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Crypto/Blockchain

Austin Mills (YC 07), Chair of Morris, Manning & Martin’s Blockchain and Cryptocurrency Group

Austin Mills is a Partner in Morris, Manning & Martin’s Corporate Technology Practice and the Chair of the Blockchain and Cryptocurrency Group. Mr. Mills is a technology attorney with experience advising clients on technology, blockchain/distributed ledger technology, cryptocurrency, payments, money transmission, e-commerce, and banking. He has advised several clients in connection with Initial Coin Offerings (ICOs) and other blockchain-related initiatives, such as the issuance of cryptocurrency and formation of a cryptocurrency exchange. In 2018, he was named a Trailblazer in blockchain and cryptocurrency law by the National Law Journal. Mr. Mills earned his BA in Political Science from Yale and his law degree from George Mason University.

The views and opinions expressed in this interview are those of Mr. Mills and do not necessarily reflect the official policy or position of Morris, Manning & Martin. They are for informational purposes only and should not be taken as legal advice. 

The Politic: What’s your background and how did you get involved in crypto/blockchain? 

Austin Mills: Coming out of law school, I didn’t want to do corporate/transactional work. But I started doing corporate work, pretty quickly fell into the technology side of things, and for most of my career so far, I’ve focused on tech-related work with early- and mid-stage tech companies. I also fell into the fintech and payment market vertical early on, both on the commercial/transactional side and the regulatory side.

Around 2010 to 2011, when I was working at the intersection of payments and tech, I became aware of Bitcoin and read about it a little. In late 2012 to early 2013, I started working with a larger name in the crypto space.

Back then, there wasn’t much activity. If I’d appreciated the innovation more at the time, I’d probably be relaxing at some beach right now. But since there wasn’t that much activity, I chose to focus more on traditional tech companies, payments, and fintech clients.

Then, I started to see that something was happening in late spring/early summer of 2017 with the ICO Boom. Since 2013, people had been saying that crypto and blockchain would lead to the next step in the evolution of technology. In 2017, we started to witness that.

I became excited–both professionally and personally–about what was happening, and I really dove into the space. I went to networking events in the community, met people in the space, and started working with a lot of clients. Back in 2017, we did a lot of ICO work before that became scary from a legal standpoint. We still do a fair amount of that work, but it’s evolved over time.

It was off to the races from there, but it’s certainly ebbed and flowed with the market. Over the least year or so, the money, the deal flow, and the available capital and resources have certainly constricted with the market prices more generally. It’s gone in that direction, but I’ve been fortunate to work with many interesting companies in the space.

What kind of work do you help your clients with other than ICOs?

Whether it’s crypto or blockchain, most projects have similar needs to tech companies more generally. They just also have some unique issues. They have corporate and organizational needs, whether that means operating agreements, employment agreements, or tax management issues. Each of those generally hold for any other company.

Blockchain is a backbone for technology and doesn’t move the needle a whole lot in terms of how we service clients, but there were some big issues that really emerged with the rise of crypto in particular. What does this mean from a securities perspective? What does this mean from a financial perspective? What does this mean from a data security and privacy perspective?

I spend my time helping clients bridge the gap between the technology and its legal implications. What that means is diving into the financial regulations and a lot of the unintended consequences on the data security and privacy front. It’s a lot of helping draft contracts to govern this technology.

I think another aspect is that, realized to its full extent or theoretical end game, one of the major objectives here is to disintermediate. Traditionally, we think of contracts as binding you with some sort of provider. When something goes wrong, what do you do? Instead of that framework, we’re now trying to create these automated, trustworthy systems. When things go wrong, who’s accountable? How do you draft an agreement?

Take Ethereum’s terms of service for example. They’re avoiding the idea of there being an agreement between you and the Ethereum counterparty: Here are the terms, and here are the acceptable uses of our network and software.

It’s almost unclear who would be there to enforce Ethereum’s terms of service. What I’ve enjoyed the most is trying to navigate these more novel questions, which, quite frankly, we haven’t been forced to address yet.

I also coordinate client needs between “Okay, you’re doing a token sale,” and “What are the tax implications?” Most people don’t understand how that ICO process differs from a securities sale or a sale of goods. It’s often a team effort to work with a lawyer who specializes in tax management or some other area of law, and I bridge the gap.

One of the big issues is the number of tokens that are actually fully decentralized. Take Coinbase for example. Generally, you can hold them legally responsible. They’ll have terms and conditions that say you can’t hold them responsible, but just like if something were to go wrong with Apple, they would be held accountable.

When it comes to Bitcoin, no one is really accountable, and that raises novel questions. You’ve even heard regulators ask whether we need to hold software developers accountable (which from my seat, would be a terrible result).

What’s your take on fully decentralized exchanges (DEX)?

We saw SEC enforcement against EtherDelta, which was surprising and I think suggested that EtherDelta wasn’t fully decentralized. That’s another component. It’s an awkward position when your clients think in terms of, “Yeah, there are laws that cover this area, but who will the SEC enforce them against?”

