Is Liechtenstein the world’s premier juristriction for blockchain regulation?

 Is Liechtenstein the world’s premier juristriction for blockchain regulation?

Although blockchain has existed for over a decade, many companies are only just beginning to understand this technology’s potential scope of application and added value. Apart from powering virtual currencies, blockchain facilitates a decentralised storing of data which can help to increase efficiency and transparency in many sectors. As with any innovative technology, it has been surrounded by an aura of uncertainty. This uncertainty can be attributed to a lack of legal provisions regarding the use of its applications.

There currently is no comprehensive EU legal framework that considers all potential blockchain applications. Attempts to regulate blockchain primarily include the fifth anti-money laundering directive (AMLD5). This, however, regulates only some of its applications, namely virtual asset providers such as cryptocurrency exchanges and wallet providers, who offer soft or hardware for storing cryptocurrency. Moreover, the Financial Action Task Force (FATF), an intergovernmental regulatory body that establishes standards to combat illicit financial transactions, has amended Recommendation 15 of its 40+9 anti-money laundering and terrorist financing recommendations to include the regulation of virtual asset providers.

European and Chinese blockchain powerhouses

In recent years, China, Switzerland and Liechtenstein all have evolved into financial technology (FinTech) and blockchain hotspots. They have seen numerous domestic start-ups in the sector emerge. Chinese investors looking for blockchain opportunities may be interested in both Switzerland and Liechtenstein because both jurisdictions are welcoming of the technology and facilitate quick and easy company incorporation. It makes sense to analyse the Swiss and Liechtenstein legal frameworks that regulate the technology.

Moreover, Liechtenstein is the only jurisdiction that has implemented a comprehensive legal framework for existing and future blockchain applications. The Tokens and TT Service Provider Act (TVTG in German) was implemented in October 2019 and took effect on 1 January 2020.

We will demonstrate how the implementation of the TVTG has challenged preconceived ideas of blockchain and game-changing technologies by introducing innovative ideas and approaches to their regulation, thus becoming a trailblazer in the field.

Functioning and Applications of Blockchain

Blockchain is a decentralised public ledger able to record transactions between individuals or companies. The Harvard Business Review defines it formally as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”. As the name suggests, it is a chain of blocks, which store information about these peer to peer transactions. The distributed ledger can be accessed by any computer that downloads the blockchain, thereby becoming a so-called node in the chain. Blockchain is therefore highly transparent — the details of all transactions, including peers’ usernames, time stamps and transferred sums are recorded for everyone to see. However, at least with regard to cryptocurrencies, it is usually not possible to connect the username to a user. The technology thus also enables anonymity.

Like any innovative technology, blockchain is constantly evolving. Several different kinds of blockchain have emerged from the original design. For instance, whereas the Bitcoin blockchain is decentralised and can be accessed all over the world, other blockchains are controlled by a central entity. The latter is true of the blockchain hosting Facebook’s upcoming Libra stablecoin. All Libra nodes are controlled by the Libra Association and are inaccessible to outsiders. This also implies that companies can design their own blockchains, exclusively to run internal operations and store confidential data.

In a corporate environment, blockchain could be used to record stops in a supply chain, which would increase transparency and efficiency. All members of the supply chain would be able to trace the respective goods without delays in communication between individual stops. Another application suggested by the Liechtenstein government is tokenising assets. Tokens are entities on the blockchain that represent a value or right and can be transferred between peers. Thus, ownership rights to certain valuable assets could be translated into a token, saleable and securely transferred via blockchain.

Due to its inherent features, blockchain facilitates secure peer to peer transactions that do not require the involvement of a lawyer, financial intermediary or other trusted third party. It is nearly impossible to hack a blockchain and any changes made would be immediately visible to all users. Accordingly, blockchain transactions could soon become a cost-efficient method of selling and transferring assets, ownership rights, storing data and more. In peer-to-peer transactions, the asset in question could be stored safely in a warehouse or other secure location. But its ownership is transferred virtually, significantly reducing theft and fraud risks.

Another application of blockchain technology of particularly value during the Covid-19 pandemic is managing healthcare data. Potential uses include protecting intellectual property (by time-stamping documents an intellectual property at its moment of creation), data collection (allowing pharmaceutical companies to collect patient data in real time) and medical records management (reducing risks of unauthorised access). Opportunities in healthcare include giving patients greater control over their medical care, transparency, low costs and security. For instance, medical records can be shared securely between healthcare providers. In addition, this process will follow strict rules and be used by private pharmaceutical companies. More generally, blockchain technology could be valuable in financial services, mobility, logistics, industry, energy, media and more.


Liechtenstein’s TVTG is the world’s first comprehensive blockchain legislation. It challenges pre-existing notions of blockchain by considering aspects of its application which have not received appropriate legal attention before. Most individuals seem to mainly associate blockchain with cryptocurrency, which is reflected in regulations around the world. In particular, many legislators have regulated or even outright banned cryptocurrencies such as Bitcoin without paying much attention to other potential applications of blockchain technology. In addition, data on Bitcoin use in countries like China, which have banned the cryptocurrency, illustrate that banning blockchain applications might have little effect. Peers continue to trade in cryptocurrency regardless, partially due to the blockchain’s decentralised design. It cannot be controlled by a central entity or government. Nodes are scattered all over the globe and the system follows only its own rules, based on mathematical algorithms, and thus can hardly be manipulated.

