The permanent technological development and its full inclusion into every aspect of human life have imposed the need to legally regulate the field of digital assets. The COVID-19 pandemic has led to the maximum level of digitalization – until now, we could not have even imagined that certain jobs could be performed online, as they are now, such as trading through different platforms. What we mean by this is one can buy, sell, and exchange cryptocurrencies, and Serbia is one of the first countries which is trying to pass an adequate law which would regulate such an uncertain and undefined field. This is why we are devoting our attention to the innovations brought by the upcoming Law on Digital Assets, which is currently being drafted. The Draft was adopted by the Government at the end of November, and now, it should be in the national assembly’s procedure. Judging by that, the chances are that Serbia will be among the first countries in the world that will get this regulatory framework.
The goal of passing this law is to regulate the term ‘digital asset’ from the legal aspect, as well as its importance, its postulate being digital tokens. Firstly, as our ministries and lawyers who have been composing this Draft believe, it will serve to ease the functioning of companies and allow them smooth online trading on platforms, as well as to profit from said trading.
An important notion which can be seen in the opening provisions is the legislator’s aim to define what digital assets are, and to state that their importance will lead to the passing of lex specialis in this field. A digital asset is in fact merchandise, the electronic record of value, as is money in the traditional sense, which can be used to maneuver and trade in a regulated market, the only difference is that with digital assets, the market is virtual. Namely, all of these digital records of value do not only include a certain category, such as electronic money and shares. This is the first step towards coordination of the real state of things with legal ones, which is extremely important and it represents a huge improvement in our legal system. Investment tokens (generally speaking, cryptocurrencies) have superseded traditional financial instruments suitable for investments for many years now.
The procedure for issuing digital assets is based on the concept of ICO. As the most important segment, a concept of the so-called ‘whitepapers’ is introduced, which achieves its function through the procedure of issuing assets and through characteristics of accuracy, comprehensiveness, truthfulness, and clarity of data located there. Particularly those characteristics can point to the fact that in the future, we might be able to look at whitepapers as formal documents. Here, the documents in question are those that have obligatory elements prescribed by the law and are valid only in that form. As previously mentioned, the goal of the regulation, as well as whitepapers, is to foster investments and to give relief to businesses to estimate the profitability and value of a particular digital asset. The whole concept was thoroughly processed, so the hope is that it will be implemented and respected in practice as well since the initial document during the issuance of digital assets is in question. After the first step of approving the whitepaper, the next step is the ICO, where the legislator intends to fully regulate the part regarding offers, transactions, as well as the trade of digital assets. The procedure of ICO of digital assets cannot begin without the existence of an issued whitepaper, which in this field represents condicio sine qua non.
The next step represents the payment of digital assets. The payment depends on the choice of the participants on the market, whether they prefer payments in money, digital assets, and/or the services of the acquirer of that asset (which could be activities of “mining”). Although the existence of the whitepaper is obligatory, the possibility to implement ICO without whitepapers is given as a possibility, with the added condition that it has to be emphasized there is no approved whitepaper for the said transaction to the acquirers. The legal security of trade is violated, since the existence of whitepapers, in particular, is what offers security, however, the transmitter and the acquirer of digital assets are both aware of that fact.
If we look back to forms for company formation, the provision dedicated to the regulation regarding who can be considered a service provider in connection to digital assets is significant. Service providers are the entities on the market which fulfill the conditions for company formation prescribed by the Companies Law. Besides that, the possibility is left that the capital which is contributed to the company can be viewed through the prism of digital assets. In that sense, the digital asset contributed in kind can be, for example, software, while the minimum half of the capital contributed must be contributed in money.
The Draft brings us many novelties that our traditional legal system has not encountered so far, such as the part about Companies Law, where the possibility is given to companies upon the formation (or later on, with the growth of the initial capital) in the sense of contribution in kind, to contribute digital tokens. Although we are speaking of the comprehensive digitalization and replacement of traditional by virtual money, there is no approval to contribute digital money as initial capital yet – it has to be converted to the corresponding sum.
By analyzing the provisions of the Law of Contracts and Torts, fiduciary duty is not accepted as a means of securing the claim, while the Draft of the law on digital assets introduces fiduciary duties into the legal system of our country, besides the already existing and widely-known lien, and by extension to digital assets. The concept of fiduciary duties dates back to Roman law, and the viewpoint of many theoreticians is that it is an extremely efficient means of securing claims. By extension, in these provisions which are a special chapter of the Draft, the intention of the legislator to regulate transactions in the virtual world with digital assets as precisely and practically as possible is emphasized.
Whenever there is mention of finance and huge values, the country tries to find a solution which firstly prohibits money laundering and financing terrorism. Besides the mentioned actions being sanctioned as criminal acts in the Criminal code, the Draft explicitly prohibits them, in order to avoid malversation and avoiding of responsibility of the participants on the market during transactions, and other relevant acts.
However, as much as the law wants to be precise and regulate digital assets in the best way possible, there is always a way of finding legal loopholes. For example, if we take into consideration the fact that in the opening articles, the legislator does not consider the procedure of acquiring tokens on certain platforms (the so-called “mining”) as being prohibited. In this way, this activity is legalized, the same activity which is considered a serious violation of regulations in many countries, and which will fine the young, knowledgeable IT experts who are able to make a huge profit by trading and finding cryptocurrencies. Well, the legislator is led by a different logic and allows what others would prohibit. Does this mean that Serbia is one step ahead of others, or is this an insufficiently thought-out attempt at avant-garde without sustenance, only time will tell.
On the other hand, a new moment which could cause animosity and discovering of new ways to act during the acquisition of digital tokens, leading to a serious and consequential violation of the law, is that taxes are to be paid for the inherited tokens, as well as ones given as a gift. The state has found a perfect way to link the Property Tax Law to the Draft of Law on Digital Assets. Certainly, everything you acquire by your work and effort is your property. Then, why not pay taxes on digital assets as well? Not only will natural bodies be taxpayers, but also legal bodies through taxation of their profit, as they were till now, the only difference is that from January 1, 2021, digital assets will be added as well.
This concept of the existence of a digital platform used for buying, selling and exchanging of digital goods is far more liberal and suitable for individuals than the market system controlled by the state institutions is. The states cannot find an adequate way to influence and benefit from, as well as control the values of digital tokens as they can during the issuance of traditionally understood money.
It remains to be seen whether all that is prescribed de facto can be used in practice. With the passing of this law, many interesting questions are left to be answered. How is the state going to control the course of the circulation of cryptocurrencies, if the blockchain platform itself had originated with the idea to exclude states and banks from the possibility of money issuance? Do we have enough support in the field of the IT sector, as well as legal assistance in order to make the implementation of this law just and righteous? Will this Draft, even if it is passed, be a dead letter, a failed attempt of Serbia stepping out into avant-garde?
Only time, respecting, and implementing regulations as well as practice will answer these questions. Until then, one thing is certain – those who focus on learning about digital assets in time will be one step ahead of those who do not yet see the full potential of a digital society.