On May 7, 2019 the Liechtenstein government reported that it passed a motion to implement a new law on Tokens and VT Service Providers (generally referred to as the “Blockchain Act”).
In recent times we have seen various European jurisdictions introduce regulation or publish regulatory guidance concerning specific aspects of blockchain technologies, However, Liechtenstein considers that its Blockchain Act is the first to create a holistic regulatory framework for the token economy. The reason the Liechtenstein government has given for taking a more holistic approach is to avoid regulating specific current applications in a piecemeal fashion, in particular cryptocurrencies and Initial Coin Offerings, and instead aim to promote legal certainty for applications that will be created in the future or are only just beginning to emerge. The Liechtenstein government has, nonetheless, expressly reserved the right to specifically regulate financial market-related applications in the future.
The Blockchain Act has been drafted broadly and does not use the term “blockchain,” instead using the term “transaction systems based on trusted technologies (VT systems)” as a way to describe blockchain systems such as Ethereum. The Liechtenstein government hopes that this use of more abstract terminology will enable them to future-proof and keep the law valid for the next generations of technology and to allow for the flexible interpretation within a light touch regulatory framework.
The Blockchain Act allows every possible asset, including real estate, bonds and securities, to be tokenised, digitalized and listed on a cryptocurrency exchange. The legislation also specifically regulates:
- the ownership of digital assets (i.e., tokens);
- the transfer of ownership of digital assets;
- the safe storage of digital assets;
- legal requirements for the storage of digital assets;
- several levels of licensing for business providers in the token economy; and
- Security Token Offerings (STO’s), Initial Coin Offerings (ICO’s), Token Sales and Token Generation Events (TGE’s).
The Blockchain Act is complemented by existing financial services laws including those relating to KYC and AML requirements.
The Liechtenstein government’s primary aim for the Blockchain Act is to provide a clear legal basis for providers of blockchain technologies in order to ensure greater legal certainty for those providers and to increase the trust of their customers and users. It is hoped that the Blockchain Act will further Liechtenstein’s objective of becoming a key innovation hub for new technologies by creating good framework conditions for blockchain companies and the token economy.
The reception of the Blockchain Act has been mixed. Critics have argued that the speed of technological advancement may result in efforts to regulate the token economy becoming quickly outdated in the coming years, despite Liechtenstein’s attempts to future-proof the regulation through reference to trust technologies. Critics have also suggested that, due to the borderless nature of the blockchain / DLT ecosystem, there needs to be greater support on a global level if it is to receive worldwide adoption and acceptance, so national regulation may not on its own be enough to alter national market behaviour.