If there’s open source software, maybe that activity is regulated by AML identity verification requirements. But in a decentralized exchange for example, who’s violating the law? Developers? We don’t have good answers, and it’ll certainly be interested to see how this plays out. That’s the end-game, right?

But right now, there are all kinds of complicated technical implications of moving to full decentralization. Most projects start by retaining a lot of control over a project, the code, or the network. Over time, they’ll try open source more. They’ll try to take themselves out of the projects to create trustless systems. In that ballpark, I think you’ve got Bitcoin, Ethereum (to a large extent), and a handful of others.

Does the emergence of asset-backed stablecoins change anything in that regard?

Stablecoins add a whole other layer. There’s the question of, “To what extent is the software, the code, and the network itself decentralized?” But there’s another question. Let’s say you have an asset-backed stablecoin; there’s always a central point of failure.

Take the analogy that the hardcore Bitcoin community might take. If a government can show up to a bank and lock up your funds, then you’re not fully decentralized. That would be the complaint for Coinbase and Libra. If you’re giving Facebook a dollar, and that dollar is going into a bank account, the network might be decentralized but not the value that backs the currency. That’s a single point of failure which would undermine the purpose of crypto and send it into the non-crypto real of digital currencies for a lot of people.

Most of the lawyers I’ve talked to come from a securities background. Given that you’re not a securities lawyer, what unique perspective do you bring to the table?

In 2017, the first few lawyers who entered the space brought more of a tech and payments background. Then, when ICOs exploded in 2017, the securities attorneys started piling into the crypto space. It makes sense that it went that way. That was the hot legal issue of the time: no-action letters, different securities frameworks, and a lot of talk about different models to circumvent the rules. I’m not a securities attorney by background, but in 2017-2018, I was drinking all that by the firehose; I became somewhat of a securities attorney because you couldn’t help clients, or navigate the space, without that knowledge.

I come from more of a fintech and payments background. I enjoy some of the things you mentioned earlier, like finding solutions for this new model of tech delivery and use. I enjoy trying to come up with the best result within the existing frameworks and trying to figure out the best way to push those frameworks in a new direction to make them work as this space evolves. I probably spend more time on those issues than other attorneys who are more focused on the securities front.

From your perspective, what’s an issue in crypto space that’s underdiscussed relative to its importance?

This is starting to get more attention. It probably didn’t get enough attention a year or two ago, but as time passes and more people pay attention, the community has started to pick up on it. From a regulatory perspective, all of the hype has centered on securities. But both at the state and federal level, and in almost all developed nations, there are pretty robust laws.

The federal government cares about preventing money laundering and terrorist financing, so they regulate money transmitters like Western Union, MoneyGram, PayPal, Square, Venmo, and the like. Traditionally, money has only moved between banks in cash. But as tech has evolved, you now have non-banks like PayPal sitting on massive depository sums.

States care about consumer protection. If you have a non-bank that’s routing payments which can disappear forever, that’s not good. They put these laws in to try and guard against that problem.

Crypto added a whole new layer to that issue, particularly with respect to money laundering and KYC. That’s a go-to criticism for anyone that wants to try and suggest that this tech is bad for the world. But there’s no way around this situation. Crypto makes moving value easier.

So, on the flipside, Bitcoin is pseudo-anonymous in that the transactions aren’t necessarily tied to any individual identity, but the transactions themselves are all public and you can see all the transactions that’ve ever occurred. As soon as you can tie a wallet to a person, you know way more about what they’re doing. It cuts both ways.

It’s really problematic that crypto companies have to comply with many of the same rules as companies like Western Union. It’s very difficult to comply with the laws that regulate Western Union, especially for early-stage companies– and particularly in the payments vertical. Federal and state regulators have suggested that most of these crypto projects and token sales ought to be regulated as money transmitters and should comply with the relevant laws.

Basically, no one is complying with those laws, and we’re yet to see enforcement. This gets into the weeds a bit, but it doesn’t make a ton of sense for federal and state regulators to cast such a broad net. It’s also entirely impractical for early-stage companies to comply with these regulations and costs. It’ll be interesting to see what happens when that comes to a head (i.e., whether we’ll see active enforcement separate and distinct form the securities front) and how that affects the market.

Think about Coinbase, Bittrex, Poloniex, and the other U.S.-based, licensed money transmitters that predated the securities hype. Historically, they approached the issue by considering themselves money transmitters and getting licensed in their respective states of operation.

Now, they’re being forced to kind of become securities exchanges. That’s not surprising, and that was never really a surprise, because they’re performing a function that very much looks like money transmission. They facilitate the exchange of value.

Here’s the bigger issue: What happens if the regulators come down hard on token issuers or other market participants on the financial regulation side? What impact would that have on the market growth and activity of this space in general? Or on pushing the activity offshore? That might be one of the implications of tightening on the securities front.