The views expressed in this note are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or its management. The note has benefited from the guidance of Rhoda Weeks-Brown and comments by Jess Cheng, Wouter Bossu, and Marianne Bechara.

Fintech is generally understood as the application of modern digital technologies to financial activities.

The term “technology-neutral” refers to nondiscrimination among different technologies (Koops 2006).

This note will not cover other aspects related to business activities and finance such as financial and monetary law, or anti-money laundering/combatting the financing of terrorism.

Technically, “blockchain” is a variety of DLT, which is a broader concept. DLT and blockchain are both decentralized registries. Blockchain is a decentralized database composed by blocks. Although blockchain is a sequence of blocks, distributed ledgers do not require such a chain. A distributed ledger is me rely a type of database spread across multiple sites, regions, or participants. All blockchains are distributed ledgers, but not all distributed ledgers are blockchains.

For this reason, some countries, like Georgia and Ghana, have moved forward with projects to use DLT in the operation of land registry. See Eder 2019. There are also indirect benefits in the use of DLT for registries, such as the improvement of tax compliance. Those issues relate to what is referred to as “Govtech” and are beyond the scope of this note.

In the US, Wyoming has reformed its law to allow for the creation of a DLT-based commercial registry.

See https://digital-strategy.ec.europa.eu/en/policies/blockchain-strategy.

For instance, Italy adopted a specific definition of DLT as “IT technologies and protocols using a ledger that is shared, distributed, replicable, simultaneously accessible and structurally decentralized on cryptographic basis, so as to allow the record, validation, updating and storage of both not encrypted and encrypted data which may be verified by each participant and which may not be altered and modified.” Malta used a much broader definition “a database system in which information is recorded, consensually shared, and synchronized across a network of multiple nodes.” Finally, Liechtenstein has established a comprehensive regulation for token-related activities but uses a broad definition that encompasses other potential alternatives (“trustworthy technology”).

Wyoming is addressing the legal effects of different technological developments in business transactions and has amended the Wyoming Uniform Commercial Code to address topics such as (1) a definition of digital assets that utilize blockchain and DLT; (2) the perfection and priority regime of digital assets under blockchain or DLT; (3) special rules for perfection and priority with respect to such assets; and (4) the provision of a framework for banks to act as custodians with respect to such assets.

205 ILCS 730. at https://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActlD=4030&ChapterlD=20.

This follows a general principle of nondiscrimination, also observed in the equivalence between electronic and written signatures (for example, UNCITRAL MLEC [1996] and MLES [2001]).

Under the US Uniform Electronic Transactions Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (the “E-Sign Act”), a court cannot deny legal effect to an electronic contract (with limited exceptions) if parties manifest an intent to be bound by the agreement. Broad definitions in both the E-Sign Act and the UETA accommodate blockchain technology, smart contracts, and digital signatures generated using public-private key cryptography. The European regime of the elDAS regulation (electronic identification, authentication and trust services) is open to the use of blockchain technology (see EU Regulation 910/2014 of23July2014).

BGH,judgment of 16 October 2012-XZR 37/12.

Nicosia v. Amazon.com, Inc., 834 F.3D 220,237–38(2d Cir.2016).

In Robertson v. Persons Unknown, an English court granted an asset preservation order in a fraud case involving Bitcoin. See case number CL-2019–000444.

For instance, in the US, Arizona allows th e use of smart con tracts in commerce and prevents a smart contract from being denied of legal effect, validity, or enforceability solely because it is a smart contract. Following this approach, Illinois recognizes the validity of smart contracts and blockchain-based records and signatures and allows a smart contract to be denied legal effect if the underlying DLT or blockchain does not permit a record of the transaction to be retained and accurately reproduced for all parties entitled a copy of the contract or record.

This section does not focus on the law of payment, onlyon the legal distinction between utility tokens, payment tokens, and security tokens.

In essence, cryptocurrencies are tokens that do not provide any right to the holder, but users may agree to exchange goods or services against them on a voluntary basis and may be necessary for the DLT network to operate, as they are used as an “internal unit of value” that compensates users for their contributions. On cryptocurrencies, see He and others 2016 and Adrian and Mancini Griffoli 2019. On the broader category of crypto assets, see Cuervo and others 2019. In addition, other examples such as stablecoins and Central Bank Digital Currency will not be addressed in this note.

As per the EU proposal as of the date of this note, MICA will not apply if a crypto asset constitutes a financial instrument, e-money (other than an e-money token), deposits, structured deposits, and securitization.

According to the US Securities and Exchange Commission’s (SEC) “Framework for ‘Investment Contract’ Analysis of Digital Assets” (2019), even if the digital asset can be used to purchase goods or services on a network, it may be subject to securities law if, among other factors, the following are present: the digital asset is offered or sold to purchasers at a discount to the value of the goods or services; the digital asset is offered or sold to purchasers in quantities that exceed reasonable use; and/or there are limited or no restrictions on reselling those digital assets, particularly where there are continuing efforts to increase the value of the digital assets or where there is facilitation of a secondary market.

Securities and Exchange Commission v. Telegram Group Inc. et a I. 19-CV-09439-PKC (S.D.N.Y. Oct. 11, 2019).

Securities and Exchange Commission v. Kik Interactive Inc., 19-CV-05244-AKH (S.D.N.Y. June 4, 2019).

See No-action letter by the SEC Division of Corporation Finance (Apr. 3, 2019).

In a recent case, the courts declined to apply US securities law to a security token, as there was no domestic transaction, since the tokens were not listed on a domestic exchange and there were no domestic off-exchange purchases. See Barron v. He/fa/z/nc, Case No. 21–00278 (2d Cir.).

In Vermont, a so-called blockchain-based limited liability company may provide for its governance, in whole or in part, the use of blockchain technology-for instance, the use of smart contracts to administer voting procedures.

SEC Release No. 81 207, “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1 934: The DAO” (July 25, 201 7), https://www.sec.gov/litigation/investreport/34–81207.pdf.

Not all legal systems include or classify insolvency as an area of commercial law.

In re Hashfast Techs, LLC, No. 14–30725 (Bankr. N.D. Cal. Feb. 2, 2016).

In the Japanese case of the Mt. Gox bankruptcy, the court held that the holders of Bitcoins deposited in Mt. Gox, a Bitcoin exchange, could only claim a personal right and were not entitled to receive Bitcoins, which are not a physical asset (see https://www.law.ox.ac.uk/sites/files/oxlaw/mtgox_judgment_final.pdf), while in the New Zealand case of Roscoe v. Cryptopia, Ltd. (in liquidation) [2020] NZHC 728, the court held that cryptocurrencies are property and therefore that the exchange was a trustee for the token held in its platform. In a recent Canadian case (see Re Quadriga Fintech Solutions Corp et al. (1 March 2021), Toronto CV-19–627184-00CL (31–2560674), CV-19–627185-00CL (31–2560984), and CV-19–627186-00CL (31–2560986) (OntSup Ct [Co mm List]), the court considered that cryptocurrencies are property, but claims denominated in cryptocurrency needed to be converted to Canadian dollars.