E28 Transcript

Cryptocurrency Law - With James Cochrane

E28 Transcript


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Transcript Commences

[Chris Patterson]: 00:06
Hello and welcome to the Law Down Under Podcast with barrister Chris Patterson. We will give you insights into the law in New Zealand and Australia, its application and the laws' future. Each episode features a new guest who will inspire interest in the law and give you a greater understanding of the legal issues that helped shape our justice system here down under. We thank you for tuning in and enjoy the podcast. Well, the first the Law Down Under Podcast for 2024 beginning of the year I'm super excited because today I have with me in the podcast studio, James Cochrane. James is a cryptocurrency and digital assets expert here in New Zealand. He is one of the go-tos and has been at the forefront of demystifying some of the aspects of cryptocurrency and its application in the law. Now James is also a partner in Lane Neave's dispute resolution and litigation team. He's got extensive experience in banking and finance and solvency insurance. He's passionate about all things cryptocurrency and web three technology. They named by New Zealand lawyer as a change maker and its last year's most influential lawyers rankings, and 2022. Doyle named him as a leading insolvency and restructuring lawyer in New Zealand. He's a founding member of the New Zealand Institute of credit management. He's also on

[James Cochrane]: 01:58
Chris, thanks for that very kind. Introduction. And great to be on the podcast. It's

[Chris Patterson]: 02:03
just great to have you here at this your first day back from your your summer holiday. What's what's been hidden.

[James Cochrane]: 02:10
I wish I wish I was really enjoying the sunshine. No, it was back in the office Monday last week. So back on the tools

[Chris Patterson]: 02:17
back on the tools. So Okay. All right. So here we are 2024. Now, let me ask you a question. Okay. cryptocurrency blockchain what what's the connection between the two? So block

[James Cochrane]: 02:31
blockchain technology trying to simplify it? Is this how I view it? Yeah. Basically, what you're talking about as a, what's called a decentralized network, so a network of computers that have a record of transactions and the transactions are loaded into blocks, they are verified by the network, generally by cryptocurrency by cryptography. And then new packets of data are loaded on to block so you have a whole chain of information, where you can see the first transaction and a block, and you can see the latest transaction in a block. And so crypt cryptocurrency is, I guess, digital currency, which is recorded in a blockchain across a decentralized network of computers. So what, why this is unique is because traditionally, when we have exchanged money, we've had to rely on centralized or centralized parties, you know, like a bank or a company to facilitate a transaction between individuals to ensure that they get them their money.

[Chris Patterson]: 03:54
Okay, so so we're going to have sort of a range of listeners, from from from those possibly that don't even have a computer on their desk to to I suspect, some listeners who actually probably know, a programming language or two. So but but most people, I think everyone understands that if you've got a bank account was with a trading bank. And you've got money in the you can go to the bank and say, you know, authenticate yourself, you know, identify yourself and say, I've got an account here, you know, what's, what's my balance, and they are the keeper of that balance. They will tell you, you've got this account, and this money's in that account. But am I right, that they're the only ones who can tell you that correct.

[James Cochrane]: 04:44
And you know, this is a centralized entity that has a its own record of your account balance. This is in New Zealand, we take this for granted. that you can go to the bank, you've got actually lots of banks and open up multiple bank accounts. But for many people across the world, especially developing nations, they don't have bank accounts, they don't have a record of property ownership like we have Linz in New Zealand or the personal personal property securities registered. And that causes problems for them in terms of proving their identity for transacting and things like that. So what what cryptocurrency and blockchain technology does is remove the need to have a centralized entity telling you what your balances and you can transact peer to peer peer to peer transactions, I can transfer across some bitcoin. And that's verified by the what are called nodes in the Bitcoin network effect delivery, verify that that's a correct transaction. So in New Zealand, we comfortable that if we put some money in the bank, that we're going to be able to go and get it out at some point. Right. Whereas if you are, for example, in Russia, and your president decides to invade Ukraine, next minute, you might find a for your savings or an A Russian bank account, which is on the SWIFT network. Next thing, you have no access to funds in your bank account, because everyone's been locked out. Or if you're in Cyprus in 2013, and your government owes money to another country, you may find yourself locked out of your bank account or

[Chris Patterson]: 06:51
a few have an account with Lehman Brothers in 2008.

[James Cochrane]: 06:56
Silicon Valley Bank recently Yeah, yep.

[Chris Patterson]: 07:00
Okay. So this is, I guess, the myth that a bank actually holds physical cash of that represents or equates to the balance of all their account holders. Correct? Yeah. Okay. And whereas with,

[James Cochrane]: 07:18
so expand on that, what banks do is they take your money, and take deposits, and then they lend that money out to someone else, they have what's called RE hypothecated. As so, at any one time, the bank may have much greater liabilities to parties than it does have assets available to meet them. Yeah. So if there is some reason why all of a sudden, people want their money out, which is often referred to as a bank run, that's why there can be insufficient cash available to pay everyone out. This is what happened. And the particularly in the, you know, the stock market crashed in the 1920s. And

[Chris Patterson]: 08:01
this is the area we're here in New Zealand with our central bank setting reserves that the banks have to hold, and the banks complain about it, they've got to hold these massive reserves. And that's to, I guess, to ensure stability in our banking industry, to avoid, you know, the risks of of total collapse as 01 reason Yes, one of the reasons. And of course, our banking industry is relatively highly regulated.

[James Cochrane]: 08:35
but there's a lot of compliance for banks to operate here. And that's not that's not necessarily a bad thing. Yep. We're as

[Chris Patterson]: 08:43
cryptocurrency not so.

**Chris Patterson:** 08:43
Cryptocurrency, not so.

**James Cochrane:** 08:46
Yeah, it's, I guess there's a perception that there's no regulation of cryptocurrency, there's no laws that relate to it. And look, that might be true for certain protocols, where, for example, like Bitcoin, no one knows exactly who the founder of Bitcoin is. There's no head office. For Bitcoin, there's no CEO, board of directors. Now, it's a protocol across the internet, but more like HTTPS SMTP. You know, those are protocols. That type of cryptocurrency is hard, if not impossible to regulate. And there are arguments around at the moment about whether or not Bitcoin is a security or is it a commodity? It appears in the US at least that they've taken the view that Bitcoin is treated more like a commodity. But in New Zealand, we have, well, we don't have any specific crypto law. We don't have the Crypto Act 2024. We have a number of existing laws that could potentially apply.

**Chris Patterson:** 10:07
There is always this element of trying to shoehorn in existing laws into emerging technologies. So when you see it, where we saw this with the law of defamation, trying to fit that into going from what ultimately was, I guess, the printing press to suddenly the World Wide Web. Hey, let's take a little trip down memory lane. So Satoshi Nakamoto, back in 2008, releases his white paper. And I guess that's kind of the start of Bitcoin being released to the public, not in terms of a launch of it, but just its more theoretical application in mind, or someone's mining a few million Bitcoins back then. But then the first transaction is in January 2009, when, assuming it was Satoshi who's actually doing this, or someone who we believe is Satoshi, sends 10 coins to an early developer called Hal Finney. But then, you know, time at this stage isn't moving super quick. I'm just going to jump on that and sort of the narrative and the chronology to say, and, you know, the first famous transaction, and I have been on the phone to Pizza Hut in case you want to give me the Bitcoin pizza, give me 10,000 Bitcoins for two pizzas. I'll take 5,000 Bitcoins for one, which was traded. I'll just put this into monetary terms now. Today,

**James Cochrane:** 11:46
Are you on the Bitcoin pizza page on Twitter? It gives you a daily update.

**Chris Patterson:** 11:51
Yeah, yeah. So the daily update today is as of the 23rd of January 2024. Is 10,000 Bitcoins for two pizzas? Equates to 604 million Australian dollars, or 654 million New Zealand?

