If you’re investing in crypto or your business uses blockchain, you will no doubt be in need of a lawyer at some stage in the game to help navigate the rules and regulations of this fast-moving space. Crypto News Australia posted this recent article naming Salerno Law as the Best Crypto Lawyers in Australia. Read more below: https://cryptonews.com.au/guides/10-best-crypto-lawyers-in-australia If you require legal advice in relation to cryptocurrency issues, contact our team today! By Krish Gosai DISCLAIMER: This article is only meant to give you general information and should not be relied on as legal advice. Speak to one of our lawyers for more information. Salerno Law is managed by Emma Salerno, Managing Partner and CEO, who has a wealth of experience from operating her own businesses across Australia as well as a range of in-house and commercial experience both in Australia and overseas.

With the meteoric rise of Bitcoin over the last four years, and the hype around the seemingly volatile price swings leading to massive gains and losses, crypto newcomers often ask, “what are cryptocurrencies?” The term “cryptocurrencies” is used to describe digital tokens or coins that are often used as a means of peer-to-peer payment or within a particular digital ecosystem. The space grew in popularity after the 2008 Global Financial Crisis (GFC) which saw financial institutions around the world struggle, along with governments and central banks introducing a raft of stimuli in an attempt to keep countries and economies afloat. In October 2008, and at the peak of the GFC, a pseudonymous person called Satoshi Nakamoto posted the whitepaper titled, “Bitcoin P2P e-cash paper”, which provided the foundation for the creation of Bitcoin - a decentralised digital currency without the need for an intermediary. The first Bitcoin transaction subsequently occurred on 3 January 2009. There are now more than 11,000 different digital tokens and cryptocurrencies actively traded around the world. From small beginnings, the total market capitalisation for cryptocurrencies is now in excess of $2 trillion, with the average daily volume of trade around $100 billion dollars. Are all cryptocurrencies the same? It is important to note that not all cryptocurrencies are the same. The cryptocurrency ecosystem is diverse with tokens and coins serving many different purposes. Given the broad extent of applications, we have outlined the top five categories of cryptocurrencies, however, as the space grows, more categories and use cases will arise. 1) Stored Value Coins These cryptocurrencies and digital assets are often purchased by investors on the basis that the cryptocurrency or token will increase in value over the long term. In a traditional investment sense, the most common example outside of cryptocurrency is gold. For cryptocurrency, Bitcoin is the most popular and well-known cryptocurrency akin to a stored value, particularly due to its high demand and limited supply. 2) Ecosystem These cryptocurrencies often represent a decentralised financial ecosystem, for example in the form of a blockchain, that support other cryptocurrencies and token. These blockchain ecosystems are similar to how a Microsoft Windows or Apple Mac OS operating system allows users and third parties to build and run applications on their platform. Ethereum is prime example of this, and facilitates the creation of smart contracts, decentralised applications and other cryptocurrencies within its ecosystem via the Ethereum blockchain. 3) Stablecoins Stablecoins are cryptocurrencies that are pegged to a fiat currency or an asset. By its name, these cryptocurrencies are touted as being “stable” in value as compared to other types of digital currencies. The most common stablecoin is USD Tether, which is pegged one-to-one to the US dollar. USD Tether is most commonly used in trading pairs with other digital assets and cryptocurrencies or as a means to transfer payments. 4) Utility Tokens Utility tokens are a category of cryptocurrency whereby a user can use a particular token within a certain ecosystem. The use of these tokens varies [...]

