Tokens and Trustworthy Technology Service Providers Act (“Token and TT Service Provider Act”; “TVTG”) – that’s the final name for what is commonly referred to as “Blockchain Act.” The goals are to increase legal certainty for businesses and strengthen consumer protection. The law is not only a milestone for Liechtenstein but has international significance as well. It is the first-ever holistic legal and regulatory framework for the token-economy.
The law had been in the making for more than one year. Initially, the government had planned to introduce it in early 2019. According to the government, feedback gathered during the consultation process was so comprehensive that the draft had to be reworked to build in all aspects relevant to the law.
Regulating a nascent technology is challenging
Other European jurisdictions have introduced regulations that govern isolated aspects of blockchain technologies and their applications. Others are applying their already existing laws. With the Blockchain Act, Liechtenstein has gone one step further, regulating all aspects of the token economy.
The legislation will regulate the issuing and creation of any security tokens or digital assets in any form. It also introduces the “token” as a legal term, defined as digital representations with legal certainty on TT systems.
Regulating a technology as young as blockchain is challenging: Who can tell how businesses will apply blockchain in two years from now? Creating legislation is a lengthy and risky process. There is no point of drafting laws today that might already be outdated tomorrow. A constant loop of reworking legislation would not enhance legal certainty; it would have the exact opposite effect. That’s why most jurisdictions have so far shied away from creating new legislation and remained observant.
On the other hand, government neutrality has created a legal limbo for blockchain businesses and users alike. The resulting legal uncertainty has been a roadblock for the development of blockchain technology in many countries. Why would a business invest in creating a product, if the regulatory watchdog will shut it down the day after launch date?
Liechtenstein’s approach: regulating underlying concepts instead of applications
To act or not to act, that is the question. While most governments have decided not to act, Liechtenstein is moving forward. Understanding the risks of regulating a new technology, the government has chosen a careful approach.
Many of the clauses in the Blockchain Act are formulated in a broad sense, allowing for flexible interpretation. The government’s press release states: “Because of the rapid pace of development of blockchain technology and its areas of application, it is very important to draft a law abstractly enough to ensure that it remains applicable for subsequent technology generations.”
For example, instead of “blockchain technology,” the law uses the term “transaction systems based on trustworthy technologies (TT systems).” Also, the law aims at creating the legal basis for the areas of application, not at regulating specific applications that are in use today.
The press release reads: “The goal is to ensure that a new law does not have to be created for every case of application, but also to create legal certainty for the many cases which are only just beginning to emerge in practice and are likely to develop in the near future. However, the Government is leaving open the option of regulating applications close to the financial market in a further step.”
The new law has generally been received positively by Liechtenstein’s blockchain community. Naegele Attorneys at Law, a Liechtenstein-based law firm focusing on blockchain technology, comments, “The NÄGELE team believes that this [law] represents an important step towards increasing Liechtenstein’s attractiveness as a financial center and solidifying Liechtenstein’s place as a blockchain-friendly location.”