could make a swift exit. But alas, the scammer had already locked him out of his own crypto wallet.

The aftermath was heart-wrenching. Our Sao Paolo-based influencer posted another livestream, only this time he was in tears. He bared his soul to his followers, revealing that $60,000 worth of crypto had been whisked away from him. His plea to the scammer for mercy was heart wrenching 💔 

"Yesterday was one of the worst days of my life," he confessed. "I kind of froze at the time, as you see on the video. I stopped the video about 15 to 20 seconds after. I started to get bad, shaking, you know? I needed to transfer the assets as soon as possible... When I went to transfer the assets, an error sign appeared. I couldn't believe that I was going through this."

He however, didn't take it lying down. He quickly headed to the police station to report the crime. Desperate for some support and solace, he turned to his Discord channel, where there was an outpuring of support by his fans and well-wishers. It was there that fate took an unexpected turn.

A message appeared from an unexpected source asking for a private chat, he thought maybe a fan would be able to help with the next steps. It turned out to be the scammer. In a twist of events that could rival a Hollywood thriller, the scammer astonishingly returned $50,000 admitting his wrongdoing and without explanation just left.

Fraternidade, in a display of empathy, decided not to reveal the scammer’s name, despite the transgression. "Maybe I went soft... I'm ashamed of going through this, I'm embarrassed," he admitted.

In the ever-unpredictable world of crypto, even the most harrowing tales can have a glimmer of hope, maybe he saw the emotional pain he had caused, or may be the community rallying caused him a change of heart, we will never know.

Stay vigilant, stay secure and most importantly please don’t keep your private keys somewhere it may be revealed.

Thank you for reading!

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