Author: JOLT Page 5 of 10

By Troy Fowler

 

It seems like every day we see another public figure elect to take some or all of their compensation in Bitcoin. I consider their incentive for doing so, and how such compensation is treated from an income tax standpoint.

Bitcoin is Insulated From the Causes of Inflation

The US Dollar lacks the purchasing power it had a year ago. Inflation has soared to its highest levels since 1990.[1] The average price of non-volatile consumer goods (consumer price index) rose 6.2 percent for the 12 months ending in October 2021.[2] The energy index rose 30 percent over that same period as the food index increased 5.3 percent.[3] While private industry workers have seen an average pay raise of 4.2 percent over the past year, the raise that many have received does not fully account for increases in the price of goods.[4]

Multiple federal “stimulus” packages amounting to a staggering $6 trillion in new spending purported to put more money into Americans’ pockets,[5] but the combination of artificially increased demand and reduced supply has led to shortages which have caused consumer prices to skyrocket.[6] To preserve the otherwise shrinking value of their hard-earned dollars, many Americans have looked to Bitcoin as a hedge against inflation. In October, JPMorgan published a research note to its clients stating that “Institutional Investors appear to be returning to bitcoin perhaps seeing it as a better inflation hedge than gold.”[7]

As opposed to the dollar which is a “fiat” currency backed by government rather than a physical commodity or financial instrument,[8] and which can be printed infinitely as the Federal Reserve sees fit, new Bitcoins are introduced into circulation in a manner analogous to gold miners expending resources to add gold to circulation.[9] In the case of Bitcoin, it is CPU time and electricity that is expended.[10] The “hard cap” on the supply of Bitcoin is a fundamental driver behind Bitcoin’s value proposition such that, although a (theoretically possible) change in the hard cap “would increase miner revenue in bitcoin terms, the loss of faith in the Bitcoin network would result in a catastrophic and irreversible price collapse, leading to a net loss of miner revenue in fiat terms.”[11] The finite number of Bitcoins that can ever come into existence ensures that once the hard cap is reached, Bitcoin can exist inflation-free.[12]

Many public figures have begun to request payment in Bitcoin as an alternative to the inflated US Dollar.[13] The newly elected Mayor of New York, Eric Adams, announced that he will receive his first three paychecks in Bitcoin.[14] Various professional athletes have also begun to take their salaries, signing bonuses, and endorsement earnings in the world’s number one cryptocurrency.[15] On 12/29/2020, when NFL offensive lineman Russell Okung tweeted that $6.5M—half of his $13M salary—had been “paid in Bitcoin,”[16] the price of the cryptocurrency was around $26,000 per coin.[17] Mr. Okung’s $6.5M investment at $26,000 per coin has increased to a value of $15M at the current price just north of $60,000—a 130% gain.

Tax Treatment of Bitcoin

Typically, compensation for services constitutes gross income which is taxable at “ordinary” rates.[18] However, the IRS treats cryptocurrencies like Bitcoin as property for federal tax purposes.[19] Property is a capital asset,[20] and capital assets are taxable at much lower rates.[21] Capital assets tend to be investment property upon which gains are only supposed to occur in the relatively unusual event that such property is sold. In tax law, no dollar can be taxed until its value has been “realized,” which requires an undeniable accession to wealth.[22]

All income is taxed at ordinary rates unless there is a net capital gain.[23] If a capital asset held for more than one year is sold at a gain (long-term capital gain) and said gain is greater than the amount lost from the sale or exchange of other capital assets held for less than a year (short-term capital loss), the taxpayer has a net capital gain which should be taxed according to capital, as opposed to ordinary, rates.[24] While the highest marginal tax rate (rate at which the last dollar of income is taxed) for ordinary income is 37%, the highest marginal tax rate for capital gains is just 20%.[25] If a taxpayer can hold off on liquidating a capital asset for more than a year, they can take advantage of substantial tax savings.[26]

Let’s assume a taxpayer is able to hold onto their Bitcoin for longer than a year. It is no secret that the price of Bitcoin is volatile, but on an upward trajectory.[27] To determine whether the taxpayer has realized a gain or loss upon their sale of Bitcoin, the tax code considers the original cost to the taxpayer.[28] This cost (called “basis”) is subtracted from any amount realized from a sale to determine whether there is gain or loss.[29] When an employee is paid in Bitcoin, they receive basis of the Fair Market Value (“FMV”) of Bitcoin at the time of the transfer.[30]

When compensation is paid on a fixed schedule, the taxpayer’s basis for each receipt of Bitcoin is different, since its FMV was different each time they received payment. Because they will be taxed on the difference between the FMV at liquidation and their basis in that particular receipt,[31] it follows that they should sell the highest basis portions of Bitcoin first. This would result in the lowest possible tax liability. Portions with lower basis should either be held until the price drops, or until the price increases so much that the tax hit is negligible compared to the substantial gain.

Popular investing apps like Robinhood do not allow users to determine which specific unit they want to sell.[32] Rather, Robinhood sells your funds in first-in-first-out (“FIFO”) order.[33] Assuming the asset has increased in value, the lowest basis holdings will be sold first, resulting in a higher tax liability since (taxable) gain equals amount realized minus basis. A person receiving compensation in Bitcoin should make sure their broker of choice does not impose this limitation.

The IRS has stated that a taxpayer may choose which units they wish to sell if they can specifically identify which unit or units are involved in the transaction and substantiate their basis in those units.[34] The taxpayer must provide records detailing the transaction information for all units of Bitcoin they hold in a single account, wallet, or address.[35] These records must include: (1) the date and time each unit was acquired, (2) the basis and the fair market value of each unit at the time it was acquired, (3) the date and time each unit was sold, exchanged, or disposed of, and (4), the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.[36] If a taxpayer fails to specify or is otherwise unable to do so, the units will be deemed to be sold in chronological (FIFO) order.[37]

Conclusion

Capital treatment is reserved for assets that are held for more than one year, the disposal of which constitutes an uncommon occurrence. The IRS treats Bitcoin as property, which is a capital asset taxed at capital rates, so long as it is held for more than one year and the taxpayer’s net long-term capital gains exceed their net short-term capital losses. Because the code taxes capital income at a rate much lower than ordinary income, it is in the taxpayer’s best interest to hold onto Bitcoin for more than one year before selling.