**James Cochrane:** 12:08
It's a wilder estimate.

**Chris Patterson:** 12:11
I would say so. So this was, you know, we're now, I guess, to be fair, we're coming up to 14 years of Bitcoin being traded, it's valued, just going up exponentially. But our laws haven't really embraced how significant this one cryptocurrency is. What are we talking here, hundreds of cryptocurrencies? Now, see,

**James Cochrane:** 12:37
There's probably tens if not hundreds of thousands of different cryptocurrencies and protocols, if you include NFTs in that which can be minted and tens if not hundreds of thousands. You know, it's probably a bit hard to comprehend. You know, if you go on a site like CoinGecko, they'll probably tell you there's, at last count, 15,000 different cryptocurrencies or something like that?

**Chris Patterson:** 13:05
Well, they just seem to pop up, you know, on a daily basis,

**James Cochrane:** 13:09
and they're not all the same. No, they can be very different.

**Chris Patterson:** 13:12
Ethereum went live in July 2015. So just, you know, nine, eight and a half, but years ago, there seemed to offer possibly the first real contender against, we're not against but as a competitor to Bitcoin and maybe because of its ability for developers to plug in different functional programs add-ons to its use, whereas Bitcoin, I guess, it's older take it. What do you think Ethereum's take on Bitcoin is?

**James Cochrane:** 13:48
Until more recently, it's largely done one thing and that's do it very simply and very well, very securely. Bitcoin does essentially digital money very well, whether that's digital cash like it was intended to be, or whether it is a store of value is, I guess, really up for debate, it's probably more of the latter. Some people consider it more like digital gold. Now,

**Chris Patterson:** 14:20
It's gonna say, would you regard it as almost like the gold standard or the equivalent in

**James Cochrane:** 14:24
Terms of when I look at these protocols, as you can make some sort of broad generalizations. Typically, the older the protocol is, a lot of the time the more decentralized it is. And the more decentralized it is, often the more secure it is. But, you know, something like Bitcoin has never had its blockchain hacked if you want to use that expression. So there's a complete record of transactions from the Genesis block which is what you want. All came out in 2009, where Satoshi, whoever he, she, or they are. Some people suggest it could be multiple people. Some people suggest it could be the CIA, some people suggest it could be artificial intelligence. Quite a wild story, very, you know, there's been a court case about it. Where a guy was claiming to be Satoshi, Craig Wright. But that is a protocol that has its blockchain ledger is completed, you haven't had any third parties being able to take control of the part of the ledger and alter it in any way. Yeah.

**Chris Patterson:** 15:44
So overall, the computers there that have access to the blockchain, its ability to verify or authenticate, each transaction has kept it secure,

**James Cochrane:** 15:56
Correct? Yeah. And then Ethereum comes along, and Ethereum had the ability to do different things that had the ability to
do smart contracts, program. Transaction transactions and contracts, which would auto execute if certain events happened. And that allowed developers to build applications on top of the Ethereum protocol, which are called dApps decentralized applications. And that led to things like decentralized finance, led to people eventually building out things like NFTs.

**Chris Patterson:** 16:43
Broker still the acronym NFT, what does it stand for?

**James Cochrane:** 16:46
Non-fungible token as opposed to a cryptocurrency like Ethereum? Or Bitcoin, which are fungible, you know, like, exchanging cash that we use, in Fiat terms, is what's called fungible so you can change a $5 note for a $10 note, they're all interchangeable. Whereas NFTs tend to be unique digital assets.

**Chris Patterson:** 17:18
Yeah. Okay. So more some people might appreciate. I'll use an example, let's take a unique digital painting. That can be an NFT, where you can buy it, you're the only person who owns that unique digital painting. And you can trade it, if you want to. Yeah, so

**James Cochrane:** 17:40
There's a lot of use cases for NFTs. So the artwork or the digital collectible was one of the sort of key or first use cases that we've seen. There was, for example, there was an artwork by a digital artist called people called the first 5000 days, which sold it, I think it was Christie's Auction House, for sort of 60 odd million US. And this was a collection of images, the image files, but also gifts and things like that it was all merged there, done, done work every day for 5000 days and put it into a mosaic. And so that, you know, NFTs can include within the data packet. So I understand I'm not a programmer, right. I'm at school dropout, who then went on to become a lawyer. But yeah, so you can have JPEG files, movie files, mp4 files, audio files, a whole range of digital files, whatever you want to include in it. And that NFT is typically unique to other NFTs.

**Chris Patterson:** 19:03
Isn't this, sorry, we're now kind of getting into the area of intellectual property. But, but it's fascinating. Isn't the technology of NFTs such a great way of validating, verifying, authenticating, doesn't matter which way you want to describe that, the authenticity of all the work, whether it's a photograph, an artwork, whether, you know, it could be a song, it could be, you know, could be anything. And then being able to, then, because, you know, digital things can so easily be reproduced, correct. And then to be able to allocate ownership to it on a proprietary level where someone can say, "Hey, I'm the owner of this, this creation." Yes.

**James Cochrane:** 19:51
Yeah, there's a concept in the traditional art world called provenance. It's where you are able to track an artwork back to its original artist to ensure that it's legitimate, yes. And the NFTs and the blockchain, because you can see all the record of transactions provided there, as you can be satisfied that, as the original artist who actually did the work, then they were the party that minted it, then you are able to trace that back to them to show that provenance. And the other thing that it does is, as you say, on the internet, you can just, you know, copy, paste, replicate indefinitely. But the blockchain can create that digital scarcity, yeah. And you are able to show proof that that is a one of one or that is the first in a collection of 10,000. So

**Chris Patterson:** 20:51
It could have a really good legal and practical copyright application, you know, and in terms of someone being able to assert ownership over something as being a unique work, you know, the end, or they've purchased, you know, off someone or unique work.

**James Cochrane:** 21:09
Correct. And I've described this the opportunity for particularly creatives, and the estates of creatives, trusts behind them to as a honeypot for future revenue for beneficiaries. One of the I guess, most noted a load of bull transactions involving an NFT in New Zealand was some slides of Charles Goldie was sold by waves auctions. Yeah. And this is you had the opportunity to buy the physical, I think that would apply to the slides of Charles Goldie in his studio. And then you could also buy the NFT, you could choose to, if you wanted to break the original so that only the digital was left? Or you could keep them both. And so yeah, this is a really interesting time for intellectual property in terms of the digital. I think, you know, you look at artists, musicians, and Kings of Leon have released an NFT and have unique sort of fan experiences that come with the NFT might be exclusive video content or a unique audio or something like that. Maybe a specific fan experience here. So you're getting like a bundle of contractual rights when you acquire the NFT. That is different to just going down and buying the CD or the vinyl. You've got one muse, I think with a Reece last year, the first band to do a number one UK Album, how that was an that was released as an NFT.

