"What is compliance? Compliance does not violate the law's red line."
On November 28th, at the seminar on “Legal Compliance: Opportunities and Challenges” organized by Zhong Lun Law Firm and LexisNexis, a legal seminar on the topic of legal affairs, attorney Yu Luping, a partner of Zhong Lun Law Firm and a postdoc from Central University of Finance and Economics Sharing the topic "Legal Issues in the Practice of Blockchain Projects", he explained the core orientation of blockchain technology mentioned in the 18th collective study of the Political Bureau of the CPC Central Committee, and explained it from a legal perspective. The legal risks brought by digital asset investment, token incentives, chain reform, network security, and the legal boundaries of blockchain projects.
The golden sentences are as follows:
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1. The directions proposed around the blockchain this time are not a borderless range, but they clearly tell you where "blockchain +" is, that is, "education, employment, retirement, precision poverty alleviation, medical health, and product security. , Food safety, public welfare, and social assistance ", if you want to add to other areas, you need to consider carefully;
2. Only when assets that are recognized as valuable by law can be invested in accordance with the law, and digital asset contributions face legal problems of valuation and value fluctuations;
3. Just say that I have a very good idea and idea, and then go to the chain, this is not feasible. There must be physical assets on the chain. Just like the listing, the public purchase of listed company stocks is based on the economic strength of the listed company as an economic entity;
4. If the existence of an exchange is reasonable, we need to make it legal. And what is the best way to legitimacy? Is to integrate into the existing legal system or establish a state-owned trading system;
5. "Cryptography Law" is the law applicable to the underlying technology of the blockchain, and "Network Security Law" is the law applicable to the application layer of the blockchain. They are two laws that have direct management of the blockchain and need to arouse everyone's Attach importance to
6. China's Criminal Law is extensive and profound, with a wide range of connotations and extensions. Although blockchain technology has changed the form of transactions, it has not changed the connotation and substance of transactions;
7. The project party must be careful when writing the project white paper, don't think it is a vain thing, this is actually your commitment to the public. If you don't do this, it may constitute a crime of fraud. The following are seven core points shared by lawyer Yu Luping, which are organized and reported by Babbitt.
Aspect 1: How to understand the 18th collective study of the Political Bureau of the CPC Central Committee?
Based on the lagging and stability characteristics of laws, in China, policy orientation has guiding significance for social practice.
The first is technology orientation. Many people's cognition of the blockchain exists in the respect of the concept or their skepticism. Regarding the eighteenth collective study of the Political Bureau of the CPC Central Committee, some people understand it as the central government's promotion of the development of the blockchain. of. Please note that what you are studying this time is "blockchain technology". It has been repeatedly emphasized that it is technology-oriented, including what we call the decentralized nature of the blockchain. It is also a technical solution, not a conceptual thing.
The question of "standardization research" was also raised in this collective study. The Standardization Research Institute of the Ministry of Industry and Information Technology has been launching a white paper on blockchain standardization in China. What is the core purpose? Just tell the public where the national standards are? Standardization is an important element of reference for legal compliance. National standards are the bottom line, which means you can use higher industry or enterprise standards above national standards, but not lower than national standards. What did we emphasize during our standardization process? It is to enhance the right of international discourse and rulemaking. The best companies are always doing standards, followed by products.
General Secretary Xi also mentioned "building of talents" in this speech. Technology development is the top priority, and talent training is an important part of it. There are so many academicians and experts in China. Why did this study invite Academician Chen Chun, an expert in the field of computer applications, to explain? Presumably, the CPC Central Committee also wants to understand the core of blockchain technology and what role this technology can play in specific applications.
The second is industry orientation. In this collective study, it was mentioned that "blockchain technology has been extended to digital finance, the Internet of Things, intelligent manufacturing, supply chain management, digital asset trading" and many other fields. Many people have explained this sentence in an expanded manner. , But I think the explanation should be limited, especially pay attention to the ordering. Because China's policy statement is very interesting, its nouns must not be disordered, and the terms are not simply side by side. The importance is sequential. Many people are very excited to see digital asset trading, but please note that there are so many things in the front, and the more they are in the stage of R & D, discussion, and conception, they need to advance from step to step.
What is "finance"? "Gold" is well understood, that is, gold and value; "Rong" is the world of Huitong, where the value is placed and can not be moved. Once it is in circulation, it needs the protection of a strong credit mechanism, and it will create space for supervision. So when can digital asset transactions be applied? It is not a person's decision, it may be a systematic development.