On 9 June 2021, the El Salvadorian President, Nayib Bukele, and the El Salvadorian Congress voted on the “Bitcoin Bill” that would see the cryptocurrency Bitcoin, becoming adopted as legal tender in the country. The Bill passed with an astounding 62 out of 84 possible votes cast in favour. Accordingly, Bitcoin is set to become legal tender within El Salvador on 7 September 2021, being 90 days from the date the Bill was passed. The move to recognise Bitcoin as legal tender in El Salvador raises the question – what effect will El Salvador’s ‘bold’ move have on the economies and legislative procedures for other nation-states such as Australia? Bitcoin becoming legal tender in El Salvador may mean that Bitcoin could be considered as a foreign currency rather than a mere intangible form of digital asset or cryptocurrency. What is happening in El Salvador? It has been reported that over 70% of the population in El Salvador (which has a population of 6.5 million people) is unbanked and do not have access to a bank account. The move to adopt Bitcoin as a form of legal tender aims to promote financial inclusion and reduce barriers to accessing the financial system for El Salvadorians. In facilitating the adoption of Bitcoin becoming a form of accepted legal tender, the El Salvadorian Government will absorb the conversion costs for the exchanges to facilitate the exchange of fiat currency (such as USD) and Bitcoin and has mandated that merchants must accept Bitcoin as payment for goods and services. The El Salvadorian government has also increased the promotion of the new Bitcoin Law by airdropping Bitcoin into the wallets of El Salvadorians. How will Bitcoin becoming legal tender in El Salvador impact us in Australia? The answer to this question is quite unknown as the move by El Salvador is unprecedented and there has been no clear guidance to date. Our view is, that upon Bitcoin becoming considered as a legal tender in El Salvador, Bitcoin may no longer be considered solely as a digital asset or cryptocurrency and could, in fact, be a form of foreign currency. Importantly, if Bitcoin is categorised as foreign currency, this may have consequences for the wider Australian legal and regulatory landscape that was not intended or contemplated. Specifically, we note that Bitcoin as a foreign currency may have implications for: · taxation purposes; · the financial services regulatory regimes (including AFSL Licensing and AML/CTF obligations); and · personal property. One example of this can be found within section 10 of the Personal Properties Securities Act 2009 (Cth) where "currency" is defined as the currency authorised as a medium of exchange by the law of Australia or of any other country. This would arguably mean that security interests attaching to Bitcoin will need to be registered under the class of currency as opposed to intangible assets on the PPSR. Practically for the cryptocurrency industry, Bitcoin as a foreign currency may have implications on how Digital Currency Exchanges conduct the [...]

Digital Currency Exchanges – Do we need to be Licenced?  In 2018, we first wrote about the introduction of the newly amended Anti-Money Laundering and Counter Terrorism Laws that were expanded to regulate Digital Currency Exchanges (DCE). The amendment required all DCEs to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC). As cryptocurrencies and digital assets (Digital Assets) become more mainstream, and governments and regulators evolve, so does the regulatory environment. There is a common misconception that all Digital Assets are viewed or categorised the same way, and are therefore, unregulated. However, this is not the case. In Australia, the Australian Securities and Investment Commission (ASIC) regulates financial products and markets. ASIC has provided updated guidance for DCEs stating that “if a platform deals in crypto-assets that are financial products, then the platform is operating a market and a range of Australian laws apply, including the requirement to hold an Australian market licence”.[1] The key consideration in determining whether a DCE requires an Australian market licence, is whether any of the Digital Assets traded on their exchange is captured within the definition of a financial product. A Digital Asset is likely to be categorised as a financial product if, by its substance or operation, it is a: managed investment scheme; security; derivative; or non-cash payment facility. Where a DCE enables consumers to buy/be issued or sell Digital Assets categorised as a financial product, the DCE will be required to hold an Australian market licence with appropriate authorisations from ASIC. Facilitating trades of financial products without the required licences may amount to a significant breach of the law. DCEs that facilitate the trading of Digital Assets that are not characterised as financial products are currently not subject to regulatory oversight by ASIC. At present, most DCEs facilitate the trade of a range of Digital Assets without considering the specific nature of each asset. It is important to note that Digital Assets have different functions and will be classified differently. For example, Bitcoin as a stored value will be classified differently to Ethereum as a decentralised blockchain network that facilitates the running of decentralised applications (dApps). It is likely that many DCEs have not considered the nature of the Digital Assets listed on their platform, nor have undertaken a review of whether the any listed assets constitute financial products. If you are concerned about any of the Digital Assets listed on your exchange, thinking of creating a DCE, or would like to speak to one of our Cryptocurrency Experts, the team at Salerno Law are here to help. [1] INFO 225, Australian Securities and Investment Commission, https://asic.gov.au/regulatory-resources/digital-transformation/initial-coin-offerings-and-crypto-assets/ By Krish Gosai Krish is a Corporate and Fintech Lawyer in our Financial Technology and Cryptocurrency team. With significant experience in Commercial, Fintech and Financial Services Law, in Australia and overseas, Krish brings a highly commercial and practical approach to his clients.