**Chris Patterson:** 23:03
So So then this goes back to the scarcity issue, whereas NFTs are enabling a content creator to say I've got something that I can trade with you that no one else can get their hands on. Okay. They can't replicate it work because the block the underlying blockchain technology that sits behind it, will it will be able to authenticate that this is one of one or one of 10,000 or whatever number is set up for that purpose? Yeah,

**James Cochrane:** 23:37
Correct. And also, you still have the overlay of traditional intellectual property law, because you will have, for example, there was litigation overseas in relation to a particular NFT project called board eight Yacht Club. The owner of that collection brought a claim against believe the outfit was named Ryder reps. They had Ryder reps had created essentially like a copy of the board eight yacht club collection. And it was, in essence, at a claim that traditional intellectual property rights, trademarks and copyrights were being infringed. The argument was that, you know, the, the images are all unique in themselves, but then there was sort of passing off elements as well.

**Chris Patterson:** 24:40
Yeah, thinking about it legally. The blockchain, the NFTs generally, really provide a more of an evidential, more relevance from an evidential point of view when you've got a copyright or a trademark infringement claim because you can say If there's an argument over originality, or ownership, okay, this is when the tech can be rolled out, you know, probably needs to be explained by an expert to a judge that can assure effect finder, that the person asserting, you know, originality or and war ownership is actually correct.

**James Cochrane:** 25:25
There was another case involving trademark the luxury brand Bernese Ma's brought and brought a case against the creator of a an NFT project called meta Bergans. So these were, I guess, eggs that use the book and name. And even though they had included disclaimers that there would, you know, there was no relationship to na s and and can the court in that cases think it was a US jury found that there was infringement of Ma's intellectual property rights and

**Chris Patterson:** 26:11
passing off of it. Yeah, yeah. Yeah. And so

**James Cochrane:** 26:15
ordered in that case for those NFTs to be what's called burned, just smart contract, as I understand the smart contract, that is just Eddins that goes nowhere. And so that's unable to be transferred.

**Chris Patterson:** 26:29
Yeah. Okay. So there's plus brought to a digital death grid. Yeah. The smart contracts a great, great piece of technology in a way, particularly when you're dealing with parties who have concern over, for example, security, you know, if I, if I do the work, provide the product, or the services, am I going to get paid? Because of this whole concept of auto execution? Can you can you walk us through, you know, how that works, maybe a practical example.

**James Cochrane:** 27:07
So, I guess you could, one example might be, if there's a smart contract in respect of an aeroplane flight, as you could have kind of like an insurance contract, if, if the flight is canceled, for some reason, the technology will automatically refund refund the plane ticket. So that's a very basic example through my non-programmer. lens. So what this can potentially do is remove a lot of parties in that process, and therefore, reduce the cost. Yep. So

**Chris Patterson:** 27:53
Rather than, you know, turning up at the airport, the flight's being canceled, having to get on the phone to the travel agent, saying, "Hey, you know, the flights been canceled." The saying that I've got to contact you to get
a refund, they then travel agent then gets in touch with the airline. And then the airline then has to try and work out with their credit department, what to do. They could be multiple people across multiple organizations having to work through something as is every day occurrence as a flight being canceled to organize a refund button or the smart contract. The technology knows flight's being canceled. The effect of that is is that should be refund money should be taken from this account and move to this one.

**James Cochrane:** 28:40
That's how I understand that. Yeah, great.

**Chris Patterson:** 28:42
So anything to become more efficient? Hey,

**James Cochrane:** 28:47
Yeah. And, you know, sort of building on NFTs. I mean, it's not just digital collectibles. It's not just creatives who are using it. You know, there was not so long ago, it was either last year or the year before. In a case where some cryptocurrency had been allegedly stolen or misappropriated and moved to a different wallet, then the court granted orders, you know, freezing the account. And those orders were delivered by way of NFT. Right? So the NFT was dropped into the offender's wallet to give them notice of the court orders existence, to the orders, the existence of the orders as a sort of substituted service like a substitute, this is a scenario where they didn't necessarily know the name of the party who had received the cryptocurrency. Yeah, okay. So quite a novel use but also you have not just That's an example of where NFTs could to include a court order that you also have, for example, it could represent another real-world asset. And you have, for example, a holding in a case of wine or 10,000 pounds of granite or something like that, you know, it can represent these real-world assets. And this is something that Larry, I think it's very frank is one of the heads of big asset management. And Blackrock has recently been talking about in terms of protocols like Ethereum, being able to be utilized to represent real-world assets. And that's how, you know, transacting via the blockchain can be potentially and smart contracts can potentially be more efficient than how they're presently transferring stocks and things like that from more traditional lines, and also more secure, correct, yeah. But this goes back to the issue of verification or validation of transactions. Let's skip back to cryptocurrency. Let's talk about some of the main actors in it. So we've talked about Ethereum and we've talked about blockchain. So you know, we're not too sure, as you've rightly said, who actually created Bitcoin, what created it, you know, etc. But so you've got cryptocurrency creators, they're Ethereum, they're an actor in this environment, then we've got exchanges what's a cryptocurrency exchange, what's the role and function?

**James Cochrane:** 31:44
So an exchange is like a marketplace where you can buy different types of cryptocurrency it might be what's called spot, which is actually trading the actual cryptocurrency itself. Or there might be derivatives of other type of currency. Even have NFT marketplaces where you can trade in NFTs. It's a little bit like an online music store where you can go and choose which NFT you like and things like that. Okay, and

**Chris Patterson:** 32:21
So help practically more for the listeners. So possibly haven't delved into a bit of cryptocurrency or NFT trading, how does someone hold a Bitcoin or an NFT? Because it's not like a like, well, maybe it is a little bit like an online bank account, but it's not like having physical money sitting in a wallet, but let's talk about wallets. Yeah, so

**James Cochrane:** 32:52
You can have one, there's a lot of terminology here. So you can have what's called a hot wallet which is connected to the internet, you can have a cold wallet which is not connected to the internet. You can have what's called a noncustodial noncustodial wallet or a self custody wallet and that is where the person is responsible for maintaining their own what are called private keys and passcodes. So if passphrases passphrases so that as opposed to a custodial wallet, which is typically managed by someone else, more often than not, that's an exchange. Essentially what you are doing is you are trusting a centralized entity is going to properly manage your crypto holdings. Okay,

**Chris Patterson:** 33:56
well what happens if one of these centralized entities are hammer based if TX pick in November 22, collapsed nearly 9 billion US dollars stolen? Not including the losses for for others what you know what happens in like it was was if if the holding your cryptocurrency

**James Cochrane:** 34:21
so it's, it's a bit like so. I guess to be clear, when Satoshi wrote the Bitcoin white paper, it was envisaged that parties would would self custody, right? They would have their own wallets. And they would, and they would be able to control those wallets. They're not responsible to any centralized entity. No one's evident so long as you know that that passcode that seed phrase You're able to control what you do with with the funds. Whereas if you have your money on an exchange, like an FTX, like in New Zealand, we had Cryptopia, which went insolvent. And

