The Problem with Lack of Regulation in the Blockchain Space

An interview with JR Lanis, chairing the West Coast Corporate & Securities Practice Area at Polsinelli

Blockchain technology has the potential to revolutionize the way people do business around the world. But without regulation here in the United States and abroad, entrepreneurs, investors, and the general public are left in a grey area without clear rules or standards to follow.

Some people believe that there is no need for regulation of blockchain technology because it will be able to self-regulate by bringing more transparency into business transactions while also protecting consumers and investors from bad actors.

But JR Lanis, a securities and M&A attorney chairing the West Coast Corporate & Securities Practice Area at the national law firm, Polsinelli, doesn’t completely buy that argument, saying that the lack of regulation can be dangerous.

“At least intuitively, you might believe [since] there’s limited law, you can’t get in trouble,” Lanis recently told me in a Zoom interview.

“‘But I think the opposite is true. It’s the fact that there isn’t much law that makes it more precarious,” he added, explaining that the lack of laws makes it easier for a regulator to accuse one of doing something wrong. In the best case, this would lead to an expensive legal battle and, at worst, jail time.

“And it becomes a sort of guilty-until-proven-innocent in a lot of ways,” he said.

Blockchain is a decentralized, digitized public ledger used to record all transactions made on a network without the need for third parties such as banks. The most prominent outgrowth from the blockchain have been cryptocurrencies such as Bitcoin and Ethereum. Blockchain has been used to create new digital tokens that can be transacted on a blockchain network without the need for government-backed fiat money like the U.S. dollar, euro, or yen.

The U.S. has so far failed to pass any sort of legislation to address the use cases for blockchain technology. This has created a significant challenge, not only for entrepreneurs in the space, but also for attorneys like Lanis trying to navigate a constantly changing regulatory environment. In the absence of laws, the U.S. Securities and Exchange Commission (SEC) considers almost every ICO (initial coin offering) or other token sales a security.

“It’s much more art than science at this point,” he said, explaining that attorneys must be constantly learning about new technology and how the old law applies to it. He said he regularly follows the news, listening to what senior SEC officials say about blockchain technology and cryptocurrencies to be able to advise his clients on how they might be regulated.

“Until there’s a clear and direct body of law, this is kind of the best we can do. It’s gotten easier, as the space has developed and matured, and as there’s more information and data out there, we can probably give even better advice today than we could a few years ago,” he added.

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By Lou Sokolovskiy, Founder & CEO at Opus Connect
September 2021