Liechtenstein, the New Home of Blockchain!

IMG_5489jpgOn the 21st of June 2018 at a function, attended by 300 people at the University of Liechtenstein, the Government of Liechtenstein announced a set of new laws, changing the current status quo with regards to rights to assets as we know it.  During this event, Adrian Hasler, the Prime Minister of Liechtenstein, explained the importance of the new Blockchain Law. He furthermore pointed out that the Principality of Liechtenstein understands the opportunities of blockchain technologies, and the importance thereof, and therefore wants to support the blockchain industry as a whole.

In January 2020, the new blockchain laws will come into force in Liechtenstein

These new laws will allow companies and entrepreneurs to tokenize any right and subsequently any asset, straightforward, providing legal certainty the international trade world, which has been lacking till date, inevitably leading to the emergence of the token economy.

This new Blockchain Act is called the "Tokens and TT Service Providers Law" (TVTG). However, for purposes of this article it will be referred to as the "Blockchain Act". The Blockchain Act uses the term "trustworthy technology" (TT) which can include blockchain and "distributed ledger technology" (DLT) systems. With this tokenization based on the Token Container Model, as of January 2020, almost any right and/or asset can be "packaged" into a token, augmenting the physical world, as it's been known for centuries, by a digital world.

Through the Blockchain Act we now suddenly have two worlds, the first is our physical world, and the latter the new digital world, which will include a subset of rights and assets belonging to the physical world. This Act further ensures that the physical world is in perfect synchrony with the digital world of tokens. Therefore, Liechtenstein amended its civil law to allow the token world to take priority over the physical world in the event a token exists with packaged rights for tokens.

In the Token Container Model, the token serves as the container with the ability to hold the rights of all kinds

The token, or "container" can be "loaded" with the right representing a real asset, for instance real estate, gold, diamonds, stocks, bonds, money and access rights, to name but a few. In the case of Bitcoin, the most notable example of digital code, the container can also be empty.

According to this model, any asset or right can be represented by 'n token. If the token is for instance sold to the market before the development of the product has been finalized, then this process is called the Initial Coin Offering (ICO). If for instance the token represents a security which has been packed, all securities' laws will apply to this security token. If such a security token is sold to investors, the process is called the Security Token Offering (STO).

Tokenization follows a life cycle where the token is being generated, issued to the holders (for instance where one would place a token on sale for example ICO or STO) and then traded against other tokens. Tokens can also be purchased and placed in a portfolio for investing purposes, to name another option.

With this approach to "load" a right and/or an asset into a container, it allows for the right and/or the asset to be on the one side whilst the token is technically speaking working on the blockchain based system on the other hand. Therefore, in Liechtenstein, it is now differentiating between law on the one hand and technology on the other.

The Blockchain Act provides for the Physical Validator's duty to integrate the physical with the digital

One important role created by the Blockchain Act is that of the Physical Validator. This service rendered of interacting with the blockchain and the tokens, will be regulated. The Physical Validator has the duty to identify the holder of the tokens and to ensure that the contractual enforcement of the represented rights and/or obligations relating to the token and the assets are met. Example: right to diamond ownership is tokenized. This Physical Validator will know who is owning the token, and with it therefore the diamond, and further has a duty to ensure that the diamond is safely stored in a vault.

It is the Physical Validator's duty to establish the correct business processes. The Blockchain Act assigns the responsibility to guarantee the perfect synchrony of the physical world with the digital world to the Physical Validator, therefore, he will have to be licensed to operate in this capacity.

Liechtenstein is on the fore front of creating a Token Economy

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This Blockchain Act, which comes into operation in January 2020, is a paradigm shift into trade and ownership as we have grown to know it. With the new CV VC Labs who opened up doors in Vaduz on 24 October, it is expected that hundreds, if not thousands, of assets and/or rights will be tokenized in Liechtenstein. Liechtenstein has surely raised the bar in civil ownership by shifting the priority of tokens over the physical world. A leaf can be taken from Liechtenstein's book. Their thinking is innovative, disruptive, but in the same way also stabilizing international blockchain and token trade, providing more certainty and opportunities with their Blockchain Act. It will be interesting to see if Switzerland, known for banking excellence, will be quick to follow suit.