**Chris Patterson:** 35:12
I want to talk about that a bit later on, because that's actually a really great example for for listeners about, you know how bad things can go. But sorry, carry on. Yeah, you don't

**James Cochrane:** 35:23
have control you more like a traditional centralized banking relationship, you're relying on your bank to be able to get your funds out. And so what you have in these sort of big crypto exchange collapses is the scenario where if there's a hack or some theft of assets or something like that, they have been doing other things which have resulted in there not being funds held an appropriate amount of funds held for users, or the users funds are not segregated, then those people may get locked out. And there's a typically a insolvency process. It might be in the Bahamas, it might be in the United States, it might be in Australia, you know, if DX is one of the biggest insolvencies in the world might be in Nigeria. It's it's, it's probably been an enormous undertaking for the insolvency practitioners in many jurisdictions to to work out who the claimants are, are they legitimate? And will also sort of what what is their status as a claimant in the insolvency? Are they a trust creditor? Or are they a more like a banking creditor? Were they just going to share in part of the pool of assets that might be available? Or are their assets held on trust? And of

**Chris Patterson:** 37:03
course, this is going to raise issues of international law, conflicts of law, you know, enforceability, I mean, if you're, if you're sitting here in Auckland, or, or even in Perth, and you've got assets sitting in an exchange, somewhere else in the world, you're not necessarily going to be able to rely on the banking, regulatory environment or any regulatory environment within New Zealand or Australia is going to provide you with a solution straightaway. Absolutely. Yeah.

**James Cochrane:** 37:33
You know, a lot of people will use cryptocurrency exchanges are centralized exchanges, and not necessarily know where they are located. can take a lot of reading into the terms and conditions to even try and identify where the digital assets are. So yeah, there's a whole whole bunch of different laws that could apply. These can be legal actions and different countries for a particular insolvency.

**Chris Patterson:** 38:09
Well, let's talk about I do want to talk about cryptography, you can see I'm aiming at upset over this one. But this, let's just jump jump to a scenario that is going to affect everyone listening to this podcast, don't want to be the prophet of doom and gloom here. But at some point, we're all going to die. Okay. And we're going to know people that are going to die and some of the people that we know might be related to or be close to, might have, you know, some cryptocurrency or some NFTs just some digital assets. And you just mentioning before about, you know, exchanges or looking after yourself, you know, these assets or what, what, in your experience, if anything, people who are holding these assets, doing, you know, doing to ensure that, you know, the day comes and they dropped dead, that those assets are able to be managed through their estate?

**James Cochrane:** 39:07
It's a good question. And there are

**Chris Patterson:** 39:10
especially especially if you're the only one who knows the key when you've dropped did

**James Cochrane:** 39:16
this, I guess is if you are self custody and your assets, you're the only one who knows the passwords and seed phrases private keys, if you do drop dead, that's the particular cryptocurrency stays on that blockchain and it never moves again. So

**Chris Patterson:** 39:33
there must be must be some of that is out there. There's

**James Cochrane:** 39:37
there's actually a lot of that out there. And there are arguments that Bitcoin is in fact deflationary because the amount of people who lose access to their to be able to move their clients actually exceeds the issuance of A new Bitcoin through the mining process. So there are a range of different ways that people can deal with this. I worked with a colleague, because it didn't hurt. And we presented a paper to ADLs credit for the cradle to the grave conference.

**Chris Patterson:** 40:19
Now the Law Association, or the Law Association, and

**James Cochrane:** 40:25
it's, you have to have do a reasonable amount of planning to understand. But there are security issues in terms of how you, you can manage your private keys, you, as a lawyer, I don't want a client to email me their passcode, or their seed phrase, because then potentially, that could be intercepted by cyber thieves. And an employee might see an opportunity, you know, there's a lot of risks

**Chris Patterson:** 40:59
passing across networks and multiple networks. It's just it's

**James Cochrane:** 41:03
effectively like giving me $100 Bill, you know, and so managing, just one way that you could potentially manage this scenario is to divide up pass codes and, and seed phrases. And so different parties hold parts. And so no one party has the entire seed phrase to be able to just unilaterally action move the crypto and this is a relevant consideration. Relationship property disputes where you might have a third party, custodian who will take custody of the assets, move it into a different wallet was controlled by someone else, you have other solutions, which are called multi signature wallets, where you might have more than one party has to approve the transaction before funds can be moved. And you might, in fact, determine that maybe a spread the risk approach might be better where you are prepared to put some on exchange accepting the risk, you know, there's different different risk profiles, depending on what you choose to do. You might might think, holding crypto currency on exchange with a fully regulated entity like Coinbase is comparatively less risky than holding it on another entity like by Nance, which is the biggest exchange in the world,

**Chris Patterson:** 42:53
and unregulated

**James Cochrane:** 42:54
well. Yeah, I wouldn't say it's unregulated, but you know, finances just got itself in trouble and had to pay a four and a half billion dollar fine. But yeah, it's not necessarily domiciled in any one particular location changes to move its domicile or domicile around. Yeah. And whereas something like coin bases, I believe it's located in New York, subject to New York banking, regulation, and things like that. So.

**Chris Patterson:** 43:29
Okay, look, you've just mentioned before, I mean, we'll come back to the state side, because I'm keen to ask you some questions about, you know, perhaps what, you know, people can do to make life a bit easier for those they leave behind and in those who are left behind, you know, things that they can do around cryptocurrency and or digital assets generally. But let's just talk about relationship property because, of course, these assets are property and putting aside all the legal arguments about whether something's separate. If you have got not just use a simple example, during the course of a relationship, they're the parties to at acquire some bitcoin. And then when it comes to dividing up the relationships, you know, Laura, at least here in New Zealand, and also Australia as a presumption of equal sharing, but you know, what, if one party is unaware that the other party's got digital assets? I mean, it's not, you know, Mike, having a lawyer right to the trading banks and getting them to confirm whether such and such his account, correct. This makes it a bit more challenging, doesn't it? It

**James Cochrane:** 44:46
can So if, if, if a party is not I have to say I'm not a I'm not of a family lawyer. I have done relationship probably certain relationship property cases they tend to be ones where there's been a trust or company director dispute which is funnily enough, because it's between two partners who are going through some disharmony, but there are as I understand the process generally the parties will exchange what are called I think a PR one forms where they have to list their assets in disclosure,

**Chris Patterson:** 45:27
disclosure so assets and liabilities you

**James Cochrane:** 45:32
I guess you with some sleuthing if you if you believe that your your partner has been acquiring digital assets and hasn't necessarily been truthful you visitors places where you can look to try and work out try and follow the money typically leads leads to take some more simple scenario where free assume at the start of the relationship no one had any digital assets to start with. And you're just using money that was generated during the course of the relationship that money has to turn from NZ dollars into cryptocurrency somehow you know that might be you should be able to see on the bank statements money being transferred to an exchange. If you see
random amounts that are going out that don't look like they go for the specific bills perhaps they might relate to an exchange where they are getting converted from New Zealand dollars into into cryptocurrency and then sent to a wallet somewhere. So

