Cryptocurrency Benefits for Businesses

How do Businesses use Cryptocurrency?

Cryptocurrency is becoming increasingly popular in the corporate world and the rise of crypto-assets such as Bitcoin, Ethereum or Non-Fungible Tokens has created innovative developments in business and finance.

Cryptocurrencies are known to offer an alternative, enabling businesses to buy and sell products without engaging a bank or payment processor that might charge additional fees for an international trade.

The blockchain is also deemed to be more secure and less subject to hackers due to its decentralised, distributed and public digital ledger that is used to record transactions across many computers meaning that the records cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.

Setting up a blockchain based Company

Similarly to traditional companies, a blockchain-based company will need robust articles of association including a strict determination of this share capital and shareholders’ agreement to flourish and thrive.

Shareholders’ agreements are essential where more than one individual owns a share or a token in a company – they can cover issues such as how shares or the token can be bought and sold, who has the power to make certain decisions and what happens if a shareholder dies.

Cryptocurrency as Shares

Businesses may issue their own crypto-assets typically named “tokens” to raise money via an initial coin offering (ICO). The mechanisms of an ICO are relatively simple: a company generates its own money which will be embodied by tokens. The token will then be sold in a limited number at a specified date corresponding to the ICO. In the same way a shareholder will have certain rights depending on the type of the shares held, a token holder will have some powers over the company which will need to be carefully defined in the legal documentation.

To market an ICO, it is currently market practice that the issuing company publishes a whitepaper on its website and certain virtual platforms. In the whitepaper, the issuing company describes its business operations as well as the structure and features of the tokens. The transaction documentation may also include a token purchase agreement stipulating the terms and conditions pursuant to which investors can purchase the tokens. Similarly to a share purchase agreement,  the terms and conditions will need to be carefully drafted to protect the company but also the potential investors.

Contracts underlying cryptocurrency transactions

1. Contract between a Non-Fungible Token (NFT) creator or seller and a purchaser

NFTs have introduced several wrinkles into the analysis of intellectual property rights in general and copyright law in particular. Artists and creatives who mint NFTs and collectors and investors who purchase and use them often have very different understandings and expectations when it comes to the copyrights associated with the content linked to an NFT. The default rule of copyright law is that the copyright to creative works does not transfer to the purchaser of the works, so that unless the NFT creator does something to actively transfer or licence the rights to the purchaser, the NFT purchaser will have no copyright rights to the works linked to the NFT.

Indeed, when you buy the NFT for a tokenised digital or physical artwork you are not automatically obtaining sole possession of the artwork. Instead, you purchase sole access to and control of the smart contract of the NFT stored on the blockchain which has created a record that you are now the registered owner of the NFT and the artwork it is linked to.

Therefore, the contract between the NFT seller and the purchaser needs to be carefully drafted to reflect the intention of the parties.

Although not commonplace, a NFT seller can sell both the NFT and the underlying asset together. However, a more common approach is for the NFT seller and IP rights owner to licence use of the intellectual property rights in the underlying asset to the purchaser of the NFT for certain purposes. Similarly, this document will need to be drafted by a solicitor to avoid any disappointment.

2. Agreement with cybersecurity company

Blockchain is supposed to be extremely secure and unalterable, many individuals have dubbed this technology as “unhackable”. However, recent incidents have unfortunately shown that hackers can access blockchains in certain situations. For instance, one of the world’s largest crypto exchanges, has been hit by a $570 million hack in 2022. Therefore, you may want to contract with a cybersecurity company to protect your company and your clients from hackers and it is important that the contract is reviewed and negotiated by a professional to protect your interest.

Expert Cryptocurrency Solicitors

Our specialist cryptocurrency team is made up of expert solicitors who have a wide range of experience in successfully handling a number of different cases relating to the user of cryptocurrency for businesses.

Get in touch with a member of the team to find out how we can help you or discover more about our cryptocurrency team and legal services.