When Bitcoin held for less than one year is liquidated, it is subject to the same tax rate as if the taxpayer had simply received compensation in cash. Therefore, a taxpayer should ensure they can cover their normal expenses with other funds before committing to receiving compensation in Bitcoin. Implicit in the choice to receive compensation in Bitcoin is the hope that its value appreciates. Regardless, the volatility of the market makes short-term investing a risky decision. Additionally, the IRS’ determination that Bitcoin is property, and thus a capital asset, indicates that it believes Bitcoin should be held for investment purposes rather than used as a cash equivalent for compensation. Because Bitcoin is viewed as a store of value, immune from inflationary weakening, it makes sense to hold the asset for as long as possible while the price increases. This cannot be achieved if the taxpayer is forced to liquidate their holdings to cover their expenses.

At this point in time, it might make sense for high income earners like professional athletes to receive compensation in Bitcoin. However, for the majority of Americans who depend on their paychecks to cover any expenses they might incur in a given taxable year, Bitcoin is better suited for investment of discretionary income that the taxpayer wishes to protect from the pressures of inflation.

 

[1] Bureau of Labor Statistics, News Release USDL-21-1973, Consumer Price Index – October 2021 (Nov. 10, 2021).

[2] Id.

[3] Id.

[4] Bureau of Labor Statistics, News Release USDL-21-1907, Employment Cost Index – September 2021 (Oct. 29, 2021).

[5] Staff of the J. Econ. Comm., 117th Cong., The Economics of Inflation and the Risks of Ballooning Government Spending (Oct. 6, 2021), https://www.jec.senate.gov/public/index.cfm/republicans/2021/10/the-economics-of-inflation-and-the-risks-of-ballooning-government-spending (Rep. of Jackie Benson).

[6] Id.

[7] Kevin Helms, JPMorgan: Institutional Investors Dump Gold for Bitcoin Seeing It as Better Inflation Hedge, Bitcoin.com (Oct. 7, 2021), https://news.bitcoin.com/jpmorgan-institutional-investors-dump-gold-for-bitcoin-better-inflation-hedge/.

[8] Fiat vs. Representative Money: What’s the Difference?, Investopedia (Sept. 14, 2021), https://www.investopedia.com/ask/answers/041615/what-difference-between-fiat-money-and-representative-money.asp#:~:text=Fiat%20money%20is%20a%20form,physical%20commodity%20or%20financial%20instrument.

[9] Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, Bitcoin.org 4 (Oct. 31, 2008), https://bitcoin.org/bitcoin.pdf.

[10] Id.

[11] Can Bitcoin’s Hard Cap of 21 Million Be Changed?, River Financial, https://river.com/learn/can-bitcoins-hard-cap-of-21-million-be-changed (last visited Nov. 19, 2021).

[12] See Nakamoto, supra note 9 (explaining the various economic incentives for miners to support the blockchain).

[13] Jazmin Goodwin, Forget cash. Pay me in bitcoin, CNN Business (Nov. 13, 2021), https://www.cnn.com/2021/11/13/business/money/cryptocurrency-bitcoin-salary-feseries/index.html.

[14] Id.

[15] Id.

[16] Jonathan Warner, Former Seattle Seahawk Russell Okung puts half of salary in Bitcoin, considered highest paid in the league now, NBC Sports (Feb. 22, 2021, 5:54PM ET), https://www.nbcsports.com/northwest/seahawks/former-seattle-seahawk-russell-okung-puts-half-salary-bitcoin-considered-highest.

[17] Bitcoin USD Historical Data, Yahoo Finance, https://finance.yahoo.com/quote/BTC-USD/history (last visited Nov. 19, 2021).

[18] I.R.C. §§ 1(j), 61(a)(1).

[19] I.R.S. Notice 2014-21, IRB 2014-16.

[20] I.R.C. § 1221(a).

[21] I.R.C. § 1(h).

[22] Comm’r v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955).

[23] I.R.C. §§ 1(h), 1222(11).

[24] I.R.C. §§ 1(h), 1222(2), (7), & (11).

[25] I.R.C. § 1(h), (j).

[26] See id.

[27] See Bitcoin USD Historical Data, supra note 17.

[28] I.R.C. §§ 1001(a), (b), 1011, 1012.

[29] Id.

[30] Int’l Freighting Corp. v. Comm’r, 45 B.T.A. 716, 720–21 (1941).

[31] I.R.C. § 1001(a), (b).

[32] Popular Investing Apps Might Hold a Tax Surprise, WSJ Noted (Apr. 16, 2021), https://www.wsj.com/articles/popular-investing-apps-might-hold-a-tax-surprise-11618610064?mod=hp_noted_tophat.

[33] Id.

[34] Frequently Asked Questions on Virtual Currency Transactions at A39, Internal Revenue Service (June 4, 2021), https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions.

[35] Id. at A40.

[36] Id.

[37] Id. at A41.

