Legal 1 # Discussion : Blockchain’s Societal Implementation & Laws and Regulations

Blockchain EXE
Sep 5, 2018 · 10 min read

Discussion “ Blockchain’s Societal Implementation & Laws and Regulations”

The discussion was joined by Mr.Takamatsu from Kataoka & Kobayashi LPC and Mr.Ishii from Couger Corporation.

Who is the “right holder” of cryptocurrency

Kawasaki: In the ICO contract and Smart Contract that came out earlier, it is said that in the eyes of engineers around the world, the person who has the secret key is also the owner of cryptocurrency. For example, when creating an ICO contract or implementing Smart Contract, by knowing which address it is sent from then it will proceed as the right holder of the address. But in general our society doesn’t think that way. First it will depend on who has the currency and how the token was purchased. I think that there is a conflict of world views, that is, the values of the two worlds. I think the values of the two worlds may cause world views in conflict.

Under such circumstances, let’s talk about a concrete example with the question of who is the right holder of the cryptocurrency, the counterparty of the transaction, what are the points to take note so that the cryptocurrency can be received safely.

[Example 1] Value transfer of Cryptocurrency

This is a case where A sell goods to B, and B makes payment to A in Cryptocurrency.

Specifically, it is assumed that the virtual currency has been transferred from the B’ address to A’ address specified by A, and is this treated as payment made by B?

Kawasaki: In this case, is it necessary to specify that B address is B’ ?

Since the payment has been sent out successfully, isn’t it considered good enough? If you think that, maybe there is no problem since it cannot be sent unless you have a secret key. Perhaps in the world of cryptocurrency it is okay because the basic idea is accepted. However, in the real society this is not always the case. What does Mr. Kataoka think about this?

Kataoka: It is a very fundamental and philosophically difficult problem. How to specify a certain person by law. For example, in a criminal case, etc. Firstly an address, a name, legal domicile is needed; if more than one person exists, age, gender, date of birth, etc. can be added as an identifier to specify. For the address of cryptocurrency, since they coincide with astronomical numbers, even if there are exceptions, it still can be considered generally consistent.

Mitsuru: What is happening in the world of blockchains is that for example, in this case, it is understood that if there is a transfer transaction, it can be understood if the transaction is traced. But for the agreement between A and B, even if the cryptocurrency is paid with B’ address, is B’ address secret key owned by the real world B? That information is not shown in blockchain.

Is the remittance from B’ address really from B? Of course, even if there is a payment, what should we do if the payment made by B cannot be confirmed with evidence in the real world? How can we prevent such a situation from happening? Or, if such a dispute has occurred, whether legal remedies such as payment by the quasi-possessor of the claim can be used. Do you have any opinion as to whether the application of some laws can be used?

Takamatsu: If the connection between B and B’ address is unclear and there is no receipt, and a different person was mistakenly paying off, it may be saved by civil law salvation theory. In my personal opinion, I think that the connection between B and B’ is crosslinked with a secret key. Since it is becoming a digital world, I think that it is good to operate as if it is crosslinked to some extent without having to issue the receipt one by one. However, in theory it is not stated clearly that there is a possibility that B and B’ is different.

Mitsuru: When making a sales contract between AB, B will also clearly indicate to A that it will transfer from this address right?

Takamatsu: Yes, if it is firmly established.

Mitsuru: If it says it was transferred from that address, B is the one that holds the secret key of the address, so it can probably be assumed that B is the one that moved it.

Takamatsu: That contract will be a substitute for a receipt.

Nishimura: For those who have done real money trade in an online game will know this. Example, Mr. A wants to exchange money, which the currency is called Gil in Final Fantasy. I made a verbal agreement with Mr. A to use 1 bitcoin to buy 10,000 Gil from him. Because it is online, we will not know who the other person is. At the same time, I also made a promise to Mr. B who will sell 20,000 Gil for 1 bitcoin and give him Mr. A’s bitcoin address. Then I can take 10,000 Gil and run away, and Mr. A will be very angry. If I do this with a bank account, then I will be get caught and be told that is a bank fraud. So I wonder, what will happen if I do the same with bitcoin?

Kataoka: It involves a question of what ownership really holds, but in the real world of law, it becomes a point of whether or not you really have authority, so whether you are really a legitimate authority or not will be decided ultimately. There are judicial cases on the grounds of the law, even though there are various things, but ultimately it is “the matter,” in other words “common sense,” that is the source of the law, the basis of the law, so it can only be judged based on that. What has happened in the world of cryptocurrency or the virtual world, we have no choice but to think about what we really think and what kind of promise we make in the real world.

From the perspective of the law, only parts of “imaginary” and “imaginary” are enough, it is only the de facto (fact) as it operated with the algorithm. From the viewpoint of whether the facts are in line with it, it is inevitable that the law should be forced to work as a law. Since the world of algorithm agrees with real world laws and regulations, if there is a discrepancy, we must rectify the real world accordingly.

[Example 2] If you wish to do business by dealing with token in Japan

I would like to build a business scheme with an incentive design that uses tokens.

What are the things we need to take note in order to do this lawfully in Japan?

Kawasaki: With the strengthening of regulations in recent years, it has become difficult for ICO to establish in Japan, so corporations in Singapore, Switzerland, and others have started to establish. Is it difficult to sell ICO and clouds in Japan?

