Thursday, 06 December 2018 11:16

DRAFT-LAW ON TRANSACTION SYSTEMS BASED ON TRUSTWORTHY TECHNOLOGIES (BLOCKCHAIN ACT) Featured

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Summary of the Consultation report on the Blockchain Law in Liechtenstein.

“Blockchain technology” was initially developed for Bitcoin, a private digital monetary system. Blockchain technology functions as a ledger that can securely record financial transactions. The technology can be used for much more than Bitcoin. Blockchain technology has been developed by a number of people and organisations around the world and expanded to other application areas.

Blockchain technology is important because of its ability to record “assets” such as money digitally, preventing these assets from being copied or manipulated and ensuring that they can be transferred securely between different people. The security of such transactions is ensured not by a complex organisation but rather through purely mathematical procedures (e.g. encryption technology, cryptography) and defined rules. Blockchain infrastructure is typically provided online and is available to a broad range of private individuals and companies.

The possibilities presented by blockchain technology are not merely limited to simple transfers of money between private individuals. The technology offers the opportunity for a broad range of financial services. This is noteworthy because it means the creation of digital recording of money or assets and the possibility of conducting transactions with no direct intermediary responsible. Thus, companies offering financial services on blockchain systems use generally available digital infrastructure for assets to provide their services. There are already a number of companies that offer services on the various blockchain systems available today, such as digital wallets, custodial services for crypto-currencies, exchanges for crypto-currencies, and issuing and trading crypto-securities. Blockchain technology is also used for so-called “initial coin offerings” (ICOs), which represents a new way of funding companies or projects. However, it is likely that it will be possible in future to record a much broader range of assets and other rights on blockchain systems and that a number of services related to these rights will be offered. In particular, the low costs for digital transactions will, according to experts, open up new opportunities in fields such as financial services, mobility, energy, industry, media, and many more. These applications are grouped together under what is called the “token economy”.

Because of the rapid pace of development of blockchain technology and its areas of application, it is very important to draft a law abstractly enough to ensure that it remains applicable for subsequent technology generations. That is why the term “transaction systems based on trustworthy technologies (TT systems)” is used for blockchain systems in this Law.

The increasing propagation of blockchain applications has already shown problematic areas, such as open questions related to customer and asset protection as well as the misuse of this technology for money laundering or other criminal purposes. Such issues should be addressed by means of clear regulations. Because blockchain technology is also actively used in Liechtenstein, the government aims to use this Law to clarify the applicable requirements for important activities on blockchain systems in order to improve customer protection and reduce potential reputation risks for Liechtenstein.

In addition, there is currently legal uncertainty regarding business models based on TT systems, which are not subject to financial market legislation, but which involve activities that are very similar to those in the financial sector. With the TTAct, the government aims to define the minimum requirements for these activities on TT systems and have them registered by the FMA.

The legal classification of elements on TT systems is another focus of this draft. With the “token”, the TT-Act introduces a new construct so as to enable the transition of the “real” world to TT systems in a legally secure manner and thus tap the full potential of the token economy. The introduction of the legal construct of the token in Liechtenstein Law makes it necessary to also define other legal aspects, such as ownership, possession and transfer.

To be able to shift the representation of securities from physical certificates to tokens on a TT system, the legal concept of uncertificated rights will be introduced in Liechtenstein Law and, simultaneously, an interface created between securities law and the TT-Act. Uncertificated rights are dematerialised securities which are recorded in a book-entry register rather than being issued as a certificate.

In addition, the TT-Act defines minimum requirements for a TT system in order to increase the efficiency of the token economy by building trust among users.

Because of the enormous potential of the “token economy” for large parts of the economy, the government wants with this Law to increase legal certainty for users and service providers to support the positive development of the token economy in Liechtenstein. By doing so, the government is also responding to the needs of market participants for greater legal certainty in connection with TT systems.

Source: CryptoPlace.li

Read 58 times Last modified on Thursday, 06 December 2018 11:43

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