**Chris Patterson:** 46:48
say for example, there should be some telltale signs that someone has been acquiring digital assets cryptocurrency or it might be that that a partner you know knows that the other partner because I've told them over the years Hey, you know, I've been doing these jobs and I've been being paid in Bitcoin. I've got all this Bitcoin and I've been spending the

**James Cochrane:** 47:13
Bitcoin hopefully, hopefully, they've been converting that some of that Bitcoin to cash so that they can then pay the tax either Texas. Yeah, and there's going to be a chain that can typically be be followed, you know, so you might use an exchange, like EZ crypto, which is one of the better known platforms in New Zealand and Janine Granger and her team, they're fantastic. They've done a really, really good operation. They will have, you know, user account information and things like that to possibly get a disclosure order,

**Chris Patterson:** 47:53 but even the blockchain of Bitcoin itself, I mean, it was it was a myth that lasted, I think it's now been debunked in recent times, that one of the advantages of cryptocurrency is the being able to, to, to the, to hide identities, you know, the anonymous aspect of it on a on the integrity, you know, be able to, you know, hide your tracks, but but that's been, I think, rebuffed. Now, I think.

**James Cochrane:** 48:31
When you think about when Bitcoin was first started, first being adopted, it was used quite heavily by criminals, buying drugs and doing other things on the silk, silk road, you know, the dark web, the dark web? Yeah, precisely. And you can see that there have been multiple seizures of assets of digital assets by law enforcement, in relation to investigations concerning Silk Road and things like that. So there's this. There's undoubtedly some anonymity and there's also the ability, the blockchain can be very transparent, and you can trace it. And that, in my view, you know, when you speak to companies like chainalysis, there's Digital Forensics companies who assist law enforcement and things like that with tracking digital assets. I, in my personal opinion, it's actually a terrible way to try and launder money or conceal things because it's permanent. You can always go and find the record and follow it. What you have to do is try and work out what a particular wallet address who might control that and that can be a challenging process, but if it hits a centralized exchange like a coin base or by Nance, you may be able to get an order that that party provide information about the account holder, because usually the the those parties are subject to anti money laundering, I guess the hour and they have to collect, you know, KYC?

**Chris Patterson:** 50:21
Yeah, I guess the ultimate job is wouldn't it be that just thinking about it legally, as it doesn't need to be relationship property? It could be any other legal action, where, you know, what cryptocurrency existed? What's happened to it? You know, where is it? Does it still there,

**James Cochrane:** 50:43
I'm aware of one case, I can't remember the name of the case off the top of my head, but where a one party in the family court applied for the appointment of a receiver, in order to be able to get information to try and ascertain whether there were digital assets. Yep.

**Chris Patterson:** 51:08
Of course, this is relevant to we you've got an exchange custodian scenario benefits, if it's, you know, that self custodian would not just be a matter of getting, you know, potentially getting an order requiring a party, most likely going to be a defendant to actually just hand over the key. Because once you've got access to the key, as you say, you know, you've, they've just given you given you everything,

**James Cochrane:** 51:35
there's a lot of risk for everyone involved, if there was an order to just hand over the key, it's probably more likely a more secure option would be to hand it to a trusted custodian, or to transfer that digital asset into a multi signature account, a multi signature wallet, we you can't transact and move it

**Chris Patterson:** 52:00
around just just thinking about it from an evidential point of view. And I look, I'll pick up your point about the appointment of a receiver, I guess, the courts do, it'd be nothing stopping the High Court, you know, here in New Zealand, appointing someone independent, to receive the key and provide a report to the court and the parties as to as to the history of, of the assets associated with that key in

**James Cochrane:** 52:29
theory and see why not? Yeah, I mean, it's a risk for that custodian to, to take on. But if they're prepared to do it, I mean, there's some professional custodians, and I think this is something we will increasingly see in as the ecosystem for digital assets, and the demand for digital assets grows is that there will be more custodian services that are regulated that they might have insurance or, and it is there. They're not doing other things like exchanging the currencies, they are just holding them as specialized business. It's a bad bet, like a bank vault or something.

**Chris Patterson:** 53:12
Well, let's just quickly jump back to estate planning, you know, what would what would be your advice to people who were wanting to take a responsible approach to estate planning, and they were holding, you know, more than nominal digital assets?

**James Cochrane:** 53:30
Where there's I guess it depends on the, the value of the assets, it's always one consideration how much

**Chris Patterson:** 53:44
let's just say they're lucky enough to be holding, let's say 100, grand and Bitcoin.

**James Cochrane:** 53:47
So there are not many Bitcoins. Not just not quite two, yeah, not

**Chris Patterson:** 53:54
quite. So here, they've got not quite two Bitcoins.

**James Cochrane:** 53:58
Many hundreds of 1000s of Satoshis which are the how bitcoins broken down, yeah. Their services, like there's a great New Zealand Company called everlasting, and they, for example, offer multi signature type of state planning services, and that would be a good option. And there's obviously a cost of for that service. In terms of preparing your estate, you want to have some guidance for your executor as to how they are to find the assets.

**Chris Patterson:** 54:44
You want to look.

**James Cochrane:** 54:46
If, if, if you're wanting to do things securely, I think you need to, as I said, split up the process between more than one professional so then there's not a single point of failure where where everything can be lost. And that can be a that can cause some inconvenience. And that's why there is this trade off between some people who want to hold on to things on exchange where it's a lot easier for, say, a liquidator, or an executor to get the account information and get access to it on death. Then self custody, you know, so there's there's different risk profiles holding it different ways.

**Chris Patterson:** 55:30
Yeah, okay. Well, no, that's Look, that's a good, good angle. CryptoKey cryptopia. Okay. What was cryptopia? What was that?

**James Cochrane:** 55:43
So cryptopia was a New Zealand exchange and Christchurch. And it had benefited, I guess, from a very wild Bull Run. So crypto markets go through these cycles of bull and bear cycles, they can where the value of the crypto just explodes. But then it reaches a point where it then drops dramatically. In typically there's like a four year cycle. Some say it's linked to Bitcoin. And that's what's called it's happening, where its reward gets mined and gets half sort of roughly every four years. But as I understand it, there was a new, so New Zealand business, it grew rapidly, because all of a sudden, that was doing a significant volume of transactions. The way that exchanges make money is that they take a fee for, for doing a transaction.

**Chris Patterson:** 56:58
And now Can I Can I ask cryptopia? Was this a business that was set up by you know, a well established? Organization and the banking and finance or was it a sort of a garage? You know, a couple of guys with some computers?

**James Cochrane:** 57:14
I think it was more of the latter. Yeah. But as they did grow, they rapidly expanded the number of employees. They did bring in other I guess, individuals with more established business backgrounds. They took on, you know, big leases and things like that to accommodate all their employees and your sales, this expectation that the market was going to keep doing its thing and profit was going to continue as it was. And then when you had the bear market, crypto winter, as it's often called, all of a sudden their transaction numbers are not there, the revenues not there. And they had got out over their skis and just committed themselves to more liabilities than they could afford. They also suffered beliefs and hacks. So there was you know, sort of 2025 to 30 odd million lost in the axon including 15% of customer funds. So back then it's probably effective, not having adequate security, digital cybersecurity,

**Chris Patterson:** 58:37
Just having those vulnerabilities and March 2019. It all came to an end and liquidators were appointed to them. Yes, Russell Moore and David Rusco at Grant Thornton, they seem to be now the go-to liquidators for these sorts of failures.

