Web3’s Surging Wave of Data Innovation, Privacy and Security Laws
Last month a ‘Cryptopia’ pop-up took place in Salt Lake City featuring innovators from the region’s burgeoning tech sector. Described as a Web3 event, Cryptopia focused attendees on burning issues relating to emerging technologies. The event included a reoccurring theme – laws, regulations and industry standards are coming, and that’s not necessarily a bad thing.
Just as Cryptopia was neatly organized into separate, hour-long discussions about Crypto, DeFi, NFT and DAO, over the next four weeks we will analyze the data innovation, privacy and security issues spurring legal oversight, and what to expect and prepare for. Here is a preview of what’s coming.
Web3, as a catch-all term for digital assets and infrastructure based on blockchain technology, includes cryptocurrencies – digital representations of a stored value. The Securities and Exchange Commission has already pledged to pursue cases where crypto, cybersecurity and technology intersect. Similarly, the Federal Trade Commission has also been paying attention, worried that ‘technological shifts’ increase the likelihood of investment scams.
DeFi stands for ‘decentralized finance’ and refers to the decentralization of traditional financial services performed by financial institutions (i.e., borrowing and lending) and focuses on peer-to-peer rather than centralized processes. Unsurprisingly, cybersecurity issues abound. Two weeks ago, Solana, a blockchain network, lost wrapper Ether (wETH) tokens valued over $375 million. Wormhole, a protocol that connects blockchains, appears to be the attack vector.
NFTs (nonfungible tokens) are digital assets stored on blockchain technology, are created by computer code and often bought with cryptocurrency. The computer code underlying an NFT includes “smart contracts,” is unique, and is noninterchangeable. Since last year, numerous collectors of the wildly popular NFTs known as ‘bored apes’ have lost millions of dollars due to poor cybersecurity standards.
DAO stands for ‘decentralized autonomous organization.’ A DAO is “governed by a community organized around a specific set of rules enforced on a blockchain.” For example, Bitcoin’s network is DAO. Late last year, BadgerDAO experienced a cybersecurity incident that resulted in losses totaling at least $120 million. Calls for DAO regulations have grown, since consumers bear the brunt of losses.
In sum …
Last week’s arrest of cybercriminals linked to the theft of $4.5 billion in stolen bitcoin from a crypto exchange underscores what Cryptopia’s luminaries lamented, that laws, regulations and industry standards are inevitable. In the press release, emphasis was placed on how blockchain and crypto “comprise an expanding part of the U.S. financial system.”
For further information about Web3, see upcoming articles on crypto, DeFi, NFTs and DAO, contact the authoring attorneys at Armstrong Teasdale, and sign up for the upcoming AT Digital Transformation webinar on March 16, 2022, titled “The Intersection of Blockchain, Crypto and DeFi with Data Innovation, Privacy, and Security.”