Wednesday, October 10, 2018

Destroying Distributed Assets

In the crypto-enforcement space, the SEC recently reached an administrative settlement with TokenLot, an unregistered broker-dealer firm, and its two twenty-something principals. TokenLot described itself as an "ICO Superstore" and offered access to all sorts of tokens.  Many of these tokens were, undoubtedly, securities.  

Interestingly, the SEC order here includes an undertaking to "destroy" TokenLot's digital assets:  

Destroy the digital tokens in the Current Inventory within 30 days of the date of this Order and Pending Inventory within 30 days of receipt by TokenLot; 

This isn't something I've seen before.  It's also something that makes me scratch my head.  I know how to destroy ordinary things.  If I wanted to destroy a piece of paper I could just shred it or burn it.  Once that happens, I can confidently say that the object has been "destroyed."  

A distributed asset is a bit different.  If it exists on many computer nodes across the world, I don't have the power to go into all of those notes and change them to erase the existence of the asset.  At best, all I could do is "destroy" the key to access/move the asset.  This seems different to me.

I reached out to TokenLot's counsel, Lisa Braganca, to ask how they were going to "destroy" these assets.  She told me that she and her clients are working closely with the SEC and an independent consultant to come up with a process to destroy these crypto assets. It'll be interesting to see how this happens.

Special thanks to Carla Reyes for bringing some attention to this issue in her excellent talk on this issue at the PIABA Annual Meeting.

http://lawprofessors.typepad.com/business_law/2018/10/destroying-distrubuted-assets.html

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