Cryptocurrencies such as Bitcoin and Ether encourage the owners of computing resources to bring ever-increasing levels of processing power to bear in validating the distributed ledger of cryptocurrency purchases and sales. Initial coin offerings (ICOs) involve the sale or other distribution of cryptocurrency coins or tokens, typically with the aid of white papers. Crypto coin white papers contain a mixture of scientific, sociopolitical, and economic speech. They often feature extended arguments for how users of the coins and society in general could benefit from a new way of organizing economic relations. White papers and coin networks are directed to publishing, compiling, and correlating speech, and exchanging messages and other entitlements. While these white papers resemble forms of commercial speech that enjoy quite limited First Amendment protection, they are arguably even more similar to other economic statements that enjoy First Amendment protection against censorship. Crypto coin promotions also resemble some advertisements that are insufficiently misleading to result in civil liability. Nevertheless, some interpretations of U.S. securities and commodities laws would prohibit authors of such white papers from raising funds for crypto coin platforms, especially when a coin's users expect to earn a return on their investment and rely on the coin issuer's expertise or representations. This article explores principles of free expression that could shield truthful speech and subjective opinions about new crypto coins from some of the worst chilling effects of U.S. laws. It examines ways in which crypto coins may benefit marketplace participants and economic efficiency, including by providing a beneficial alternative to traditional software app stores, logistics infrastructures, or banking and payment systems. It then surveys the First Amendment and other constitutional issues that onerous regulations raise, and draws analogies to doctrines that reconcile the freedom of economic expression with the cause of consumer or investor protection under the Lanham Act, the Securities Exchange Act, state deceptive practices laws, and the laws governing sellers' warranties. Several themes in the case law are ripe for application to ICOs: the need for precision and proportionality in framing regulation, the proscription against regulatory overkill and one-size-fits-all approaches, and the requirement that basic freedoms be preserved. More specifically, this article contends that securities or commodities laws are not properly read as applying to many crypto coin offering papers, and it describes concepts from other jurisdictions that may be a better fit (such as virtual commodities or virtual barter). The article urges regulators and judges to probe thoroughly whether the interests served by prohibitions and penalties on crypto coin speech justify the burdens imposed on information providers. Regulating false statements of existing fact and enhancing the remedies for making them will be more effective and less constitutionally infirm than measures aimed at preempting merely potential harm. Courts must balance the values of fraud prevention and remediation of investor harm with the values of freedom of expression and expanded economic opportunity. Analogous fields of law provide several tools with which to achieve this balance, including the distinction between general or universal fraud prohibitions and narrower securities or commodities regulation regimes, the difference between forward-looking and other statements in several area of fraud law, First Amendment principles governing professional and occupational licensing, rules against vague or haphazardly enforced regulations, and others.
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Open Access
Jun 17, 2021
Galit Klein + 2
