Establishing the World’s First Comprehensive Regulation of a Token Economy
On October 3, 2019, the Liechtenstein “Token and TT Service Provider Act,” nicknamed the Liechtenstein Blockchain Act, unanimously passed through its second reading in Parliament, meaning that come January 1, 2020, Liechtenstein will be the first country in the world with comprehensive regulation of the token economy.
Although tokenisation was already possible under the pre-existing regulatory framework, an unequivocal lack of legal clarity was still present. This prompted the Liechtenstein government to put forth new legislation that bridges the gap between the “offline” and the “online” worlds, creating legal certainty for both entrepreneurs and consumers alike. Avoiding the creation of new regulation where technology already does the job, the Liechtenstein Blockchain Act eases this transition to decentralisation.
“The “Token Container Model” lies at the heart of the Act, providing an all-encompassing technologically neutral and agnostic token definition.”
The approach of this legislation is twofold. On one hand, the Act clarifies pre-existing law – providing a civil law basis for ensuring that the right represented by the token is effectively and legally transferred from A to B; while, on the other hand, the Act provides rules for important players within a token economy – including consumers, TT service providers, and intermediaries.
The “Token Container Model” lies at the heart of the Act, providing an all-encompassing technologically neutral and agnostic token definition. Within this framework, a token serves as a container with the ability to represent rights of all kinds, whether that be the right to something represented – examples including real estate, stocks, bonds, and gold; or the right to nothing – encompassing digital code, the most notable example of which is Bitcoin. Consequently, this progressive model provides legal certainty in regards to pre-existing rights that are tokenised, as well as rights to digital information on blockchain based systems.
Furthermore, through integration of new roles such as that of the Physical Validator, the new framework ensures the existence and enforcement of the contractual rights to property represented in token form on a trusted technology system – in the sense of physical property law. Subject to registration requirements, the Physical Validator becomes an intermediary assisting with the transition from the real world to tokenized embodiment in the digital world.
Through clarification of pre-existing laws and instatement of new roles and minimum standards, the Liechtenstein framework provides all-inclusive regulation of the token economy, creating legal certainty for entrepreneurs and consumers alike. Enaction of this legislation, combined with the presence of an open and friendly regulator in a historically business friendly environment, provides the perfect atmosphere for bringing token-based projects to life.
Following several years of hard work, the Blockchain community here in Liechtenstein looks forward to witnessing how this comprehensive regulation supports the token economy here, and hopefully serves as a model for other countries looking to follow suit by providing in-depth regulation aimed at fostering innovation.
For more information: www.naegele.law