The government of Liechtenstein has adopted what has been called the “Blockchain Act”, or more specifically the Report and Motion on the creation of a Law on Tokens and Trustworthy Technology Service Providers (Token and TT Service Provider Act; TVTG).
Because of the rapid pace of development of blockchain technology and its areas of application, the government opines that it is important to draft a law abstract enough 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.
Due to the enormous potential of blockchain as a basic technology, the government has decided to create a legal basis for the areas of application of the token economy.
The goal is to ensure that a new law does not have to be created for every case of application, but also to create legal certainty for the many cases which are only just beginning to emerge in practice and are likely to develop in the near future.
This means that the law will not just exist to regulate current applications, in particular crypto-currencies or initial coin offerings (ICOs).
However, the Government is leaving open the option of regulating applications close to the financial market in a further step.
Countering Risks with Clear Regulation
As blockchain technology is already being actively used in Liechtenstein, the government aims for the law to clarify on applicable requirements for important activities on the TT systems.
The increasing spreading of blockchain applications has already raised questions regarding money laundering, use in criminal purposes, or just general customer protection. To the government, these risks should be countered with clear regulation.
The government aims to clarify with this law the applicable requirements for important activities on TT systems. This should clarify open questions in the application of laws currently in force – especially in the area of due diligence.
The possibility of representing rights in tokens raises fundamental legal questions which must be clarified. The main focus is on the fundamental aspects of a token economy, such as the creation of tokens and their safe custody. Another example is the legal effect of a token transfer in relation to the right represented. The TVTG is therefore introducing a new legal object in the form of the “token” to enable the representation of the “real” world via tokens with legal certainty on TT systems.
To clarify how securities can be represented and transferred purely digitally, e.g. in a token on a TT system, the legal concept of “uncertificated right” is also being introduced in Liechtenstein law. Simultaneously, a connection is being created between securities law and the TVTG. Uncertificated rights are dematerialised securities in which the functions of the certificate are replaced by an entry in the book-entry register.
Providing Clarity in By Clear Division Between Civil and Public Law
The consultation process showed a great deal of national and international interest. Many of the substantive submissions concerned issues under civil law and the envisaged registration and supervision system. As a result, the structure of the proposal has now been adjusted by creating a clear division between the civil and public law parts and by further detailing and explaining the definitions. The registration and supervision system has been strengthened and specified in more detail.
The government is convinced that this will create an adequate regulatory system that effectively addresses the risks, creates the necessary legal certainty, and at the same time facilitates the positive development of the token economy.
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