In recent months, and in light of COVID-19, cybercriminals have been hard at work taking advantage of increased online traffic. Particularly, these online criminals have been focusing on invoice fraud, which they pursue through a variety of different illegitimate schemes. Invoice fraud involves cybercriminals masquerading as legitimate suppliers by sending fake invoices to pre-existing clients/customers. These criminals often take control of the supplier’s email accounts and can access invoices and other confidential information in which they use to mislead clients/customers. Once cybercriminals have access to these items, they issue invoices to clients/customers with false bank account details and request payment directly into the personal bank account of the hacker (which is often overseas). The differences between hacking, phishing and spoofing Cybercriminals are always implementing new and deceitful ways to hack individuals and businesses alike. Whether it be hacking, phishing or spoofing, those who may be a target must always be vigilant in today’s society or potentially be liable to legal consequences. To ensure you know what legal ramifications come from these attacks, you must first understand the difference between phishing, hacking and spoofing: Hacking is using exploits to gain access to something you do not normally have access to. This involves a hacker gaining access to a business email or IT system and using it as if they were an employee or officer of that business. Normally, the hacked business will have no idea that the hacker is actively using its email for a fraudulent purpose. The hacker will generally change the bank account details on the business' standard-form invoice and email the invoice to a client/customer of the business. The fraudulent email is mostly indistinguishable from legitimate business emails. Phishing is where a cybercriminal impersonates a trustworthy source in an attempt to bait a user to surrender sensitive information such as a username, password, credit card number, etc. Once the criminal obtains this information, they can access many different online platforms and cause irreversible harm to the victim. Spoofing is similar to phishing, and is simply where a user tries to use the identity of a legitimate user or businesses to trick victims into sending them money. What to do if you are targeted by cybercriminals If you have fallen victim to a cybercrime, or suspect you may be a victim, you should do the following: (a) if you have made a payment to a suspected cybercriminal, immediately contact your bank and check whether the payment can be reversed; (b) if any of your email accounts have been compromised, notify your clients/customers; (c) consider putting up a notice on your website; (d) contact your IT team so they can alert the affected parties and secure the email account and your IT systems; (e) notify your insurer to ascertain whether you have cyber insurance coverage; (f) report scams to the ACCC’s Scamwatch; and (g) if you have been a victim of cybercrime such as fraud, report it to the Australian Cybercrime Online Reporting Network (ACORN). Legal implications Who is responsible [...]

The regulatory frameworks underpinning Initial Coin Offering’s (ICO) are rapidly evolving as more and more Fintech Startups look to leverage crowdfunding on the blockchain. This blog post will outline the recent remarks made by the Securities and Exchange Commission (SEC) with regard to the legal status of ICO’s as a security or utility token. In a recent interview, the director of corporate finance at the SEC William Hinman made some significant statements regarding their stance on Ethereum as a non-security. Mr. Hinman, who is largely considered as the SEC’s point man on cryptocurrencies and Initial Coin Offerings recently stated that Bitcoin and Ether are not considered securities. In giving this determination, Mr. Hinman laid out some key elements that are central to determining whether a security is being sold through a digital asset. These rules ultimately serve as a guideline for how forthcoming ICO tokens should be issued, distributed and sold with respect to U.S. Securities Laws. Promoters and Reasonable Expectation of Purchasers A primary factor in determining the legal status of an ICO is assessing the role of any centralised promoter or person that raises money to develop the network on which the digital asset will operate and often sell their token or coin. Generally speaking, popular promoters of well established tokens have shown a propensity to tout their ability to create innovative applications of blockchain technology. However, these ostentatious claims are typically made at the outset of the development of an application, where its viability is still relatively uncertain. As such, given that there is generally no working product during ICO, the purchaser has no choice but to rely on the statements made by the respective promoter. This relationship then establishes a sentiment that the purchase of the token is a bet on the success of the enterprise, as opposed to the purchase of a token used for the exchange of goods or services on a network. This conduct stifles the impetus of the Securities Act, which is ultimately in place to remove any asymmetry between investor and purchaser. Application to ICO Entrepreneurs The fundamental prerequisite to avoid being represented as a security or investment contract for the purposes of the SEC is to be sufficiently decentralised. This would result in an environment or network where the efforts of a third party are no longer a key factor for determining the enterprise’s success. Such a network becomes truly decentralised when the ability to identify an issuer or promoter to make requisite material disclosures becomes difficult and increasingly less meaningful. It is pertinent to also emphasise that the analysis of whether something is a security is not completely static. For example, Mr. Hinman noted that in spite of the fundraising that accompanied the creation of Ethereum, its network is currently sufficiently decentralised enough in its structure to not constitute a securities transaction. This may indicate that as technological advances occur and enterprise adoption for automation becomes easier over time, your respective token can take ongoing steps to increase its [...]