Correspondingly, it is the expression of "innovation chain, application chain, value chain" mentioned in this collective learning. I also talk about personal cognition. The so-called innovation chain generally refers to something like a private chain in a single project, which is aimed at the innovation of a single project. For example, there are some private chain-like innovations in scenarios such as traceability and electronic medical records. We call them innovation chains. Then the application chain, I think this is a relationship between upstream and downstream, I tend to say that it belongs to the category of alliance chain. Finally, the value chain is similar to the value system that can be established with a certain credit entity under the public chain structure. This is actually our benchmark with the private, alliance, and public chains, but please note that there is no such thing as a private, alliance, or public chain in this study.
The industry orientation also emphasizes that the blockchain must be deeply integrated with cutting-edge information technologies such as "artificial intelligence, big data, and the Internet of Things." This is to tell you that blockchain is a low-level technology, and it must be integrated with other technologies to play its biggest role. From these expressions, we can feel that the collective knowledge of blockchain technology in this collective learning is not to advocate it, but to let it go deep through learning and understanding.
The last is people-oriented. In other words, where does it land? We know that there was a very hot word called "Internet +" that brought us a lot of industrial structural adjustment and thinking innovation, but it also brought a lot of social problems, such as the P2P thunderstorm incident we are now solving. . Therefore, these directions proposed around the blockchain this time are not a borderless range, but they clearly tell you where "blockchain +" is, that is, "education, employment, retirement, precision poverty alleviation, medical health, commodity anti-counterfeiting, The areas of people's livelihood such as food safety, public welfare, and social assistance have very clear directions. If you want to add to other areas, you need to think carefully. You cannot over-interpret it and expand the scope of "blockchain +" at will.
In summary, blockchain is a technology that must be combined with related industries. The direction is the people's livelihood project. Do not take it for granted that you can promote the application of blockchain in various fields.
Aspect 2: Evaluation and Volatility of Digital Asset Contributions
In application practice, there will be some problems with digital asset funding. Let's start with the concept of digital asset funding.
The IRS issued a reply in 2008 on the purchase of "virtual currencies" for the taxation of property transfers. Some people think that this is a recognition of the property attributes of digital assets, but please note that the "virtual currency" mentioned here is actually game currency, and it is not what we now call virtual currencies such as Bitcoin and Ethereum. Although some local taxation bureaus have implemented tax collection activities in accordance with this regulation, most tax authorities have not conducted tax collection activities for the purchase and sale of digital assets, because tax collection activities legally recognize the legality of the assets.
In the 2013 notice issued by the five ministries to prevent Bitcoin risks, Bitcoin was identified as a specific virtual commodity. Many people say, what is the value proposition of Bitcoin? Since it is a commodity, does it have a certain value? Is it valuable to trade? Is it possible to make a capital contribution by trading? This logic seems reasonable, but the problem is that only assets that are recognized as valuable by the law can be invested in accordance with the law, and digital asset funding legally faces issues of valuation and value fluctuations.
Why should we put the issue of digital asset funding first in this sharing? The core question of whether it can be invested as an asset is whether the asset can be valued. At present, domestic financial institutions cannot price virtual currency transactions , including lawyers, accountants, and auditors. We can only see those international data, but just like house prices, you see transaction information, but when the capital is actually invested, you need to give an evaluation report to make a fair value assessment, but now China ’s relevant regulations Related institutions are not allowed to provide pricing information for digital assets. At the same time, based on the current status of blockchain projects, the value of digital assets is also difficult to assess. Another issue is the value fluctuation . If we issue an evaluation report, this thing must be measurable, measurable, and the value is relatively stable. Even the fluctuation of real estate is still measurable within a certain range, but it is represented by Bitcoin. Digital asset prices are extremely volatile. These two issues are at the core of funding.
On this question, Libra gives us a well-understood example. Why did Libra come under the siege of G20 and Bitcoin did not. Because the Libra project has asset benchmarking, it is guaranteed by underlying assets. Maybe one day, you invest in digital assets, but the evaluation and measurement of value is still through currency or physical assets, and they are compared and linked, or even similar to guarantees. In addition, price determination, compensation, and custody all need to be clear.
Aspect 3: Token Incentives and Legality
We do not talk about the issue of tokens. This is forbidden in China. Most of the items we see are securities-like, not as they say in their white paper. But in this context, it does not prevent us from discussing the token incentives of existing projects first.
In fact, any large company or partnership has internal equity or hierarchical points for profit distribution, including in shopping malls or chain enterprises, and there are also some identity signs, such as gold card members, mileage points, etc. These things can actually be tokenized. It is to use existing blockchain technology to prevent tampering and deprivation. It is a technical transformation, which is the legal space for the reasonable existence of a token.
