Loading...

Blockchain Act

“Blockchain technology” was initially developed for Bitcoin, a private digital monetary system. Blockchain technology functions as a ledger that can securely record transactions. The technology can be used for much more than Bitcoin however. 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 “information” digitally, practically preventing this information from being copied or manipulated and ensuring that it can be transferred securely between different people. Security is exclusively ensured through 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 applications of blockchain technology are therefore not only restricted to simple transactions of coins or tokens with an exchangeable value between private individuals. Rather, they provide the option for a large range of economic services as assets or rights can also be recorded in blockchain systems in general. This is noteworthy because it means the creation of digital recording of means of payment 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 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 and exchanges for virtual currencies. Blockchain technology is also used today to finance companies or projects (e.g. via “Initial Coin Offerings” (ICOs) or “Security Token Offerings” (STOs)). 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, logistics, 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 option of recorded assets or, more generally, rights in tokens, raises essential legal questions which must be clarified for the general legal certainty for users of TT systems and TT service providers. An example of this is the legal effect of transferring tokens with regard to the represented right. This legislative proposal on tokens and TT service providers (TVTG) introduces a new legal object so as to enable the recording of the “real” world on TT systems in a legally secure manner and thus tap the full potential of the token economy.

The increasing propagation of blockchain applications has already resulted in 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. As blockchain technology is also actively used in Liechtenstein, the government wishes to clarify which requirements will apply for important activities on TT systems (TT services) with this Law. To do so, not only legal certainty is created but customer protection is also improved and unanswered questions in the application of the applicable laws, in particular in the area of due diligence obligations, have been clarified in order to ensure compliance with international standards and extensive and effective fighting of money laundering.

The Law on Tokens and TT Service Providers defines a legal framework for all applications of the token economy in order to ensure legal certainty for many current and future business models. In particular, this involves the essential aspects of a token economy such as generating and storing tokens, and not on the regulation of activities relating to the financial market, such as a stock exchange for payment tokens.

For securities to be represented in a token on a TT system, and transferred there, via a physical document without any detours, the legal concept of the book-entry system (Wertrecht) has been accepted in Liechtenstein law, and at the same time the interfaces between the securities law and TVTG has been created. Book-entry securities are dematerialised securities where the functions of a certificate can be replaced by entry into the book-entry register.

Because of the enormous potential of the “token economy” for large parts of the economy, the government hopes this Law will increase legal certainty for users and service providers to support the positive development of the token economy in Liechtenstein. It therefore does not only face risks that may exist today, but also meets the needs of market participants for more legal certainty in connection with TT systems.

 

The first reading of the TVTG by the Liechtenstein Parliament has taken place in June 2019. The TVTG shall enter into force after the second reading in October 2019.

Moreover, there is currently legal uncertainty regarding business models on blockchain systems that are not covered by financial market legislation but nonetheless carry out activities that are very close to the financial sector. With the Blockchain Act, the Government strives to define the minimum requirements for these activities on blockchain systems and have them registered by the FMA.

The legal classification of elements on blockchain systems is another focus of this proposal. The Blockchain Act defines the term “token” as a new construct to enable the transformation of the “real” world to blockchain systems while ensuring legal certainty, thereby opening up the full application potential of the token economy. The introduction of the legal construct of the “token” in Liechtenstein law requires that the legal consequences – such as ownership, possession, and transfer – must also be legally defined.

Due to the great potential of the token economy for large parts of the economy, the Government intends for this law to strengthen legal certainty for users and service providers in order to support the positive development of the token economy in Liechtenstein. The Government is thereby also responding to the need of market participants for greater legal certainty in connection with blockchain systems.

The consultation report can be obtained from the Government Chancellery or at www.rk.llv.li (Vernehmlassungen). The consultation period ends on 16 November 2018.

Download Documents and News

Mobility in the Blockchain Series: Click & Drive – Dr. Otto C. Frommelt

Blockchain and Bitcoin is in all the rage. My objective is to present an overview of Blockchain technology, its [...]

Lunchtime talk with Dr. Thomas Dünser

On 19 June 2019, Dr. Thomas Dünser, Director of the Office for Financial Market Innovation of the Liechtenstein Government, gave [...]