What this means for the Token Economy and Own’s Security Token Services.
Last week, the Government of Liechtenstein achieved a milestone in creating an appropriate legal basis for Blockchain technologies. The publication of the consultation report known as The Blockchain Act will have far reaching implications, so while the original document is written in German, we thought that we would read through all the detail, translate it and provide you a useful summary of its contents.
What is The Blockchain Act?
The Blockchain Act defines a law for future generations of technology and uses the term “trusted technology transaction systems (VT systems)”. It defines the minimum requirements for activities on blockchain systems and systems close to the financial sector. It further suggests that organisations utilising a VT system should increase the efficiency of the token economy through trust from users. The law itself is intended to be seen as a framework, which means it will provide an appropriate legal basis for token-based applications.
Due to the highly innovative potential of the token economy in a variety of sectors (such as financial services, mobility, the energy market, manufacturing and media), the government of Liechtenstein wants to be proactive in meeting the needs of market participants and industry decision makers. It believes that providing a greater legal certainty for users and service providers in connection with VT systems will support the positive development of token economics in Liechtenstein. In the future, the government anticipates a large number of rights as well as high asset values being stored on blockchain systems.
So, what is the Blockchain Act focussing on?
The increasing popularity of blockchain applications has highlighted problem areas in connection with client and asset protection and misuse. To counteract these scenarios, the Blockchain Act will provide clear regulation and will be used to improve client protection and solidify the reputation of Liechtenstein as a leader in the global blockchain space.
The legal classification of elements on VT systems is another focus of the Blockchain Act. To this end it introduces a new construct, where the “token” enables transformation of “real” world assets into VT systems with legal certainty. The introduction of a legal construct for the token into Liechtenstein law requires that the legal consequences, such as ownership, possession and transfer, must be defined by law as well.
Furthermore, the legal status of book-entry securities in the Liechtenstein law is introduced so that shares can be directly represented as a token through a physical certificate and transferred on the VT system. This also serves to create the interface between securities law and the Blockchain Act which is very significant.
The storage and transfer of digital money and the administration of securities will undoubtedly feature significantly in future applications, however, the government assumes that the areas of application for blockchain technology will go far beyond this and has summarised the enormous field of blockchain application systems under the general term “token economy”.
Concepts of “Token Economy”
The consultation report highlights concepts of “token economy” and lists the application of blockchain systems in more detail as example use cases to better understand the law:
- Application of digital payment
- Cooperation with financial services in terms of securities, trading and asset management: transferability of shares and bonds, corporate financing via equities, corporate financing via bonds, creation of liquidity / markets, trader, asset management, additional services
- Other assets and administration
- Funds
- Luxury goods
- Music rights
- Interfaces to other fields of law, e.g. financial market legal system, company law, real estate transaction law, law of property
In future, this will provide new opportunities outside trading platforms, which could start with simple exchanges between private individuals and can take many different forms. VT systems will allow not only direct transactions between individuals, but can provide the basis for all types of economic services and processes, especially future financial services.
Own’s Security Token Services
We believe that the Blockchain Act will have a positive effect for Own. It provides support for our business activities and will guide our current and future product development. Developing a security token trading platform involves a need to be regulated, especially in the token economy. The Blockchain Act will protect our activities as a service provider and provide legal certainty.
From a regulatory perspective tokens are currently classified as:
- Utility tokens
- Payment tokens (currency coin)
- Security tokens (equity, assets)
Since the Liechtenstein government has not made a token differentiation, the Blockchain Act will support Own’s activities as a security token trading platform provider. This will also open opportunities to expand our 5 core products in the future, which will go beyond pure blockchain technology activities and include financial and consulting services for business owners and investors.
The 179 page consultation report is available in German only and can be downloaded from the official site of the Government of Liechtenstein.
