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Web 3.0 Law
Maximizing Trust & Managing Risk for Web3.0 Law
Understanding and anticipating an evolving regulatory landscape to maximize opportunity around Web 3.0 legal issues.
Contact UsThe Advent of Web3
In the almost 40 years since its founding, the internet has become a monolith, with governments and giant technology corporations vying for control of information and users’ personal data. The advent of Web 3.0 (or Web3) represents an effort to reinvent digital communication, commerce, and more, all without centralized oversight or interference.
Web3 is an emerging term of art, but it currently includes legacy and new blockchain technology, cryptocurrency and decentralized finance (DeFi) generally, decentralized autonomous organizations (DAOs), the metaverse, and non-fungible tokens (NFTs).
Blockchain technology – an encrypted, decentralized, time-stamped, and unalterable database – underpins Web3 and is already being implemented across a wide range of industries, including financial services, logistics, energy, healthcare, insurance, entertainment, and many more.
The connecting thread among all Web3 elements is users’ desire to be less-surveilled, less-regulated, and able to chart their own path forward. But as Web3 is evolving, even the staunchest proponents of decentralization acknowledge that some regulation of its underlying technologies is necessary in order to build trust among users and increase its adoption.
Our Web3 lawyers have been involved with companies on the leading edge of Web3 technologies and concepts in the U.S. and internationally. We represent and assist international and domestic DAOs, founders, funds, entertainers, artists, and even other law firms.
Cryptocurrency and DeFi
Cryptocurrency entered the mainstream vernacular in 2009 with the development of Bitcoin, and later, numerous other cryptocurrencies. In June 2021, El Salvador’s Legislative Assembly voted to accept Bitcoin as legal tender, and in August 2021, Cuba followed suit. At the other end of the regulatory spectrum, in September 2021, China declared all cryptocurrency transactions illegal while simultaneously launching its native, closed-loop digital currency.
The evolution of cryptocurrency has been rapid (in mid-2021, the market for cryptocurrencies was estimated to be worth around $2 trillion). Financial regulators are struggling to fulfill their mission of ensuring consumer protection and the establishment of trust in the marketplace.
Without a central regulatory authority, cryptocurrency presents users with additional transaction risks and exposes institutions to additional compliance risks. An additional complication is the difficulty of ascertaining jurisdiction in a financial system that is globally distributed.
Cryptocurrency is not only fast-growing but also fast-evolving, and while most stakeholders see a need for increased regulation, there is little agreement about the extent of that regulation and which authority should be responsible. The inevitable introduction of regulatory processes will have implications in the areas of taxation, compliance, banking, intellectual property rights, and data privacy.
What is clear is that stakeholders will continue to rely on traditional transaction support mechanisms such as contracts, due diligence, and IP protection. Stakeholders will also require legal counsel that is highly experienced in supporting transactions that span multiple jurisdictions.
Decentralized Autonomous Organizations (DAOs)
DAOs offer a cohesive group for the people and by the people without government manipulation or involvement. A DAO is an online community that uses blockchain technology to function and transact toward a specific purpose or mission (e.g. an investment, global community service, or sending one lucky DAO member to the moon).
In DAOs, there are no hierarchies and no central control. DAOs also have no corporate form and therefore no bylaws, operating agreements, contribution agreements, or subscription agreements. The “rules” of investing and participating, as for cryptocurrencies, are set out on the blockchain in “smart contracts,” which contain some key terms but rarely track existing corporate laws or securities laws and regulations governing investments.
In optimal cases, DAOs create legal mechanisms that allow the DAO to interact with existing corporate, financial, and other structures to ensure continuity of the DAO’s membership and purpose with its obligations to third parties, including financial partners. DAOs that fail to implement optimal structural integrations risk being treated as unintentional partnerships complete with joint and several liability for all DAO participants and an inability to enforce any of its contracts with the outside world.
Like cryptocurrencies and blockchain itself, DAOs are inherently borderless and involve people and organizations across the globe, requiring legal expertise that also extends beyond national borders.
