The Bitcoin hype that started in 2017 did something amazing. It showed the world a glimpse of what exactly was possible with Blockchain, which is the technological platform on which Bitcoin runs.
And even though the hype for Bitcoin has largely died down, the interest in the blockchain technology just keeps on increasing.
Because of the enormous potential, it may revolutionize the world we are living in. A report by CB Insights states that blockchain will likely transform 50 big industries world such as law enforcement, healthcare and even the way we vote.
This means that it’s not just individuals and corporations which are closely studying blockchain, but governments and nations as well.
What many countries are trying to do is create a positive, trustworthy and reliable environment in which everyone can explore the potential of the blockchain, and develop innovative products and services with it. Another goal which they want to accomplish is to protect citizens and companies from the unknown negative consequences which blockchain technology might give birth to by making sure blockchain does not get used for unethical purposes.
Liechtenstein Blockchain Act: The legal framework the blockchain industry desperately needs
A country which has greatly accomplished the goal of creating a reliable, solid and all-encompassing legal framework for blockchain is Liechtenstein.
Sitting between Switzerland and Austria, with a population of approx. 38000 people, its government has introduced innovative legislation called the ‘Blockchain Act’ on 28 August 2018.
What’s unique about this legislation that it expertly sets the legal groundwork for how blockchain can be used – and it does so without creating obstacles for blockchain innovation. In fact, it wouldn’t be an exaggeration to say that the Blockchain Act might even accelerate blockchain innovation in Liechtenstein.
For one, the Blockchain Act legally covers any possible asset which can be put forth in a blockchain network. The legislation defines any such asset as a ‘token’. A token is what can be owned, transferred and disposed of in a blockchain network, and it is this entity which will be regulated by the Blockchain Act.
Here’s what a ‘token’ consist of according to Liechtenstein’s legislation:
“A token can embody rights such as payment claims (certificated or uncertificated) against a debtor, membership rights in a company, property ownership rights or limited rights in rem to movable property (e.g. diamonds or works of art) or immovable property (real estate), or indeed absolute rights such as intellectual property rights.”
This means every single possible thing which can be put on the blockchain, i.e., digital currency, physical goods, works of art – and more – will be subject to Liechtenstein law as per the Blockchain Act.
The second thing which the Blockchain Act does is it clearly defines the roles of people participating in the blockchain network – and their rights. And also, the legislation goes one step ahead by introducing regulatory bodies who will help make sure the participants within the blockchain network behave in accordance to the Blockchain Act.
The result of this is that this legislation, according to a post published on Liechtenstein’s official website, “provides greater legal certainty, improve client protection and reduce potential reputation risks for Liechtenstein.”
And this benefits everyone because it creates ‘trust’, which arguably is the primary component Liechtenstein – and other nations across the world – need to foster a productive, reliable and trustworthy environment needed for successful blockchain innovation.
Why does the blockchain industry need a legal framework like Liechtenstein’s Blockchain Act?
While blockchain does have the potential to create a better world, it also can be utilized for harmful activities.
This is because the nature of a blockchain network is that it is ‘decentralized’.
This feature is both an advantage and a disadvantage.
For one, it means that every participant in the blockchain network has a ‘copy’ of the contents within a blockchain. And to make changes in the blockchain, it has to be approved by every participant within the blockchain network. The result is that no one can secretly modify, steal, copy or in any other way unethically interact with the assets within a blockchain.
But on the other hand, this also means there is no intermediary within a blockchain network since the network is decentralized. No outside 3rd party can see what’s going on within the blockchain.
This makes Blockchain the ideal platform for money laundering (although as we wrote before, some disagree), buying and selling banned items and other illegal activities. Plus, it is possible for your blockchain assets to get stolen if someone gets their hands on your ‘private key’ or you lose it. (A private key is what you use to access, transfer or dispose of your blockchain assets).
Because of these reasons, a legal framework like the Blockchain Act is required in the blockchain industry. It will help reduce and even eliminate the negative uses of blockchain while helping its positive uses develop and mature.
Plus, if the Blockchain Act is successfully implemented in Liechtenstein, you can expect other countries to follow with their own similar legislation. This is important because it will make it possible for everyone around the world to safely develop blockchain technologies – regardless of where they live.
But for now, it seems that Liechtenstein is one of a few countries (e.g. Belarus) on the forefront of developing an innovative legal framework which the blockchain industry – and the digital economy as a whole – needs.
As of now, the Blockchain Act is in public consultation phase only. It is estimated that it will become legally binding by mid-2019, after which its laws will go into full effect in Liechtenstein.