Cryptocurrencies such as Bitcoin promise solutions to, but also contain their own, underlying security challenges. These include how companies and individuals can accurately and securely track the legitimacy, ownership and history of assets, digital and otherwise.

Blockchain technology is intended to enable each transaction to be securely recorded in a chain that can only be viewed or modified by a defined set or percentage of holders, such as those buying, holding or selling the asset and/or a group of network participants.

The number of clients we are advising on blockchain-related matters is rising rapidly across multiple practice areas and industry sectors, as is the number of investments we are handling for serial investors and acquirers in the space.

Frankfurt-based partner Dr. Carsten Loesing explains: “Because blockchain and cryptocurrencies are relatively new, they’ve created equally new legal challenges, such as data protection and financial regulatory issues, and initiatives for new regulations and legislation.

“For instance, on the financial services side, corporate clients are discovering that they often need a banking license or a partner with such a licensed party before getting into the blockchain arena, so we’re offering them advice to make sure they stay within the law, which is particularly important because the legislation itself is developing all the time.

“While there are a lot of small, niche legal firms with expertise in blockchain matters, we are currently one of the few big law firms able to help bigger corporate clients and financial institutions interact with these technologies with a global regulatory view because of our international network.

“That makes blockchain an exciting growth opportunity for us, particularly because it’s a fast-growing area that fits with the Firm’s strategy of growing in the technology sector.

“As our expertise in blockchain grows, we’re coordinating our approach by having regular cross-network calls to support people with an interest or involvement in blockchain matters across the Firm, share our experiences, updates, highlight potential opportunities and talk about any trends or issues.”

Our reputation for providing legal advice on blockchain matters is growing fast across multiple market sectors and regions.

“The deal stands out because, when gumi approached us initially, many said that setting up the fund would be impossible given Japanese regulation in the space.”
NELS HANSEN, TOKYO-BASED PARTNER

In the German financial services market for example, we’ve been working with a syndicate of four German banks on the use of blockchain technology, corporates looking to refinance renewable energy or real estate projects using blockchain, and another company looking for legal advice on exchanging cryptocurrency into conventional currency.

In the technology arena, our Tokyo office recently assisted leading global mobile game publisher and developer, gumi, on the launch of a dedicated fund investing in cryptocurrency and blockchain technology companies globally.

Called gumi Cryptos Capital, the dedicated fund is the result of a joint venture between gumi and its partners. It offers its portfolio companies a strategic venture capital investment partner with unique access to the Japan cryptocurrency market through its network of investors and management board.

Tokyo-based partner Nels Hansen says: “We helped gumi with the fund foundation and, since then, we’ve been providing advice to gumi Cryptos on its investments in both cryptocurrency projects and blockchain technology companies around the world.”

The Firm’s work on the formation of gumi Cryptos won external recognition when it was commended in the FT Asia Pacific Innovative Lawyers Awards 2019.

Nels comments: “The deal stands out because, when gumi approached us initially, many said that setting up the fund would be impossible given Japanese regulation in the space.

“But thanks to gumi’s strong compliance culture and repeated meetings with the authorities, we were able to work with the Japanese authorities to come to a structure that would work and get it across the line, just before the Coincheck digital currency theft scandal broke.”

Since the fund was launched, our relationship with gumi Crypto has gone from strength to strength. Nels says: “As well as doing regular work for them, they’ve also introduced us to other reputable players in the industry, which is really important, because, in such a new sector, knowing you are dealing with reputable partners is vital.”

Other clients we have worked with in the technology space include ABE Global, a cross-border regulated token exchange, in its formation and Series A preference unit financing led by Galaxy Digital LP (a global investment management company focused on investment in digital assets) and Distributed Global.

“We’ve already provided legal advice to the client on over a dozen investments.”
GARY SILVERMAN, CHICAGO-BASED PARTNER

The Firm is also helping Private Equity clients with legal advice for blockchain-based investments, with one example being Galaxy Digital LP and EOS.io blockchain technology.

Chicago-based partner Gary Silverman explains: “We’ve already provided legal advice to the client on over a dozen investments, including its investment in Good Money Group, a digital banking platform providing banking and financial services, Mythical Games, a blockchain game developer, Varius Solutions, a blockchain consulting and product company, and Fuel Games, a blockchain game infrastructure provider.”

Blockchain technology is also having an impact on the real estate market.

One example is German-based KlickOwn AG, which intends to utilize blockchain to offer real estate investments by means of digital security tokens.

KickOwn AG believes that the next generation of retail investors will want to have their investments in their smartphone wallets rather than in a bank deposit account.

In addition, the company’s use of blockchain technology allows investors to have up-to-date information about their investments at any time with significantly lower asset management costs.

KickOwn OG also hopes that security tokens will be easily traded, as trading platforms for security tokens are in the process of emerging.

Completing transactions in this way makes property investments far quicker and easier than had been possible using traditional methods and also overcomes the complications of investing in property abroad. This means it is more viable for investors to invest only a small amount into a property.

Frankfurt partner Dr. Holger Wolf explains: “We’ve been providing legal advice to KlickOwn AG from the very beginning, when we offered them help with the legal framework for the platform and structuring of the company

“Our ongoing advice includes the regulatory framework relating to securities laws, licensing issues and corporate structure.

“… we’re raising awareness among our mining and metals clients of how blockchain could be utilized in the industry, why it matters to them and to make them aware that we are here to help them.”
REBECCA CAMPBELL, GLOBAL HEAD, MINING AND METALS

“This is an exciting example of a client using technology to push the boundaries of the real estate industry and we’re delighted to be working with them. Not only are we building a strong relationship with the client, but it stands us in good stead to win work with other clients when it comes to blockchain applications in the real estate market.”

As the need for clients to be aware of blockchain legal issues grows, the Firm is doing a lot of work to raise awareness and build its reputation as an expert on the issue.

This has been partly achieved through our thought leadership work, for example reporting on the growth of blockchain and smart contracts in the mining and metals sector.

Global Head, Mining and Metals, Rebecca Campbell explains: “We’ve done a lot of thought leadership work in recent months, including a report on the rise of digital finance, which asked if tokenized mining royalties and metal streams could provide a new investor base for an industry currently experiencing a 40 per cent drop in equity funding.

“Another article asked if blockchain technology could help mining and metals companies to negotiate the increased demands from regulators and consumers for transparency, accountability and traceability.

“This is just one way that we’re raising awareness among our mining and metals clients of how blockchain could be utilized in the industry, why it matters to them and to make them aware that we are here to help them.

“We’ve already received multiple ‘cold calls’ from prospective clients and we now have multiple clients in the sector, including MineHub. We are currently pitching to a major mining company in this space off the back of this campaign.”