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By Ben L. Culpepper

 

After January 6, 2020, big tech took unprecedented measures to prevent the spread of misinformation on their platforms.[1] These measures included banning then-president Trump from using their websites, along with Amazon entirely dispensing of Parlor, a right-wing social media alternative to Twitter.[2] However, the role of big tech companies such as Twitter and the policing of information raises new legal questions.[3] Those being censored or flagged as spreading misinformation argue their first amendment right to free speech is being breached.[4] On the other hand, advocates of monitoring what information can be posted to Twitter argue Twitter is not doing enough to censor misinformation.[5] And, behind the scenes of it all, the federal government looms in the background pressuring big tech to cut out misinformation or face federal legislation punishing big tech.[6]

The journey to the censorship levels of January 6, 2020, started from a very different place. In 2011, relatively early in Twitter’s existence, a reporter named Anita Sarkeesian was the subject of terrible threats on the company’s platform.[7] These threats included specific threats of rape, physical violence, and outright racism in general.[8] The online trolls even made a video game depicting Sarkeesian and giving players the option to punch her in the face.[9] According to Sarkeesian, when she reported the threats to Twitter, all Twitter mustered was “The account [reported] is not currently in violation of the Twitter Rules.”[10] Only when Sarkeesian publicly tweeted Twitter’s nonchalant response did Twitter step in and take action.[11]

Today, Twitter has three specific types of misinformation labels that the company attaches to tweets that it deems are “false and misleading.”[12] Twitter has rapidly increased its speech monitoring policies in the wake of public and federal criticism, almost instantly flagging potentially false or misleading information on its platform.[13] This is a drastic change from where the company began in 2011 during Sarkeesian’s story.[14] Nadine Strossen, professor of law at New York Law School, argues that the first amendment of our Constitution only protects against free speech violations that come from the government.[15] Accordingly, Strossen asserts that there is no first amendment violation in Twitter monitoring free speech.[16] Thus, Twitter, as a private sector entity, has no obligation to protect any freedom of speech.[17] In fact, quite the opposite, she argues. Twitter can freely remove those who violate its terms of use whenever Twitter pleases.[18]

On the other hand, those being censored and advocates of total free speech on social media platforms argue that Twitter engages in selective enforcement, suggesting political motives.[19] Free speech proponents assert that big tech companies have a Constitutional obligation to allow for the free flow of information on their platforms.[20] Otherwise, Congress, through regulatory threats and statutory inducements, is merely using big tech to accomplish what it itself is unable to do: cut out speech it deems false or misleading.[21] To support this claim, free speech advocates point to threats Democratic lawmakers in Congress have issued at Twitter.[22] Furthermore, Section 230 of the Communications Decency Act allows tech companies to censor what may otherwise be Constitutionally protected speech without facing legal consequences.[23] Free speech advocates assert that Section 230, paired with Democratic threats, amounts to state action via private entities which infringes on the rights guaranteed in our Constitution.[24]

As Twitter and other big tech companies continue to ramp up their speech monitoring policies, the big question looming in the background grows in size and shape: is big tech acting as a medium for state action, or is it merely trying to enforce policies against false and misleading information? This is a fine line big tech has been treading carefully, and if Congress decides big tech isn’t doing enough, federal statutory regulations are just around the corner.

 

[1] Jessica Guynn, President Trump Permanently Banned from Twitter over Risk He Could Incite Violence, USA Today (Jan. 8, 2021), https://www.usatoday.com/story/tech/2021/01/08/twitter-permanently-bans-president-trump/6603578002/.

[2] Glenn Greenwald, Congress Escalates Pressure on Tech Giants to Censor More, Threatening First Amendment (Feb. 20, 2021), https://greenwald.substack.com/p/congress-escalates-pressure-on-tech.

[3] Id.

[4] Vivek Ramaswamy & Jed Rubenfield, Save the Constitution from Big Tech, Wall St. J. (Jan. 11, 2021), https://www.wsj.com/articles/save-the-constitution-from-big-tech-11610387105.

[5] Greenwald, supra note 2.

[6] Id.

[7] Emily Greenhouse, Twitter’s Free-Speech Problem, Science and Tech (Aug. 1, 2013), https://www.newyorker.com/tech/annals-of-technology/twitters-free-speech-problem.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Barbara Ortutay, Twitter Rolls Out Redesigned Misinformation Warning Labels, ABC News (Nov. 16, 2021), https://abcnews.go.com/Technology/wireStory/twitter-rolls-redesigned-misinformation-warning-labels-81212172.

[13] Id.; see Greenwald, supra note 2.

[14] See Greenhouse, supra note 7.

[15] Nadine Strossen, Does the First Amendment Apply to Social Media Companies?, Talks on Law (Mar. 21, 2020), https://www.talksonlaw.com/briefs/does-the-first-amendment-require-social-media-platforms-to-grant-access-to-all-users.

[16] Id.

[17] Id.

[18] Id.

[19] Ramaswamy, supra note 4.

[20] Id.

[21] Id.

[22] Id. (quoting Louisiana Representative Cedric Richmond “We’re going to make it swift, we’re going to make it strong, and we’re going to hold them very accountable,” and New York Representative Jerry Nadler “Let’s see what happens by just pressuring them.”).

[23] Id.

[24] Id.

Image Source: https://unsplash.com/s/photos/twitter

 

By Walker Upchurch

 

The United States is embroiled in an opioid crisis, and throughout the Covid-19 pandemic, it has only gotten worse. According to the Center for Disease Control, during a 12-month long study, the provisional data showed that during COVID, opioid-related deaths rose by over 28%.^[1] The states that have been hit the hardest are Louisiana, Mississippi, Tennessee, Kentucky, West Virginia, and Vermont.^[2] Likewise, only South Dakota, New Hampshire, New Jersey, and Delaware were the states that had a lower opioid-related 12-month death count.^[3] In response to this study, USA Today spoke with Dr. Paul Christo, an associate professor of anesthesiology and critical care at Johns Hopkins University School of Medicine, who stated: “Two forces here are the negative economic impact of the pandemic as well as the emotional impact… That led to a lot of people to use drugs … to cope.”^[4] Thus, the downturn in the economy naturally led individuals to illegal street drugs such as heroin and fentanyl.^[5] Fentanyl had initially been developed as a pain management drug to treat terrible diseases such as cancer and help patients after open surgery.^[6] Its effectiveness in pain management has been well noted, and it has since developed a reputation as an additive to other street drugs for a powerful impact. Currently, the United States has seized so much illegal fentanyl on the street that it would be enough to deliver lethal doses to every Citizen, according to the DEA Administrator Anne Milgram.^[7]

