Xuan-Thao Nguyen, Lessons from Case Study of Secured Transactions with Bitcoin, 21 SMU Sci. & Tech. L. Rev. 181 (2018), https://digitalcommons.law.uw.edu/faculty-articles/838
bitcoin, cryptocurrency, regulation, Article 9, Uniform Commercial Code
There has been some discussion about the flaws in using secured transactions law, Article 9 of the Uniform Commercial Code (U.C.C.), to govern commercial transactions involving Bitcoins as collateral. Flaws necessitate the urgency of immediately fixing of the existing law. In the case of Bitcoins there is still much to learn about the marketplace for secured transactions with Bitcoins as collateral. The rapid change in technology, the speed of new ideas proposed, the constant announcements of adoption and adaptation of smart contracts in transactions, the volatility in cryptocurrency value, the endless reports of scams, and the rise of dark pools and shadow banking all suggest that we should not touch Article 9 for now. The Article 9 system is adequate to accommodate cryptocurrencies-full of imperfection and uncertainty- at the present time. Haste will yield waste. Instead, we should study the lending market with cryptocurrencies as collateral and observe how law and technology have been utilized in fostering the development in the market. Case study is most appropriate, and lessons can be drawn in monitoring and evaluating whether change in Article 9 law is necessary.
This article begins with an observation of the responses from the U.S. Securities and Exchange Commission (SEC), the Chicago Board Options Exchange (CBOE), the Chicago Mercantile Exchange (CME), the U.S. Internal Revenue Service (IRS), and the National Conference of Commissioners on Uniform State Laws (NCCUSL) relating to Bitcoins. These responses together will pave the way for the lending market with Bitcoins as collateral. Part II examines the market for lending with Bitcoin through three different case studies: direct lending, L2B platform, and invoice financing for small and medium sized businesses. Part II will explain how Unchained Capital, Secured Automated Lending Technology (SALT) Lending, and the HIVE Project are conducting their lending business model. Part III then focuses on how lenders have crafted creative solutions rooted in technology to capture the market and address legal concerns. Part IV offers some final thoughts on the current state of law and technology in crypto lending.