Kataoka: In the worlds that falls under the Financial Instruments and Exchange Act, they correspond to prepaid payment methods and virtual currency exchange industry; on the other hand, there are also some worlds that do not fall under such circumstances. In today’s situation you must at least register something to monetary authorities. If you don’t register and wish to issue tokens with virtual currency payment, then you have to register with the virtual currency exchange industry - such policy has been established since last year. From the point of view of competent authority, the difference is whether it can be seen as an “ideal figure / insider” that adheres to the law or whether it can be seen as an bad outsider. If a very bad victim appeared, it is possible that there is something that will be followed up by criminal charges.

Takamatsu: It is not written in the documents of the Financial Services Agency, but as a point, there is a probability that in token will be sold or traded in future, it will can be said as cryptocurrency. It is said with probability, even if is banned for transferring, there is a possibility that it can be released, it is considered to have a possibility of trading in future. Is a reality that is quite hard to do in Japan because there are various disturbances spreading the net widely.

Kawasaki: Even though there are difference between payment and cashing. In one of my recent consultation, there is a service for issuing token, for example distributing 1/3 of it by AirDrop for free. As we distribute it for free, it is not token sale. After that, as the services grows, token that were originally distributed as free will gradually bring value. Then, when it comes to value, it is about selling the remaining 2/3 and procuring funds. In this way it seems that there is no payment for a token so-called ICO. How it become like this? As I mentioned earlier, if there is a probability of exchange the token in the future, wouldn’t this method be useless?

Takamatsu: Is kind of subtle when relates it to times axis. A little while ago, it is important whether it is paid or free. If it is issued free of charge, it will be said that it is not cryptocurrency exchange business. If everyone go for the free scheme, the situation will be starting to be a little worrying.

Kawasaki: Indeed. This is an important point here.

[Example 3] The Scope of Application for Border and Legislation of ICO

A corporation founded in country A operates ICO’s announcement site. The manager of the secret key of the ICO contract has nationality in Country B. The ICO contract is deployed in the Public Ethereum. It is written that the target is limited to the D citizen. So for this ICO, how to define which country is holding it and who is doing it ?

Takamatsu: This is a very complicated topic as there is certain decision that need to made on this. But as a line of sight when thinking about various business in Japan, where citizen D = Where the user is located is strongly viewed as starting point. In the technical sense, the aim of where the server is located, the location of a corporate entity, and so on is to protect the users. Although the concept of issuing is difficult by itself and there are various ways of thinking. In terms of regulation, it is more advantageous by starting off by caring more on the citizens.

Kawasaki: Even if it’s done in other countries, it is also applicable for Japan citizens.

Nishimura: There are two things written for the secret keys for ICO contract. Which are the meaning of the original address where the ICO contract was deployed and the address set to have the control key for the ICO contract. For example, what happen if the secret key of the ICO contract was accidentally thrown away, that means there will be no one holding the secret key of ICO contract? Is there any person you can punish even if you try to punish?

Kataoka: That is not the case, the act of collecting money is subject to regulation, and the condition of having collected money is not punishment.

Nishimura: Does that mean that you will get punished if you do it the place like management notice site? Without noticing anyone, ICO contract that does not know who deploys it, and if someone who accidentally found out it’s charm and bought it with token and got Ether…

Ishii: There is a saying that the people who first said “It seems good here” will in fact betrayed. As a related person, I think that it is important that the related parties have certain level of agreement with each other. In the real world, when you purchase something in the convenient store, when you make payment face to face, you won’t say words like “Do you have any money?” it is because even though it is first meeting but the effect of eyes around you won’t make you think that. There are situations where the transfer of value is successful because the currencies are easy to handle as numerical values. In this example, it is strictly stated that example 1 and 2 will not know whether in reality (money) was passed over. In that sense, in the case of the law of physics we cannot turn back, and also the process in between. The process can be trace digitally, blockchain can trace but cannot turn back which makes the evidence increased. As a result, it may be impossible to confirm with only blockchain alone, but i think the fact that circumstantial evidence and unchangeable evidence increases, it will be useful when adapting to the real world.

Mitsuru: It certainly is important that the viewpoint of who is the user and who can participate in the ICO for which country’s law will be subject to regulation. For example, I am a Japanese businessman. When ICO first started the project in Japan, it only target overseas people, and prohibit Japanese. I do not really misrepresent the fact that all the users are foreigners, based on the viewpoint of user protection , FSA judges that whether it will not be subject to regulation.

Kataoka: If there is a law that punishes “ the place of action” in the territorial principle, there is a problem of nationality, international legislative application field of law, there also even laws that applied to foreigners. It must be seen on a case by case basis. The administrative regulation law is difficult because it does not adapt to that extent of outside area. The Japanese will be punished if the issuance of security reports was done in Japan rather than overseas.The punishment will consider as out.

Mitsuru: I think that the payment act is not limited as what I see

Takamatsu: It is not a clear statement. So as you go on blaming, there is possibility that it will have wide range of explanation on things which is not written, this will make the authorities started to get angry. From my view, have to think of where to put a hand on the user, so for the purpose in time being let me introduce “citizen”.

Kawasaki: This discussion can go on and on, but due to our time limit we have to stop here. Thanks everyone for your time today.

Law & Blockchain

It is likely to have high response to the changes of Financial Services Agency. This has become a valuable time and discussion place for thinking business in cryptocurrency and blockchain industry. Please look forward to next time !

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