What is cryptocurrency and blockchain? – Cryptocurrencies are virtual, digital currencies that offer the benefit of exceptionally strong protection, provided by sophisticated algorithms and cryptography, and by blockchain technology which distributes secure online ledgers of every transaction across a network of disparate computers.
This makes cryptocurrencies almost impossible to counterfeit, which has led to them increasingly being used to safeguard financial transactions.
Although cryptocurrencies are highly secure, they also have disadvantages. As they are resistant to interference, they are also difficult to police, which makes them attractive for illegal activities. They are also vulnerable to volatile exchange rates and problems with the infrastructure they rely on.
The denomination of the cryptocurrency is the token, and the most popular cryptocurrency is Bitcoin, followed by Ethereum. In November 2019, there were more than 18 million bitcoins in circulation with a market value of around $165 billion.
Singapore leads the way
As this digital currency has gained momentum, Singapore has emerged as a key hub in Asia with its welcoming attitude towards emerging technologies such as cryptocurrencies and blockchain. The Singapore government has reinforced this perception through its willingness to experiment, with the Monetary Authority of Singapore (MAS) exploring the use of distributed ledger technology for clearing and settling payments and securities, since late 2016.
Other Singapore government agencies have jointly developed the OpenCerts platform, which uses Ethereum smart contracts to issue and validate digital certificates for graduates of local educational institutions. Singapore also offers other advantages, as an internationally-recognised and well-regarded jurisdiction with favourable tax laws.
From a regulatory perspective, Singapore has taken a proactive approach to cryptocurrencies by introducing the Payment Services Act 2019 (PS Act). Among other things, the PS Act will regulate intermediaries dealing with certain cryptocurrencies, with a particular focus on consumer protection and anti-money laundering. Once it comes into force, it will also provide a stable regulatory licensing and operating framework for cryptocurrency entities, such as cryptocurrency exchanges. This contrasts with other countries in Asia, such as India and China, who have banned cryptocurrencies and/or Initial Coin Offerings or where there is significant regulatory uncertainty.
The appeal of Singapore law and arbitration
Singapore’s status as a cryptocurrency and blockchain hub has allowed us to promote Singapore law as the governing law in contracts involving cryptocurrencies. The usual advantages of Singapore law also apply: it is neutral and there is a developed body of case law.
Using Singapore law has cryptocurrency-specific advantages. First, case law relating to cryptocurrencies is rapidly developing. In the first reported case involving cryptocurrencies, the Singapore International Commercial Court accepted that cryptocurrencies may be treated as intangible property. Second, cryptocurrencies are legal under Singapore law, so the mere fact that a contract involves cryptocurrencies does not make it illegal.
Singapore’s legal efficiency and neutrality has made it a leading jurisdiction for arbitration. Consequently, our usual recommendation for cryptocurrency-related matters is to use Singapore law, with arbitration in Singapore.
Understanding the risks
Despite these advantages, there are still many uncertainties surrounding cryptocurrencies. Volatile cryptocurrency prices have prompted the MAS to repeatedly warn the public that cryptocurrencies are not regulated and therefore investors are not protected.
Apart from consumer protection, this volatility can also create uncertainty in commercial contracts, particularly if cryptocurrencies are used for payment. This means payment mechanisms should be structured to protect a client’s interests. The same issue arises in dispute resolution, when assessing damages relating to cryptocurrencies. More clarity, in terms of Singapore law, is expected when the case of B2C2 Ltd v Quoine Pte Ltd proceeds to assessment of damages.
Cryptocurrencies are also becoming more complex and now tend to involve the use of smart contracts. An Initial Coin Offering, for example, is often conducted automatically by way of a smart contract. There are many unresolved legal issues surrounding smart contracts, such as certainty of terms and formality requirements. Some of these legal issues may be settled by the courts, but others need to be addressed by legislation. In Singapore, the Infocomm Media Development Authority has started reviewing the Electronic Transactions Act to assess how it applies to smart contracts and blockchains.
Our expertise in cryptocurrency
Taylor Vinters Via has already established a reputation as one of Singapore’s leading law firms for issues relating to cryptocurrency. Managing Director Yingyu Wang has been named as one of the world’s top ten cryptocurrency experts by The Cryptocurrency Magazine.
We have advised a number of clients regarding blockchain technology, including some of the biggest names in their respective sectors, such as Nebulas and Gifto – which raised USD30 million within one minute of launching its initial token offering.
Resolving cryptocurrency disputes
We are currently representing a client in their claim for certain digital tokens that were purchased during an Initial Coin Offering on the Ethereum blockchain, but not delivered. The ongoing arbitration involves novel issues of law, such as the legal effect of a smart contract and the relevance of its code to the interpretation of a legal agreement.
We have also acted for a venture capital fund seeking damages for the wrongful conversion of certain cryptocurrencies purchased during an Initial Coin Offering, contrary to the written agreement.
Dependable advice in a fast-moving area
Cryptocurrency and blockchain technology will become established key enablers in several sectors, and it will be interesting to watch the law keep pace with the technology.