To combat the rising opioid problem, the state of California had attempted to hold the pharmaceutical companies accountable in court as they brought suit against a plethora of drug companies citing a public nuisance in their case California V. Purdue Pharma L.P. e.t al.^[8] The state of California argued that the pharmaceutical industry had advertised opioid drugs, which subsequently led to pain pills overtaking their communities.^[9] The state of California was seeking $50,000,000,000 in this lawsuit against numerous pharmaceutical companies such as Johnson & Johnson, Purdue Pharma, and Actavis.^[10] However, for the first time in more than 3,300 lawsuits, the pharmaceutical industry won.^[11] Judge Peter Wilson stated that “There is simply no evidence to show that the rise in prescriptions was not the result of the medically appropriate provision of pain medications to patients in need.^[12] Additionally, he stated that “even if the drug makers’ marketing contained any misleading statements, the counties put forward no evidence to show that their promotional activities caused any medically inappropriate prescriptions to be written. The Court went on to say that the Plaintiff failed to prove an actionable public nuisance claim against the defendants.^[13] Likewise, they found that none of the marketing materials’ identified statements were false or misleading. ^[14]

This is an interesting case as it could foreseeably embolden the pharmaceutical industry in their lawsuits and advertising of opioid drugs as their actions did not rise to or constitute an actionable public nuisance. Likewise, it may make state governments warrier in investing the time, resources, and energy required to take on such a massive case. While it is by no means a get out of jail free for the pharmaceutical industry as Johnson & Johnson, McKesson, Cardinal Health Inc., and AmerisourceBergen will all be paying out up to $26 Billion to settle other cases, it does create the precedent that the pharmaceutical companies will continue to rely on going forward.^[15]

 

^[1] Ahmad FB, Rossen LM, & Sutton P., Provisional drug overdose death counts, NATIONAL CENTER FOR HEALTH STATISTICS, CDC (2021), https://www.cdc.gov/nchs/nvss/vsrr/drug-overdose-data.htm.

^[2] Id.

^[3] Id.

^[4] Ken Alltucker Drug overdoses surged amid COVID lockdowns; more deaths in one year than ever before, USA TODAY (Nov. 17, 2021), https://www.usatoday.com/story/news/health/2021/11/17/overdose-deaths-soar-record-level-amid-pandemic-rise-fentanyl/8629870002.

^[5] Id.

^[6] Id.

^[7] Id.

^[8] People v. Purdue Pharma L.P., 2014 Cal. Super. LEXIS 24730 (Nov. 1. 2021).

^[9] Nate Raymond, California judge delivers drugmakers 1st trial win in opioid litigation, REUTERS (Nov. 2, 2021), https://www.reuters.com/world/us/california-judge-rules-drugmakers-major-opioid-lawsuit-2021-11-02.

^[10] Purdue Pharma L.P., 2014 Cal. Super. LEXIS 24730.

^[11] Raymond, supra note 9.

^[12] Id.

^[13] Purdue Pharma L.P., 2014 Cal. Super. LEXIS 24730.

^[14] Id.

^[15] Raymond, supra note 9.

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By Drew Apperson

 

On June 14, 2021, the Commonwealth of Virginia’s State Corporation Commission (“SCC”) approved Phase IB of Dominion Energy’s (also known as Virginia Electric and Power Company, or VEPCO) plan for electric distribution grid transformation projects pursuant to § 56-585.1 A 6 of the Code of Virginia.[1] This is but one part of a grid overhaul plan by the Virginia-based utility company.[2] “The electric grid was originally designed for one-way flow of electricity to meet customers’ demand.”[3] In the traditional electric grid system, electricity is produced by a generator, such as a hydroelectric dam or nuclear power plant. Electricity then feeds through the transmission system to the distribution system, and finally, is made available to the end-use customer – the outlets in your home.[4] On the other hand, “smart grid” designs, like that of Dominion’s being considered by the SCC, allow for bidirectional electrical flows and alternative routes for the electricity to reach the consumers. [5]

With the growing number of not just personal electric cars, trucks, and SUVs, but also commercial fleets of electric vehicles, traditional grids are inadequate to utilize what are essentially drivable batteries. For example, when an area loses power from a downed electrical line during a storm, anything down-stream of the issue is isolated from the generator and is thus without power – a so called “voltage island.”[6] In a two-way electric grid, however, the batteries powering electric vehicles can serve as the generators. An electric vehicle can plug into the grid and provide temporary power to the isolated area until the electrical lines are repaired. [7]

Another added benefit of smart grids comes when there is no power outage. Transmitting electricity hundreds of miles from the generator incurs noticeable loss and loses efficiency as the distance to the consumer increases.[8] To overcome the issue in a traditional grid could require monumental investments, such as replacing the typical steel-aluminum construction of common transmission lines with precious metals, such as silver, gold, or copper.[9] However, plugging an electric vehicle back into the grid has the potential to reduce this inefficiency because the electrical source is closer to the end-user. Furthermore, this puts less demand on the infrastructure, especially during times of high overall power consumption.[10]

Understandably, consumers may not want to exploit their car’s battery packs given that discharges directly lower the effective life of a battery. Dominion is also in the process of addressing this with a solution that has its own independent benefits. “In 2019, [Dominion] announced an innovative electric school bus initiative to replace diesel school buses with electric school buses, and then leverage the batteries using vehicle-to-grid technology. Fifty electric school buses have been delivered to school districts throughout Virginia. The Company plan[ned] to begin evaluation and vehicle-to-grid testing this year.”[11]

Virginia’s “General Assembly accelerated its transition to a cleaner energy future with the passage of the VCEA in 2020. The VCEA calls for the development of a significant amounts . . . of small-scale [generation] resources that will interconnect to the distribution grid.”[12] The implementation of Dominion’s grid transformation plan is well underway to meet these developments, and Virginia’s SCC continues to keep a watchful eye over it.[13]

 

[1] Petition of Virginia Electric and Power Company, For approval of a plan for electric distribution grid transformation projects pursuant to § 56-585.1 A 6 of the Code of Virginia, and for approval of an addition to the terms and conditions applicable to electric service, Case No. PUR-2019-00154, Doc. Con. Cen. No. 218630055, Order Granting Motion (June 14, 2020), https://scc.virginia.gov/docketsearch/DOCS/532v01!.PDF.