The TVTG recognises this issue by regulating actors and service providers in the realm of blockchain. The main advantage of the TVTG is that it is designed to maintain its validity far into the future. In particular, it uses the term “TT systems” which stands for “transaction systems based on trustworthy technologies”, rather than “blockchain”. With new technologies a central issue is that any attempt to regulate them quickly become outdated as legislators fail to address technological advances in a timely manner. This creates legal grey areas. Whenever a promising innovative technology is not regulated appropriately, it becomes difficult for companies to benefit from its advantages. Any multinational corporation that intends to venture into blockchain technology will therefore likely consider Liechtenstein an attractive company location. Its law sets out clear rules and guidelines for using blockchain.

Moreover, the TVTG discusses an abundance of potential blockchain applications and answers corresponding legal questions. The Liechtenstein government introduced the term “token economy”, which designates all blockchain. The roles of different actors and service providers in the token economy are defined. These include token generators, the TT key depositary, which stores access keys to tokens on behalf of their customers, the TT Verifying Authority, which ensures that during token transfers, legal regulations are observed and more.

In terms of due diligence obligations to combat organised crime, terrorist financing and money laundering, virtual currencies and payment tokens have raised several questions, especially in the FinTech industry which is pronounced in Liechtenstein. Generally, due diligence matters are regulated in the Due Diligence Act (“SPG” in German). Since 1 September 2017, exchange offices that trade virtual currencies for cash have fallen within the area of application of the SPG, if the exchanged sum exceeds 1,000 Francs.

In addition to the SPG, the TVTG defines several due diligence obligations that apply to actors in the token economy. Wherever an existing right is translated into a token, the SPG applies. The Liechtenstein government deliberately proposed due diligence measures that go beyond the scope of European and international standards. Although the FATF Recommendations and AMLD5 do not require constant supervision, TVTG measures include a registration system that mandates compliance monitoring with due diligence obligations and checks on market participants’ trustworthiness.

Comparison to Swiss Legal Framework

Like Liechtenstein, Switzerland has a generally positive attitude toward blockchain technology. The Swiss Financial Market Authority (FINMA) and the federal government both recognise the economic opportunities it presents. The canton of Zug is particularly welcoming of blockchain and cryptocurrency start-ups. A report covering the Swiss legal framework for blockchain and distributed ledger technology was issued by the Swiss Federal Council in December 2018. A draft law pertaining to distributed ledger technology and blockchain (DLT Draft Law) was published on 22 March 2019 by the Swiss Federal Council.

The DLT Draft Law references three types of tokens: payment tokens (“pure cryptocurrencies”, used as a means of payment of money/value transfer), asset tokens (represening assets such as equity claims or debt; analogous to derivates, equities and bonds), and utility tokens (intended to provide access to a service or application). FINMA introduced these categories within the scope of the guidelines for enquiries regarding the regulatory framework for initial coin offerings. Under Swiss law, cryptocurrencies do not qualify as legal tender and there is no state-backed Swiss cryptocurrency. However, there are no specific cryptocurrency regulations and cryptocurrency-related activities are not prohibited. Only asset tokens are treated as securities by FINMA and regulated as such. Tokens that qualify as securities may trigger Swiss securities dealer licence requirements under the Stock Exchange and Securities Trading Act. They could also be covered by trading platform regulations under the Financial Markets Infrastructure Act and prospectus requirements. Several other regulations relating to cryptocurrency asset taxation, promoting and blockchain technology testing have been introduced. As have ownership and licensing requirements, reporting requirements and more. Yet, all these regulations and criteria focus mainly on cryptocurrencies, making them much less comprehensive than the TVTG.


Liechtenstein’s TVTG represents a disruptive event for the blockchain and FinTech sectors and for legal experts in Liechtenstein and abroad. In particular, the TVTG challenges pre-existing notions of blockchain and distributed ledger application, which were previously largely assumed to related solely to cryptocurrencies. Most legal frameworks, such as the AMLD5 and the 40+9 FATF Recommendations, neglect the wide array of other blockchain applications.

We can expect that Liechtenstein will continue to expand its FinTech and blockchain sectors. This will attract an abundance of foreign capital, especially from Chinese investors looking to expand into the European market. The sound legal framework for utilising blockchain technology offers a significant advantage in comparison to other jurisdictions, where companies might have to deal with legal grey areas and uncertainty. Multinational corporations can profit fully from blockchain’s versatility only when there is an international standard in blockchain regulation. Especially during the Covid-19 pandemic, which has many employees working remotely, using blockchain technology to record and share data could be immensely helpful for reducing chaos and delays. Not to mention that blockchain technology is highly secure and cost efficient. Therefore, the TVTG could serve as a blueprint or inspiration for an international legal framework for blockchain regulation.

Dr. iur. Dr. rer. pol. Fabian Teichmann, LL.M. is an attorney-at-law and public notary in Switzerland. Marie-Christin Falker is a graduate research associate at Teichmann International (Schweiz) AG in Switzerland.

Image: b52_Tresa, Pixabay licence.

Dr iur. Dr rer. pol. Fabian Teichmann and Marie-Christin Falker

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