**James Cochrane:** 58:55
They're also the liquidators of Desert.

**Chris Patterson:** 58:58
Desert as well. And that's the New Zealand Exchange, which recently fell over. Yeah, now we were-

**James Cochrane:** 59:00
Desperate based.

**Chris Patterson:** 59:07
I couldn't tell you off the top of my head. I didn't use it.

**Chris Patterson:** 59:09
Okay, well, might come back to this later. But I think Cryptopia is a really good example of what can happen when an exchange here in New Zealand fails. Just having a look over Russell Moore and David Rusco at Grant Thornton, they just happen to be the liquidators but I was having a look over the ninth report, which they put out during last year. So they reported that their expenses were 22.1 million, which included 6.25 million in liquidators' fees. So, lucky if they were appointed in May. So that takes us through for four years. 6.2 million in fees is a lot more than 5 million in employee and service costs because, of course, you gotta keep the systems running. You know, like, you gotta get the computers up and going and you gotta have someone to, I guess, operate the computers 3.7 million and setting up and running customer claims portals. Which, apparently they had 94,000 queries. There's a lot of-

**James Cochrane:** 1:00:28
Remember, Cryptopia is a global business. Yeah. One of the challenges for the liquidator and that is a significant amount. I don't know if you have in front of you what the total value of assets that they are managing is, but I expect the legal fees are still small compared to the total value of the assets that they're managing. You know, these assets are incredibly volatile. But, you know, if you look at 2019, Bitcoin was probably around three or four thousand US. Certainly 2020, it was around nine thousand US. Yes, currently, it's at forty to forty-three today.

**Chris Patterson:** 1:01:15
Isn't it? Right, the longer it goes on, the more the assets actually go up in value. So. So-

**James Cochrane:** 1:01:19
I mean, that's not the case for all of them now, right? A lot of them actually go to zero. Yeah, the vast majority of them probably go to zero and against Bitcoin will probably be going down. But, you know, essentially, the liquidator is dealing with an enormous number of customers, a lot of complexity in terms of security. Yeah, and just, as you said, ninety thousand queries is just, like, a significant amount of work for professional services people to be undertaking to try and keep the assets secure. And then ascertain that one of the big challenges that they've had, which is significant in terms of the case law that we've got as deciding whether or not P claimants in their liquidation were beneficiaries of trusts, that they say that they say, for example, they claim that they, the account user found that they had one Bitcoin, were they entitled to one Bitcoin? Or were they just an insolvency creditor? Where they might have a claim for part of that Bitcoin? You know, within the pool of credit.

**Chris Patterson:** 1:02:41
And in the polling, like, if we keep things simple, don't worry about other cryptocurrencies, we'll just say Bitcoin, you know, can they point to the specific Bitcoin that was being held by Cryptopia? Or was it a consolidated pool, and they just all share as unsecured creditors, or-

**James Cochrane:** 1:03:00
This is what the court had done to take, you know, an analysis of first of all, could these digital assets be property? And then, if they could be property, could they be the property that is the subject of a trust? Yeah. And then in terms of what the terms and conditions between the exchange and the users were, was that sufficient to create a trust? And so, as you know, pretty significant case as far as crypto is concerned because I believe it was one of the first cases globally which just came out right and said, "Yes, these digital assets can be property and it can be the subject matter of trust." Prior to that, there was this argument that crypto is just mere information. It's just code within a decentralized network, and that's all it is. It doesn't have any value.

**Chris Patterson:** 1:03:58
It's just a series of zeros and ones that are-

**James Cochrane:** 1:04:03
Packaged within blocks on a blockchain Yeah, yeah, like pictures and books. And of course, I mean, there's benefit in the law clarifying these matters because these are things that were uncertain. They've spent three and a half million on legal expenses, quite a few courts to the Trump's the High Court. They-

**James Cochrane:** 1:04:25
I believe, and initially, they had they obtained orders to go out and be able to use some of the cryptocurrency in order to fund costs in order to secure servers which are located in a different country and-

**Chris Patterson:** 1:04:42
Place. Well, yeah, and I guess this is the point about the insolvency aspect of it is that if the cryptocurrency is an asset of the company rather than held on trust, then the liquidators, you know, under sort of first principles of insolvency law, are able to liquidate the assets and use the funds towards meeting reasonable expenses. And that was one of the cases I had last year where we were seeking approval from the High Court to liquidate effectively 5 million New Zealand dollars worth of cryptocurrency to keep it all going. Just as a kind of a side note on that, there was the theft by one of the employees and Michael Callisto was sentenced to nine months home detention for stealing a quarter of a million worth of bitcoin. Plus, the cruel irony was he was head of security. It's kind of like, who's guarding the guards? But look, apparently just the just going back to the court case about getting approval for the 5 million, the liquidators assigned that the reasonable costs and expenses are 350,000 a month. It's quite a big undertaking. And I suspect part of it is that classic scenario will this is the first time that such a large exchange in New Zealand has collapsed. So there's a bit of I guess upscaling going on, on how to try and manage it through.

**Chris Patterson:** 1:09:56
Yeah, look, I guess it's not just the size of the assets that are having to be managed through during a liquidation. But it's probably more the complexity of it because I mean, New Zealand's had heaps of failures. Failure, I'm gonna just take, for example, South Canterbury Finance 1.6 billion loss, bailed out by the New Zealand taxpayer to a large degree. But, so having large failures and financial services, you know, unfortunately, New Zealand, you know, has had them, okay. But the complexity is probably more around the issue of a lot of the account holders are overseas, it's identifying them, or even them coming forward. I mean, I suspect that, you know, by the end of the liquidation, if it ever ends, there'll probably be a lot of unaccounted-for digital currency sitting there. And then that's because someone's got to figure out what to do with it.

**James Cochrane:** 1:11:03
And I think the it's been a while since I read the Cryptopia cases, but you know, they I think they are provisioning for that, for those claimants who may not have come forward or are there is. Yeah, it's uncertain who holds it. But you have this really, almost unique scenario with crypto, there's different to other insolvencies, where you can have a company that at the time it goes insolvent, it might the value of the claims and the liquidation might let's call them 10 million. But then because of the way it can work, so volatile, in a couple of years, it could be 100 million, and that company, which was insolvent at the time, actually has a massive excess of, of assets. And the question is, who does that value accrue to? Does it accrue to the, to the secured creditors now unsecured creditors, and then to the shareholders? Or does it go to the account holders? And that's a great question. Yeah. Watch this space.