[2] Grid Transformation Plan Phase II, Dominion Energy, Inc. (last visited Nov. 9, 2021), https://cdn-dominionenergy-prd-001.azureedge.net/-/media/pdfs/global/projects-and-facilities/electric-projects/grid/gt-plan-phase-ii.pdf?la=en&rev=0cd40dd1b5674ebf813de4f10d5e440d.

[3] Petition of Virginia Electric and Power Company, For approval of a plan for electric distribution grid transformation projects pursuant to § 56-585.1 A 6 of the Code of Virginia, Part 1 of 7 at 4, Case No. PUR-2021-00127, Doc. Con. Cen. No. 210640058, (June 21, 2021), https://scc.virginia.gov/docketsearch/DOCS/53v901!.PDF [hereinafter 2021 Petition].

[4] See id.

[5] Id at 35.

[6] Id at 22.

[7] See What is the Smart Grid, Department of Energy Office of Electricity (last visited Nov. 9, 2021), https://www.smartgrid.gov/the_smart_grid/index.html (defining “smart grids”).

[8] Jacques Schonek, How Big are Power Line Losses, Schneider Electric (Mar. 25, 2013), https://blog.se.com/energy-management-energy-efficiency/2013/03/25/how-big-are-power-line-losses/.

[9] See Kashyap Vyas, Electrical Energy and the Importance of Conductors, Interesting Engineering (Dec. 7, 2019), https://interestingengineering.com/electrical-energy-and-the-importance-of-conductors; Jennifer Sutton, How Do Electricity Transmission Lines Withstand a Lifetime of Exposure to the Elements?, MIT School of Engineering (Apr. 26, 2010), https://engineering.mit.edu/engage/ask-an-engineer/how-do-electricity-transmission-lines-withstand-a-lifetime-of-exposure-to-the-elements/.

[10] 2021 Petition, supra note 3, at 9–10.

[11] Id at 37.

[12] Id at 6.

[13] See Case Summary for Case Number: PUR-2021-00127, Virginia State Corporation Commission: Docket Search (last visited Nov. 10, 2021), https://www.scc.virginia.gov/docketsearch#caseDetails/142210.

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By Sebastian Estrada

 

Cryptocurrency has undoubtedly taken our world by storm. Notwithstanding its relatively new existence, “crypto” has surpassed a mere trend or fad. Many of us remember when Bitcoin was simply an urban legend, known as a “get rich quick” investment for a lucky few. Today, however, crypto is equivalent to any conventional currency, if not viewed as a more valuable alternative. Consequently, public interest in cryptocurrencies like Bitcoin or Ethereum continuously increases as major industries endeavor capitalize off the new tech.[1]

For years countries have attempted to regulate and mitigate cryptocurrencies. Nevertheless, one intrinsic feature of this new monetary power—often touted as its main benefit—is its regulatory impermeability.[2] In essence, blockchain technology has provided “the means to cut out the middlemen (banks and governments) in peer-to peer transactions.”[3] As such, cryptocurrencies have attracted intense attention from international coalitions, central banks, and economic regulators at the transnational level.[4] Today, the global legal and regulatory response could be characterized as fragmented with a patchwork of uncoordinated initiatives arising in varying jurisdictions.[5] In the US and Asian markets, legislative action is continuously developed. The EU, Australia, and Canada have shown potential to act as gateways between conventional currencies and cryptocurrencies, such as exchange platforms, to be declared subject to anti-money laundering and counter-terrorist financing requirements.[6] Other countries and regions of the world, however, either prohibit or heavily restrict cryptocurrency altogether.[7] The question becomes: how has cryptocurrency affected international trade and the globalized economy, and how has international law accounted for these changes?

The vague and muddled crypto regulations, policies, and enforcement jurisdictions throughout the world have forced governments to find ways to cooperate.[8] Specifically, world governments have been forced to establish mutually agreeable regulations that govern the use of cryptocurrency and give international jurisdiction for illicit activities.[9] For instance, the U.S., Australia, Canada, the United Kingdom, and the Netherlands, have come together to form the Joint Chiefs of Global Tax Enforcement.[10] Through this coalition, countries can share information to reduce the likelihood of organized criminals and tax evaders using new technology to manipulate the system and exploit vulnerable persons for their illegal gain.[11] Likewise, the European Parliament established the GDPR in 2018. It set forth regulations which addressed individual privacy concerns, and repealed and replaced the European Commission’s Data Protection Directive.[12] Under this framework, data-processors within blockchain related service providers would be affected by regulations due to the transnational nature of blockchains and cryptocurrency engagements.[13] However, it soon became clear that cryptocurrency was not compatible with the GDPR. Specifically, because decentralized blockchains do not rely on a central authority to process data, their third-party nature prevents cryptocurrencies from adhering to GDPR regulations.[14]

