The 4th essay of my Liechtenstein cycle after: Intro, Koine and RegTech.
Aside from the US State of Wyoming this is the only other jurisdiction I know, engaged in comprehesive legal rigorization of blockchain. Wyo. even eyes blockchain banking and companies shares recording.
But there are couple of essential differences:
[1] Wyoming does not possess international law subjecivity, while the Principality is a sovereign nation.
It is not mere nation, but a country with augmented sovereignty - being optimally integrated simultaneously with Switzerland in monetary, regulatory, free-trade, military etc. union and with the biggest market on Earth - EU via EFTA / EEA of over half of billion people and over $20T GDP!
The unique geopolitical toolkit of the Principality of Liechtenstein also draws power from the fact that it is over three centuries old , established true benchmark of democracy and political stability and as result the public account of the nation is with positive balance. No public debt.
That basis is important, but more important is that,
[2] The Liechtenstein Blockchain Act is drafted on codex level of statutory law creation. It is not just patchwork of separate legislative acts:
The government has decided to regulate not only the current Blockchain-applications (in particular cryptocurrencies and initial coin offerings (ICOs)), but also to establish a legal basis for the entire scope of application of the token economy according to a long-term approach, which should also meet the needs of future generations.
That means it addresses and sorts out the matter comprehensively and in maximum level of compatibility with the rest of the body of laws. On national and international level.
Aside from the unique scope of the Act, it very successfully does implement one unique approach.
I'm double happy with Liechtenstein because as early as the first years of the Crypto Era I had that prescience that this namely is the Crypto Valley, and also that I felt the value of blockchain in the sphere of law EXACTLY this way as it is later stated into the Liechtenstein Blockchain Act:
- the ''container approach''
OR
This logically means that these rights are just represented in digital form on TT (Trusted Technologies) systems, or are subject to the legitimation and transfer regulations of the TT system. The original “legal right” and thus all the related legal consequences remain in effect. For this representation of rights on a TT system to have legal certainty, this Law introduces the construct of the “token”, which makes it possible to embody all types of rights on a TT system in the first place. The “token” is therefore a kind of “container” for embodying a right. In this model, a crypto-asset can be depicted as the digital embodiment of a security paper. Crypto-currencies can embody the right to purchase legal tender (e.g. 41 Swiss francs). The special case of an “empty” container is also possible, and relevant in practice, for example cryptocurrencies without real value collateralisation. In fact the model chosen in this Law can also cover a large number of other application cases (e.g. ownership or usage rights to property, intellectual property rights, warranty rights). Here one must remember that there are already many different technologies which are grouped under the term “blockchain”. The legal definitions in this Law are deliberately formulated in as technology-neutral a way as possible in order to be suitable for future technological developments.
What does this mean?
I may be already bored you with my rant:
''Code is Within, Law is Between''
but exactly this, in haiku compression is the first major element of the 'container approach' on tokenomics.
The blockchain protocol does not need legal enforcement. It IS enforcement. From and onto and towards within the process which is the running of the protocol. Self-enforcement. Inside to inside and inside out.
Exforcement
Remember this neologism . I'll definitely revisit it in later essays because it is a valuable and versatile notion.
The users however are not onchain. Only their accounts. Only the states of their accounts are subject of the onchain exforcement. Only their private-keys enabled access to the blockchain outputs. The blockchain outputs are ''real world'' items too.
And everything and everyone out of the exforcement field is object and subject of law. The law IS ruleful and ordered enforcement, because the physical entities require to be forced from without in order to behave as we want.
That's the divide: Code is NOT law, but law is code - programs, software - run by the public authority to make the said things happen. Code becomes law only if forceable.
I personally am afraid from the vision to give hands, legs and teeth to the blockchain, to furnish it with efference or with motoric outbound periphery. In fact for no other reason but for we being not quite good in programming yet.
Code-is-Law would be equivalent to avalanche of terrible bloody mistakes until we learn how to do reliable code.
What the Law needs and must do is to give the appropriate definitions in order to port the blockchain exforcenment outputs into its own enforcement protocol.
The very essence of any blockchain related piece of legislation is to make the blockchain and legal protocols interoperable.
And I see that the Liechtenstein Blockchain Act does achieve that.
Aside from the concept which I just defined as a modulus of forcement, the other key ingredient in the upcoming tokenomic law of the Principality of Liechtenstein is the realization that blockchain is just a ...
Medium.
Yes, medium or carrier exactly like the clay tablets, papyri, vellum, paper, magnetic disks and flash drives.
Exactly like: human or beast of burden muscle power, wind or steam ships, cars or hypersonic missiles - car/road, train/rail, plane/airport, ship/port, pipe/pump and rocket/launchpad - are transportation modes - the cargo may stay the same but the vehicle may change.
The only difference between the 0- , 1-, 2- and 3- entry book-keeping ledgers or logs of accountancy and monetarism is that going up the step ladder of cardinality of entries one gets into more and more interactive and smarter value transaction media.
We observe good degree of programmatics and automation already into the centralized electronic money systems we enjoy in the last more than half a century but it is even further uplifted in the case of blockchain and this is not the end at all.
We can easily imagine up the way of that progression - forms of money significantly smarter than even the smartest possible human user. Transactors are effectors. Of course. From the dumbest to the smartest.
SO, to put the things together - the Liechtenstein Blockchain Act draft is unique for treating blockchain tokens - no matter native of secondary / layer ones - as 'containers' for rights.
The containers move according to the blockchain protocol rules. One inputs and harvest outputs by use of their private keys.
The cargo, the container content of legal rights - is object of standard legal treatment. On case by case basis. Over the ''hardware'' of the legal institutions.
With the wording of the very Act draft.:
Because tokens only serve to embody the rights to real assets (as a collective term for real rights of all kinds), it is clear that the creation of tokens does not create a new right, but only subjects an existing right to the transmission and legitimation system of the blockchain. If the container holds some content, the right is transferred according to the rules of the blockchain (transfer system). In the case of claims, those persons who are legitimised according to the rules of the blockchain are also considered legitimate in relation to the creditor. In line with the objective of ensuring neutrality in terms of technology, the term “token” is understood abstractly in this Law and not technically. This means that the legal definition of the “token” is taken to mean every connecting point of rights on a TT system, regardless of whether they are technologically implemented as a “token”, or whether the token is “filled” or not. This is important because already now there are TT systems which have chosen to use other forms of technical implementation. In the case of Bitcoin, for example, the “digital coin” or token is technically seen a fraction of a bitcoin which is allocated to a user in a kind of decentralised accounting system. Nonetheless, the regulations on the disposal over tokens should still also apply to Bitcoin in order to ensure legal certainty.
Simple, clear, straightforward, universal, compatible, scalable. Powerful.
And on my opinion absolutely suitable and worthy to turn into global legal tokenomic standard!
Special thanks to the Team of Naegele Law firm for providing me with the English translation of the Act!
18qSKUUTAGw1uL53simrSiZ6pJpfxKACvj for research support. Thanks.
Copyright © 2019 Georgi Karov. All rights reserved.