**Chris Patterson:** 1:12:20
This is a reason why, you know, we had a, there was a very significant exchange failure in 2014, called Mount Gox. At the time, that was the biggest exchange, and terms of market share transactions. And you know, that's, that's, there's been litigation over that for about 1010 years, you know, that sort of was that Hong Kong, Mount Gox was Hong Kong based or was Japan, Japan? Okay. What protections or provisions, do you think, could be introduced in New Zealand? Perhaps ones that have a look, we're not the only country that is as having to deal with the emergence of digital assets. Presumably, other countries have thought about how do we how do we better protect, you know, consumers and the vulnerable or those that are at risk? We've got any thoughts on on what New Zealand perhaps could look to all models that could consider replicating? Yeah.

**James Cochrane:** 1:13:23
So I guess it sort of gets back to what we're talking about. There's no no specific crypto law at the moment. But there are potentially lots of other existing laws that could apply. We've got this developing body of case law that's applying to digital assets, with cases like Cryptopia. And others. You have lots of existing laws, which can apply, like, for example, probably relationships Act. The Fair Trading act can apply to influences or other promoters of protocols and things like that. And so I guess one of the, the key challenges that the space has had, and this is a something that I anticipate lots of governments and regulators are dealing with around the globe, is that understanding, getting educated on how it all works, is a real key challenge, actually, because you've got this technology that's just moving so fast, and things are changing so rapidly. It's actually moving through the lawmaking process fast enough to try and keep up with that but then not making law that is too burdensome. You know, to me that encourages over regulation that stifles innovation and so that while at the same time is doing enough to protect consumers and ensure security of the financial system and things like that. So, so.

**Chris Patterson:** 1:15:13
It's weird as the financial markets regulations and you know, in our financial market authority, the FMA, where do they sit in this? Because it seems to be I mean, I think the Cryptopia judgment sort of found that cryptocurrencies are an unregulated financial product, whereas the FEMA Financial Markets Authority and our financial markets regulations, where does it sit its moment with all of us?

**James Cochrane:** 1:15:43
So I guess there's probably the principal regulator would be the FEMA. There's also the Commerce Commission, or can look at fear dealing, as does the FEMA, but then you've also got other regulators, and then Revenue Department, the RBNZ head, because, you know, police as well, you know, so the, one of the principal issues, I guess, is, is a token, a financial product? And, and as a business that's dealing in crypto digital assets, is that providing financial service? And so are these businesses providing a, like a money transfer service? Do they? Do they need to? Are they subject to anti money laundering kind of financing of terrorism laws? So we do have the Commerce Commission and looking at for consumers, you got the FEMA looking at for consumers as well. But there's a big question about digital assets are financial product, are they added security? Are they because in New Zealand, we've got sort of four key categories of financial product, equity, securities, debt securities, managed investment schemes and derivatives, and tokens themselves don't necessarily fit easily into well, as too much of a generalization, some cryptocurrencies won't easily fit into any of those baskets. And it's a real challenge for the regulators to understand what a particular technology or protocol is, you know, what the promoters and the developers are trying to achieve? And does that fit in the basket of these financial products? And are they covered then by the FMS jurisdiction and that is something where the people who are developing them and you know, they, a lot of the time they won't necessarily anticipate that they might be creating a financial product or just trying to create some tech that helps them get ahead or you know, helps create something useful for humanity. So yeah, it's we've we've had a parliamentary inquiry into digital assets a couple years ago versus.

**Chris Patterson:** 1:18:37
What what was the outcome? What came out of that?

**James Cochrane:** 1:18:39
So we have we've recently aired a report by our semi-final financial Finance and Expenditure Committee. So this is I guess, I'm trying to remember. Exactly I made a submission to Parliament, my previous firm in relation to this. I guess when my interest in digital assets was right at ICD levels, right a.

**Chris Patterson:** 1:19:20
Little bit a little bit ICD on Yeah.

**James Cochrane:** 1:19:24
And, you know, we made that submission, I think it's gonna be gonna be like 2020 2021. So there's not a lot of activity for for a couple of years, but it was in August, the Finance and Expenditure Committee released its report making making recommendations. And I guess to summarize what they are you might want to speak to Jeremy Bo from mentor Allison or Dr. Alexandra sunset, Oregon University because they were some of the key lead advisors to the committee for more detail on it, but their recommendations that were that New Zealand should adopt a more proactive approach to digital assets. They suggested that there should be regulation to boost consumer protection, which is good, and also create industry growth. And they recommended that the FMA should be the primary primary regulator, there should be cross-agency working groups to work with the industry, illogical educational courses at secondary and tertiary level directives regarding immigration tax and anti-money laundering, etc. I guess there's this sort of broad desire to encourage parties who want to develop the technology for the benefit of New Zealand. And so that it's these projects are not getting shut down early or wanting to hit overseas to a different jurisdiction, just where it's easier and less risky for them to do to set up what they're trying to set.

**Chris Patterson:** 1:21:12
Up. So perhaps, rather than just tinker actually introduce a regulatory framework that enables the development of the industry in a responsible manner. So just going forward. For listeners, I'll make this very clear. Here's the expressed disclaimer here, there is no financial advice being given whatsoever.

**James Cochrane:** 1:21:38
Appropriately, the lawyer's disclaimer.

**Chris Patterson:** 1:21:41
But what would be other your advice for someone who perhaps would like to get into cryptocurrency or already as an as involved in cryptocurrency in terms of things they could perhaps look at doing to protect themselves a bit more to ensure that, you know, their investment or you know, or their foray into crypto isn't as as as high risk as it could otherwise be? Like, what what things could people do? It's?

**James Cochrane:** 1:22:17
It's good question. It's a really good question. One of the things that when I first got into the subject matter, someone said to me, what, you know, while you've got this industry that started off full of scammers, and, you know, just being used on the dark web and Silk Road, is moving really rapidly to being more integrated into the mainstream. You have enormous institutions that are said like, huge asset managers like BlackRock, fidelity, all coming into where they recognize that there is demand for digital assets, and they are trying to provide a product to help meet the market. No, this is a funds where potentially pension funds and other funds that haven't, you know, like a KiwiSaver fund it previously because of the way that they're constructed, haven't been able to invest in digital assets, for whatever reason. So they are enormous players coming into the market. There's enormous talent in the space, building things all the time. There's enormous opportunity with these markets. And so I think one of the things that I was told, if you're going to invest, you should assume that there are lots of scammers around yeah. It's not like dealing with centralized entities like a bank, you know, as Be very careful, don't invest any more than you are prepared to lose it because what they said to me was, it could all go to zero. Yeah. And one of the key things is educating yourself is to change and spend time work out what might be the best approach for you, which might be the best way for you to hold your digital assets. Might it be entirely self custody? Might it be self custody over multiple wallets? Might it be a combination of different exchanges, different wallets, you know, get advice on it.