Cryptocurrencies non-compliance with the GDPR is only one of many obstacles faced by international regulation. Other obstacles stem from differing ideological principles regarding individual rights to privacy. The EU places emphasis on the individual rights to privacy because it is considered a fundamental right;[15] while the U.S., on the other hand, looks at personal data as property of the entity holding said data—making data transfer between different countries and their entities much more complex.[16] Accordingly, the inherent issues associated with cryptocurrency only intensify the need for international cohesion. Although the benefits associated with cryptocurrency may be significant, the downsides of crypto are likewise vast. These issues include using cryptocurrency to (i) illicit crimes, such as financing terrorism, and money laundering; (2) promote tax evasion; (iii) engage in market manipulation through fraud; etc. [17]

It is clear that the presence cryptocurrency is only continuing to expand. More and more cryptocurrencies are being generated, and more trading platforms are allowing for everyday investing into the crypto market. Consequently, the need for international collaboration on regulatory measures will only intensify. Cryptocurrency transcends boarders, and domestic regulators. Therefore, countries must look beyond their domestic laws and their varying ideological differences on data rights. These steps are crucial in order to catalyze a global coordination and harmonization of uniformed regulations in response to the proliferate expansion of cryptocurrency.

 

[1] Freeman Law, https://freemanlaw.com/legal-issues-surrounding-cryptocurrency (last visited Nov. 12, 2021).

[2] Michael Miglio, The Current And Future Implications Of Cryptocurrency For The Legal Industry, Forbes, (last updated Apr. 8, 2019), https://www.forbes.com/sites/theyec/2019/04/08/the-current-and-future-implications-of-cryptocurrency-for-the-legal-industry/?sh=22a9db4368f9.

[3] Id.

[4] Regulation of cryptocurrencies, Norton Rose Fulbright, https://www.nortonrosefulbright.com/en/knowledge/publications/b0264cac/a-global-legal-and-regulatory-guide-to-cryptocurrencies (last visited Nov. 12, 2021).

[5] Id.

[6] Id.

[7] Id.

[8] D. T. Morton, The Future of Cryptocurrency: An Unregulated Instrument in an Increasingly Regulated Clobal Economy, 16 Loy. U. Chi. Int’l L. Rev. 129, 131 (2020).

[9] Id. at 131.

[10] Id. at 141.

[11] Id. at 142.

[12] Id. at 139.

[13] Id.

[14] Id. at 140.

[15] Id. at 142.

[16] Id.

[17] Id. at 143.

By Jeffrey Phaup

 

In a scramble to survive the COVID-19 pandemic companies around the world embraced remote working, but this new arrangement blurred lines between working and personal hours.[1] However, newly remote employees suffered ‘availability creep’, a condition where workers feel obligated to be available at all times to respond to work requests from their employers.[2]

To promote a healthy work-life balance for workers and to prevent companies from overworking employees Portugal has passed a set of laws under which employers could face penalties for contacting workers outside of office hours.[3]

Under these laws, which apply to any company with 10 or more employees, an employer will face fines for contacting workers beyond their normal working hours.[4] Companies will also have to bear certain expenses incurred due to remote working, such as an employee’s increased internet and electricity bills. Employers cannot monitor their employees while they work remotely but that superiors and employees should meet in person every two months to avoid isolation.[5] Additionally, in jobs where remote work is possible, parents may choose to work remotely until their child is eight years old without making prior arrangements.[6]

Ana Mendes Godinho, Portugal’s minister of labor, said that this is a “crucial moment” to establish new rules and that the pandemic “accelerated the need to regulate what needs to be regulated.”[7] “The pandemic has accelerated the need to regulate what needs to be regulated,” she said. “Telework can be a ‘game changer’ if we profit from the advantages and reduce the disadvantages”.[8] Additionally, Minister Godinho asserted that building a healthy remote working culture could also bring other benefits to Portugal in the form of foreign remote workers who are seeking a change of scenery, “We consider Portugal one of the best places in the world for these digital nomads and remote workers to choose to live in, we want to attract them to Portugal.”[9]

 

[1] See generally Suzanne Elliott, Could it soon become illegal in the UK for your boss to contact you outside work hours?, ITV News (Nov. 12, 2021), https://www.itv.com/news/2021-11-12/could-your-boss-be-banned-from-contacting-you-outside-work-hours [https://perma.cc/82PY-ZKT2].

[2] Id.

[3] See generally Maite Fernández Simon, Portugal adopts strict pandemic-era labor protections for remote work, Washington Post (Nov. 11, 2021), https://www.washingtonpost.com/world/2021/11/11/portugal-working-from-home-law/ [https://perma.cc/3VB8-9N4V].

[4] Id.

[5] Id.

[6] Id.

[7] See generally Tom Bateman, Portugal makes it illegal for your boss to text you after work in ‘game changer’ remote work law, euronews (Nov. 11, 2021), https://www.euronews.com/next/2021/11/08/portugal-makes-it-illegal-for-your-boss-to-text-you-after-work [https://perma.cc/N9MH-R8HD].

[8] Id.

[9] Id.

By Grayson Walloga

 

Virtual actors are fully reconstructed digital copies of actors.[1] This technology is not at all new, as many films in the past used computer-generated imagery (CGI) as makeup or to create extras for background shots.[2] Virtual actors are becoming more prominently used in Hollywood blockbusters. All of the major films in the last decade have made extensive use of CGI, be it for huge action set pieces or on actors’ physical appearances.[3] Movies today rely more on CGI for the appearances of characters instead of only using practical effects. Of course, prosthetics still have a role in current films, but are generally combined with CGI.[4] More recently, CGI has been effectively utilized to de-age actors for specific roles or scenes including Robert Downey Jr., Johnny Depp, and Michael Douglas.[5]