Non-fungible Tokens (NFTs)
NFTs are digital assets that sometimes intersect with the physical world. They can be held by collectors, traded, or sold. The NFT market is nascent but prominent and growing exponentially.
Although NFTs are “non-fungible,” the rights associated with them most certainly are. At the most basic level, NFTs are intellectual property rights initially owned by creators. Then those rights are packaged into an NFT or tokenized as part of an NFT and transferred to buyers.
NFT studios, intermediary platforms for buying and selling, and NFT creators, sellers, and buyers are all reliant on intellectual property rights protection. They need the complete range of legal work inherent in NFT creation, ownership, and transactions, including contracts, negotiation, translation, IP registration, and enforcement.
Harris Sliwoski’s Web3 Lawyers assist our clients with a wide range of legal services including:
- Entity formation (e.g. domestic and international jurisdiction selection, taxation, and risk appraisal for DAOs and related Web3 entities)
• Strategic planning regarding Web3 legal relationships in DAOs and related financing vehicles affiliated with DAOs - Contract negotiation, drafting, translation, and enforcement (e.g. NFT studio contracts, MSAs (master services agreements), and operating agreements)
• Intellectual property rights protection (e.g. trademark and copyright protection in NFTs, licensing, due diligence, data privacy issues, and international agreements)
• Mediation, arbitration, and litigation (domestic and international)
• Compliance (e.g. securities laws regarding tokenization, intellectual property rights, data privacy)
An International Network of Experts
For nearly two decades, Harris Sliwoski has been a leader in emerging markets like China, cannabis, and psychedelics law, all areas in which stakeholders have had to contend with fast-evolving regulatory environments. Our attorneys have earned national and international recognition for their work providing businesses with the legal planning, regulatory support, corporate guidance, and compliance strategies they need.
Our Web3 team is following the same playbook, collaborating with their colleagues in other practice areas to leverage our wide range of legal strengths and our national and international network of industry-leading professionals to offer our clients creative, effective, and timely support.
With different jurisdictions come vastly different legal systems, and it takes a highly experienced legal team to navigate them. As leaders in some of the most complex areas of international law, our lawyers in the US, LatAm, Asia, and Europe stand ready to assist you wherever you need us.
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Our Clients' Successes
“Harris Sliwoski expertly guided us through the formation of our company. They continue to assist with necessary registrations and compliance with numerous regulations. They were able to promptly answer all our many questions and provide understandable options, explanations and practical advice. We expect to continue to use Harris Sliwoski on a regular basis as our company expands. They were also able to introduce us other professional experts. We would not hesitate to recommend Harris Sliwoski to any companies in need of legal advice.”
Three Continents Foods LLC
This law firm was a huge help as our company went through the process of commercial licensing in the California cannabis industry. They have helped us with a variety of legal issues in a timely fashion, while clearly communicating with us throughout the process. Everyone we’ve worked with at Harris Sliwoski is an expert in their field and we have always felt that we were in good hands through our legal representation.
Wil Crummer, CEO PRO Farms
Legal stuff is always scary. And I’ve had to play offense a couple times, begrudgingly. To have Harris Sliwoski have my back? It made things a lot less prickly. They quickly walked me through my options, and were refreshingly consistent in their communications, timing and billing. I’ve been lucky to stay out of the legal side of things my whole career, thankfully. When things went a little wrong, Harris Sliwoski quickly made things right.
Aaron Draplin, Founder Draplin Design Co.
I am impressed with this law firm. They answered all my questions regarding cannabis businesses and the California cannabis framework, and they have helped me with a variety of legal issues in a timely fashion, while always clearly communicating with us throughout the process. They also redirected me to other quality people for my business needs. Everyone I worked with at Harris Sliwoski is an expert in their field, and I was in good hands throughout my legal representation.
Corey T., CEO Thinc Cubed, LLC
I have been working with the lawyers at Harris Sliwoski for more than 20 years both as a business owner and as an executive at a large east-coast health system and that is because they have always efficiently provided high level and clear international law advice. Most recently, Harris Sliwoski provided legal support on many matters related to procuring medical products worldwide. Their support was particularly helpful to during the onset of COVID, when there was a big need for securing PPE quickly, all while navigating complicated international and domestic legal requirements. Harris Sliwoski’s team of international lawyers helped by conducting rapid-fire due diligence on potential suppliers, navigating the legal logistics for getting product from overseas and through U.S. customs, and drafting contracts to protect against various sorts of horribles. They did this by essentially providing what amounted to 24/7 service. I cannot recommend them highly enough.