**Chris Patterson:** 1:24:53
Do your research,

**James Cochrane:** 1:24:54
do your research. But yeah, don't don't over commit yourself. I mean, if you confident in the way that it works, then maybe you're prepared to take a bit bigger allocation of what you're, you know what your investments are, I guess you know there's an argument to be made that whatever every investment carries risk 100% Some people make the argument that holding New Zealand cash is more risky than holding New Zealand property which is you know, more risky than holding some other form of acid you know, and there's every person has different risk profiles and and things like that but yeah, do you do your research go to places like blockchain NZ website go to Callaghan Innovation web threes website, go to places like easy Kryptos educational resources or these these places have some great great materials on their sites. People like me who are mad on the topic like to write articles about them and post them on LinkedIn and put them on our law firms website. You know, we do podcasts and and things like that. So

**Chris Patterson:** 1:26:24
and there are a lot of there are a lot of podcasts out there on cryptocurrency. Yeah, which is great. And there's some and look for, you know, for the listeners, I mean, I always try to do a bit of research for every every of my fit. I always do research for every podcast but one part of my research that I got a lot of value out of for preparing for this podcast was TVNZ ondemand plus whatever it's called there the website is a there's a great series on cryptocurrency something it's a five part series. And you know, I found that actually really informative to you know, at a really easy digestible level explained you don't need to be super it literate or techie to hit around it. And you know, that's free. Go on and watch it is.

**James Cochrane:** 1:27:16
There's other great resources. I mean, like, you know, even watching something like, the other night I watched on Netflix, but conned,

**Chris Patterson:** 1:27:23
yes. Which I haven't washed it yet. But I know that. Yeah.

**James Cochrane:** 1:27:27
That was about these guys who just straight out scan as you know that like Sam Bateman freed from FTX, you know, guys who, you know, set out, essentially just different. We're defrauding people, but we're bad actors using digital assets as their medium, not necessarily the fault of the digital asset is

**Chris Patterson:** 1:27:54
both a vehicle to crime, that

**James Cochrane:** 1:27:56
there's more resources that I found really valuable when I was when I was really learning the topic. I've watched an enormous amount of a guy named Andreas Antonopoulos. He's talks extensively about Bitcoin, I watched. There's a whole bunch of free lectures for MIT. A guy named Gary Gensler, who's now the head of the SEC, who is one of the people trying to regulate crypto assets. globally. He is teaching his MIT class about digital assets about 10 years ago.

**Chris Patterson:** 1:28:43
And still relevant today.

**James Cochrane:** 1:28:45
Totally free, you know, amazing resource. But there Yeah, it's identifying, though, those cars now, when I started really looking into this, there was plenty of information about the topic online and inbox, but there weren't that many books. And since the last bull market, there's just been an explosion and the amount of resources. So it can be a real challenge, listening and trying to work out well, which is a good resource to listen to, and who is just a scammer who's you know, essentially pumping their own bag of some particular snake oil. Yeah, exactly. You know, and, and this is something that she's probably going to scare a lot of people off, you know, you have someone like Sam Backman. Fred, who was this almost like a Wall Street poster child came from Jane Street. He's, which is a you know, a thing now called a prop trading firm, who he has, you know, his parents were both up university professors, one may have even been a law professor. And then he's, you know, stealing billions of dollars from customers. And you have this scenario where that's going to scare a lot of people off. Having some awareness and being nervous about certain things, and being cautious is is actually good in this space. And, you know, there's been a lot of regulatory action, particularly overseas by the SEC, which is designed to, I guess, clean up the space encourage people who are developing and making protocols to go through legal channels do things, you know, with appropriate disclosure, and things like that. So

**Chris Patterson:** 1:30:52
be careful, be cautious. Do you research? Absolutely.

**James Cochrane:** 1:30:55
Yeah. And you know, if you're not going to tell you what to allocate to, but generally, you know, you've got the coins that are bigger market cap. So in total total crypto market or something like 1.2, coming out what it is 1.2 trillion, maybe bitcoin is the biggest share, as the biggest market cap. And then Aetherium is, is next, those protocols. And those tokens are going to typically have been around longer, they've been going to be more secure. Because, you know, fits like Bitcoin, it's been under constant cyber attack, you know, for nearly 15 years, yeah. That also the most liquid so that you, you're going to have a more chance of having a buyer, if you're going to go as more as more trading going on while trading is, if you're gonna go out and buy some rare NFT. You know, there might be only a handful of people who will buy that, so you might not be able to sell it straightaway. So

**Chris Patterson:** 1:32:11
a lot of factors to take into consideration. Is there a role to play because neither the you and I, we are not financial advisors, and we've given no financial advice today? Just education, just education. But is there a role to play in New Zealand? Do you think for licensed financial advisors to to get into the space? All right,

**James Cochrane:** 1:32:38
absolutely. I think it's with the approval of what we had recently the approval of Bitcoin spot ETF, which is an exchange traded fund for Bitcoin, you had all of these really large asset managers, saying that there needed to be a vehicle in the United States market, where where people can own units and a fund that own the underlying Bitcoin, all of those sort of products. And, and that, you know, there's, there's demand for it. And the more that these big institutions come into the space, the, the, I guess the more confidence people can have?

**Chris Patterson:** 1:33:32
Well, they'll bring their own disciplines into it, of

**James Cochrane:** 1:33:34
course, you know, there's, there's professional asset managers, and you're going to be financial advisors, who are going to have their clients whose house would be interested in getting some bitcoin, they're going to have to understand, you know, if the biggest asset managers in the world and now interested in this product, and these products are available, should I be allocating some? And so there's a big opportunity for financial advisors to give advice in the space. And, yeah, I mean, when you look at the rates of adoption of digital assets, and some figures that I've read, have suggested that the adoption of digital assets has been sort of greater than the adoption of the internet and the 90s. You know, it's trending up, looked at some figures recently, and something like 7% of New Zealanders hold digital assets. Most of those tend to be younger males. They tend to life a bit bit more risk. That, that that those demographics of ownership and use by individuals but also used by mainstream businesses who want to do you know, VIP, consumer rewards and things like that is only going to increase I know the Coachella Music Festival was using unite fts for for VIP ticket holders. I understand don't hold me to this that Starbucks loyalty programs with their coffee stamps are actually NF Ts are done via blockchain technology. So you're going to see my beta is is going to be a lot more adoption, more uptake.

**Chris Patterson:** 1:35:26
And it's, it's, it's a little well, perhaps we get go back to the internet. I mean, I've never really heard anyone say, Oh, I've just decided I'm not going to use the internet anymore. Or email. Or even more extreme. I've never heard anyone say I'm over money. I'm not gonna use it anymore. We don't need it.

**James Cochrane:** 1:35:44
Totally off. Good. Totally off script.

**Chris Patterson:** 1:35:46
Hey, James Cochrane. This has been a fantastic, fantastic podcast. It's been great to have you here as a guest. Thanks, Chris. That's we've covered a lot. A lot. Yeah, yeah, we've covered a lot. So there's been a lot covered, I guess, in many respects, just shows that this is a big topic. There's a lot to cover. It has its application and law, and it's going to continue to do so. So hey, look, thank you for joining me. And yeah, great way to kick off the kick off. 2024

**James Cochrane:** 1:36:16
Thanks, Chris. My pleasure. Cheers.

**Chris Patterson:** 1:36:17
Thank you. Thank you for tuning in and listening to this episode of the Law Down Under Podcast. You're welcome to join in on the discussion via my podcast page, which you can access at patterson.co.nz That's at patterson.co.nz. Thanks for supporting the podcast and tune in again for more on the law, its application and the future of the law here down under.