While those special effects may cost a pretty penny, it should be noted that some of the biggest movies of the 2010s have been ones that employed both fully CGI characters and de-aging technology.[6] Avengers: Infinity War and Avengers: Endgame (two of the top three grossing films of the 2010s) both featured a litany of digitally created characters including Thanos, Rocket Raccoon, the many aliens of the Black Order, and many more.[7] Chris Evans’s Steve Rogers would also be digitally aged up to look how one would have expected an aged Chris Evans to look like.[8] Aging up an actor is a far more complicated process than de-aging due to the lack of reference material.[9] Full prosthetics were considered but ultimately rejected because of how favorable the digital compositing turned out.[10] Prosthetics were only used specifically for the neck region because they outshined the digital effects.[11]

A modern Hollywood blockbuster puts hundreds of millions of dollars into special effects alone.[12] Movies like Avengers: Endgame or Avatar owed their success in large part to their enormous special effects budgets.[13] Sticking with the Marvel movies, the CGI effects used in Avengers: Endgame cost around the $350 million mark.[14] The investment paid off as the film would gross $2.18 billion worldwide. This might trick movie studios into believing that copious amounts of CGI are needed to make a movie successful, however, the CGI-less Gone with the Wind still remains the highest gross film when adjusted for inflation at an astounding $3.7 billion.[15]

It was not the CGI alone that made the Marvel movies successful. Disney understood that the actors who stayed with the franchise from its humble beginnings were critical to this cinematic universe’s success which is evidenced by how much they paid the most popular characters.[16] Chris Hemsworth got $15 million for his role as Thor in the most recent Avengers movie, a colossal increase from the 150K he received for his first appearance as the character in 2011.[17] Robert Downey Jr., by far the most paid actor in any of the Marvel movies, received $75 million for his Iron man performance in Avengers: Endgame.[18] And for his first appearance as the character? Only $2.5 million.[19] Did Disney really expect to have to see such a drastic pay change for its main actors? It is certainly expected that as a character gets more popular, the actor who portrays him would become more valuable. The studio needs the character to be popular otherwise the films will not be as financially profitable. This creates a sort of adverse relationship between the studio and the actor over the character. They can both succeed and make decent money by working together, but that does not mean alternatives should be cast aside.

Digital actors allow movie studios to cut out some of the cost that would go into paying a popular and demanding actor. There would be a substantial cost upfront, and as discussed above those effects are not cheap, but in the long run studios would see a lucrative payoff if they were interested in creating a cinematic universe like the Marvel Cinematic Universe. New talent is hard to discover, so why not just create the new talent yourself? Or in the case of tragedy, such as the untimely death of Paul Walker, a digital actor can be used to substitute for the real deal.[20] Concerned your outspoken actor is going to say the wrong thing and need to be replaced? Should have digitally created the character instead. Obviously, there would be major legal problems for the studio if it simply made a copy of someone and did as it pleased. However, even if the studio claimed to have created a character from scratch, that digital actor may still look similar enough to an actual person to raise questions about its origins.[21]

20 years ago, Square Pictures made a little movie from 2001 called Final Fantasy: The Spirits Within. It was an entirely CGI film, stylized to be photo-realistic, and pushed the boundaries of digital effects for the time.[22] The film stared a digitally created Aki Ross who was planned to appear in other CGI films by Square Pictures.[23] Director Hironobu Sakaguchi had this to say about the film: “The vision I have is to take the characters that we have in this movie and basically help them be viewed as real actors and actresses. And so, we sort of become a talent agency.” The film would ultimately be remembered as a commercial disappointment and the plans to have these digital actors appear in other movies was never pursued.[24] Technology has improved greatly in the past 20 years. Maybe it is still too early for Sakauchi’s vision to be realized. Maybe it is just around the corner.

 

[1] Ricky Miller, THE VIRTUAL ACTOR: HOLLYWOOD’S NEW LEADING MAN, Control Forever (Dec. 14, 2017), https://controlforever.com/read/rise-of-virtual-actors/.

[2] Id.

[3] See Computer-Generated Imagery, ScienceDaily, https://www.sciencedaily.com/terms/computer-generated_imagery.htm (last visited Nov. 11, 2021).

[4] A GUIDE TO PROSTHETICS IN FILM, Iver Make-Up Academy (May 12, 2018), https://www.iveracademy.co.uk/blog/2018/a-guide-to-prosthetics-in-film/.

[5] Brian Welk, 22 Actors Digitally De-Aged on Film, From Brad Pitt to Robert De Niro (Photos), The Wrap (Oct. 8, 2019), https://www.thewrap.com/actors-who-have-been-de-aged-on-film-from-brad-pitt-to-robert-de-niro-photos/.

[6] See generally pattap-21567, The 50 Highest Grossing Movies of the 2010s (Worldwide), IMDb (Apr. 11, 2018), https://www.imdb.com/list/ls026040906/ (last updated June 2021).

[7] Avengers: Infinity War (2018) Full Cast & Crew, IMDb, https://www.imdb.com/title/tt4154756/fullcredits/?ref_=tt_ql_cl (last visited Nov. 11, 2021); see also Avengers: Endgame (2019) Full Cast and Crew, IMDb, https://www.imdb.com/title/tt4154796/fullcredits/?ref_=tt_ql_cl (last visited Nov. 11, 2021).

[8] Daniel, HOW LOLA VFX TURNED CHRIS EVANS INTO A 119-YEAR-OLD CAPTAIN AMERICA, Bold Entrance (Sept. 9, 2019), https://boldentrance.com/lola-vfx-chris-evans-old-captain-america/.

[9] Id.

[10] Id.

[11] Id.

[12] How much are visual effects for Hollywood movies (and why)?, Nuts Computer Graphics (Jan. 24, 2019), https://www.nutscomputergraphics.com/en/how-much-are-visual-effects-for-hollywood-movies-and-why/.

[13] Id.

[14] Tina Lee, Breakthrough (and Expensive!) CGI Scenes in MCU Movies, Academy of Animated Art, https://academyofanimatedart.com/breakthrough-and-expensive-cgi-scenes-in-mcu-movies/ (last updated May, 8 2021).