Dan Pak Hospital Supply Chain Executive
Harris Sliwoski has represented our company in the legal cannabis industry for years. Harris Sliwoski has advised us in a wide variety of legal matters, and they are truly experts in their field. I would highly recommend Harris Sliwoski to anyone with questions about cannabis law, or any legal matters. They have been great for our Company, and will continue to guide us as our industry evolves
Matt Hurt, COO Cannabis Nation
You won’t find a better partner than Harris Sliwoski when trying to navigate the complex world of healthcare regulations. They not only give sound and reliable legal advice, but they are also very responsive and are able to guide you in a way that helps you reach your business objectives as well.
Joseph Axelrod, General Counsel Irwin Naturals
When we started the process of building a ‘seed to sale’ cannabis company in Oregon, we saw the need for expert legal counsel. The cannabis sector is fraught with potential peril at every turn, and we wanted the best legal advice we could find. After talking to several firms and individuals, we feel extremely fortunate to have chosen Harris Sliwoski as our legal counsel.
Tony Theiss, CEO and Co-Founder Redbarn Cannabis
We use Harris Sliwoski on all our international legal matters, including on our international litigation matters. We have over the last few years been involved in a couple big international legal disputes and Harris Sliwoski’s international dispute resolution team provided us with expert legal assistance on both matters. They were always very careful to explain to us what they were doing and why and what their actions would likely cost us in legal fees. Most importantly, we did extremely well on both cases and I have no doubt Harris Sliwoski was a big factor in that.
Kevin English, CEO We Are Camp
We have used Harris Sliwoski for legal help related to our international manufacturing. The lawyers with whom I worked had extensive familiarity with the international legal issues involved in our various projects and offered us key insights. I particularly appreciated how they always quickly and efficiently do what they say they will do and always within their cost estimates.
Andrea Barona Valladolid, Senior Legal Counsel Fairphone
Frequently Asked Questions
What Are the Legal Challenges of Web3?
Web3 technology is changing the digital landscape. Each benefit it offers comes with a range of unprecedented capabilities and circumstances with few concrete legal guidelines to follow. As Web3 grows, numerous legal challenges will become more apparent and require businesses to seek protection from agile legal firms. Current and predicted legal challenges revolve around areas like:
- Data privacy and security: Web3 utilizes a decentralized system where entire networks of computers store data. This approach eliminates a central point of vulnerability, but the databases are often publically visible. Businesses using a decentralized data storage system will have difficulty abiding by privacy laws and regulations.
- Intellectual property: The decentralized nature of Web3 will make it more difficult for businesses and creatives to protect trademarks, patents, copyrights and other intellectual property. Intellectual property rights laws must evolve to match new vulnerabilities, and businesses will need to adapt to operate within those new laws.
- Central authority and governance: Decentralized virtual environments lack authority figures that uphold laws and regulations. Without an agency enforcing laws in decentralized spaces, businesses using Web3 could be vulnerable to illegal activity. Many disputes will go unresolved, so businesses must find ways to defend themselves.
What Are Web3 Assets?
A Web3 asset is any digital good that utilizes blockchain technology. These assets are decentralized, so regulations around them are currently nonexistent. As a result, a Web3 asset can take many forms. Common Web3 assets include cryptocurrencies, music, digital art, non-fungible tokens and virtual real estate. Businesses can use the creative flexibility that Web3 offers to create various assets that open new avenues for customer engagement.
Is Cryptocurrency Legal in the United States?
Cryptocurrency is legal in the United States. However, Web3 and blockchain technology are new, and the market needs time to catch up. Banks currently do not accept cryptocurrency and likely will not until more regulations emerge. The best way to trade cryptocurrency today is to register with an exchange service where you can purchase cryptocurrency in exchange for standard currency.