[15] Jake Lucas, The Top 20 Box Office Earners Ever: Adjusted for Inflation, SELFi (May 7, 2021), https://selfi.com/the-top-20-box-office-earners-ever-adjusted-for-inflation/.

[16] Jason Guerrasio, How Much Disney Paid Scarlett Johansson Black Widow Other Marvel Stars, Insider (Aug 1, 2021), https://www.insider.com/how-much-disney-paid-scarlett-johansson-black-widow-other-marvel-stars#-1.

[17] Id.

[18] Id.

[19] Id.

[20] Double the Fun: How Digital Actors Are Changing Entertainment Industry, IPQuorum (Jan. 20, 2020), https://ipquorum.ru/en/ip-blog-en/double-the-fun-how-digital-actors-are-changing-entertainment-industry/.

[21] See generally Steinberg v. Columbia Pictures Industries, Inc. 663 F. Supp. 706 (S.D.N.Y. 1987).

[22] John Edgar Park, Behind the Scenes on ‘Final Fantasy: The Spirits Within’, Animation World Network (Sept. 10, 2001), https://www.awn.com/animationworld/behind-scenes-final-fantasy-spirits-within.

[23] Rick Lyman, Movie Stars Fear Inroads By Upstart Digital Actors, N.Y. Times (July 8, 2001), https://www.nytimes.com/2001/07/08/us/movie-stars-fear-inroads-by-upstart-digital-actors.html.

[24] Volodymyr Bilyk, Tragedy of “Final Fantasy: The Spirits Within”, Medium (Oct. 4, 2017), https://volodymyrbilyk.medium.com/tragedy-of-final-fantasy-the-spirits-within-cfe92b6a7903.

Image Source: https://www.wired.com/2013/03/luxion-keyshot

By Sebastian Estrada

 

For years, many aspects of our society, economy, and legal industries have been in limbo. A limbo driven by an exodus from our antiquated ways of buying, learning, working, and interacting. Prior to the “lockdown,” many aspects of outdated industry were dying but not yet dead. One need only think about in-person retail shopping as an example: prior to COVID, the in-store and in-person retail experience was undoubtedly waning. Major retail stores such as Macy’s were experiencing the wrath of competitive online consumerism. The effects from COVID lockdowns may have been the final crippling blow to such traditional norms. But this shift has been felt across the board in other fundamentally important industries. The realm of finance and investment is no exception. COVID induced changes were felt from the “average Joe” retail investor, all the way to the regulatory entities of the economy.

At the retail investor level, an unprecedent number of investors joined the market during the pandemic.[1] Charles Schwab, a major investment platform, reported that 15% of its current investors entered the market in 2020 alone.[2] Pandemic related ripples similarly echoed through the industry and reached the Financial Industry Regulatory Authority (“FINRA”). FINRA is the largest self-regulatory organization for securities firms doing business in the US.[3] Its rules govern over 3,700 brokerage firms and almost 630,000 registered securities representatives.[4] Significantly, Section 15A of the Securities Exchange Act of 1934 gave FINRA the authority to discipline its firm members and certain individuals for violations of securities laws and rules administered by FINRA.[5] In other words, FINRA’s creation and enforcement of rules and regulations are backed by federal law.[6]

While COVID triggered tectonic-like shifts throughout the financial world, the regulatory mechanisms that oversaw it were likewise forced to change. According to FINRA’s webpage, “[i]n response to the coronavirus pandemic, member firms have made unprecedented changes to their business operations in order to prioritize the health and safety of firm personnel and investors, while maintaining the public’s access to capital markets.”[7] As a result, FINRA modified various traditional regulations, to account for the new virtual / at-home lifestyle.[8] Regulatory Notice 20-16, for instance, implemented monitoring practices for firms to incorporate into the remote work environment.[9] The notice focused on confidentiality and cybersecurity in order to increase fraud-prevention measures.[10] Relatedly, FINRA filed a proposed rule change with the SEC to adopt remote inspections.[11] It effectuated remote supervisions and internal inspections of firms, and eliminated on-site visits to offices or locations.[12]

Do these rule changes signify a needed update to the execution of financial regulation and enforcement? The answer is still to be determined. However, it undisputed that much of the regulatory and supervisory mechanisms used in our economy have necessarily increased their cybersecurity protection measures. In today’s world, where news of a massive hack is a normalcy, maybe such changes were past due. If our country has finally taken on the challenge of updating laws and regulations to align with our technologically focused society, the real question should be how to continue this modernization.

 

[1] Maggie Fitzgerald, A large chunk of the retail investing crowd started during the pandemic, Schwab survey shows, CNBC, https://www.cnbc.com/2021/04/08/a-large-chunk-of-the-retail-investing-crowd-got-their-start-during-the-pandemic-schwab-survey-shows.html (last updated Aug. 17, 2021).

[2] Id.

[3] Troy Segal, FINRA vs. the SEC: What’s the Difference?, Investopedia, https://www.investopedia.com/ask/answers/how-does-finra-differ-sec/ (last updated May 6, 2020).

[4] Id.

[5] Id.

[6] Id.

[7] FINRA Seeks Comment on Lessons From the COVID-19 Pandemic, FINRA, https://www.finra.org/rules-guidance/notices/20-42.

[8] Id.

[9] FNRA Shares Practices Implemented by Firms to Transition to, and Supervise in, a Remote Work Environment During the COVID-19 Pandemic, FINRA, https://www.finra.org/rules-guidance/notices/20-16.

[10] Id.

[11] Proposed Rule Change to Adopt Temporary Supplementary Material .17 (Temporary Relief to Allow Remote Inspections for Calendar Year 2020 and Calendar Year 2021) under FINRA Rule 3110 (Supervision), FINRA, https://www.finra.org/rules-guidance/rule-filings/sr-finra-2020-040.

[12] Id.