In judicial practice, the identification of tokens has gradually become clear. Let's talk specifically about the way of motivation. What does it represent? One is the use of token rights as an incentive method , which represents a kind of rights, including direct token incentives, indirect token incentives, token options, and restricted tokens. Incentives enjoy dividends, ownership, and voting rights. right. This right has nothing to do with how you use it. It's like a knife used to cook in the hands of chefs and used to kill people in the hands of criminals. We should control its application, not the technology itself.
The second is to use the token income as an incentive method . Its carrier is generally cash, including token appreciation rights, virtual tokens, etc. The incentive object enjoys cash dividend rights and appreciation rights. The simplest way to pay dividends is what performance I have achieved as a business person. You should put the corresponding commission into my account and operate it directly through smart contracts without the confirmation and signature of the boss to prevent human interference. And denial. This requires a series of processes such as formulating a token incentive plan, writing smart contracts, setting up a white list, signing incentive agreements, running smart contracts, and recycling tokens. When talking about this problem, everyone will ask, this thing is irrevocable, what should I do if something goes wrong? This requires the strengthening of external and internal controls, and the use of technology and legal supervision methods.
Aspect 4: What exactly can be changed on the chain?
The chain reform includes three parts: one is the confirmation of asset on-chain; the second is the internal equity incentive; the third is the external distribution of benefits. The core of the chain reform is to solve the problem of efficiency and trust in asset allocation through blockchain technology. When it comes to chain reform, we all say "on-chain", but what can be on-chain? What can't be chained? This issue needs to be considered clearly.
Some companies may not have the conditions for on-chain. He has no assets. How can he go on-chain without assets? Just say that I have a very good idea and idea, and then go to the chain, this is not feasible. On the chain, there must be physical assets . Just like the listing, the public purchase of listed company stocks is based on the economic strength of the listed company as an economic entity. It's just that compared to listing, the on-chain may be more objective and credible, and it breaks the internal centralized confirmation mechanism. So for the distribution system of the supply chain, a sales company must return to the company to allocate it to advertising, agents, and raw material dealers. After the chain reform, it actually enters the point-to-point mode. Smart contracts are assigned automatically. It may be that for some enterprises, the three-month billing period has suddenly become a real-time settlement.
So someone will ask, isn't it the value form of the token? Yes, this is the case, the token is the value carrier on the blockchain. Isn't the digital asset finally obtained? Yes, but there will be a co-managed account, we can combine with the real thing, do a value match or anchor, and get real money when you settle. It's like we send a red envelope, and the money in WeChat and Alipay is also in its account. It will only be in your hands when the cash is delivered. But they are centralized control. If it becomes the distributed control of the blockchain, will it be more credible?
Therefore, the object of the chain reform is that the company needs to be supported by physical assets, has the value attribute of tradable circulation, needs to use the above assets for financing, and needs to introduce external funds for development; the second is that the user participation is high and large-scale The project to be promoted involves the issue of the distribution mechanism. I and you once again emphasize that there must be benchmarking and matching assets, not just ideas and models. In the process of chain reform, it is necessary to rely on the project entity to avoid fraud. Especially on the model and assets of the chain, it is necessary to pay attention to consumer protection plans. Third, Internet startups, especially projects with a sharing economy in the Internet.
Aspect 5: Risks Caused by Blockchain Network Security
At present, the network security of the blockchain is not very optimistic, including uneven security protection levels, lack of system-level security assessment methods, and lack of effective supervision methods. Due to network security issues, the entire project collapsed, and the legal risks faced by holders and exchanges. Let us sort them out.
For ordinary holders , can you protect the property of virtual currency through judicial means? According to our case analysis in judicial practice, there is still uncertainty. Bitcoin is relatively more protected. If someone steals your bitcoin, it may be found as a crime of theft or a crime related to computer system infringement. There are still many questions about how digital assets other than Bitcoin, including Ethereum, are qualitative, unprotected, and whether judicial remedies can be obtained after theft.
For exchanges , blockchain is distributed, but exchanges are centralized, which is a contradiction. The circle believes that the future trend of exchanges is to do distributed exchanges, because centralized exchanges will bring regulatory risks, which is their idea. However, we see that major exchanges have invested huge resources to make their own public chains and DEXs, which are still in the research stage. At present, all these exchanges may be the object of the second round of retreat, and its legal risks are indeed great.
If the existence of an exchange is reasonable, we need to make it legal. And what is the best way to legitimacy? It is to integrate into the existing legal system or establish a state-owned trading system. Do you still remember that the digital asset trading mentioned at the beginning of this sharing is placed at the end. Although the blockchain is distributed, the exchange is currently centralized and our regulatory system is also centralized. Our future digital asset trading and value chain relative system will be reflected here, and it is now a clearing stage.
Aspect 6: The relationship between the introduction of cryptography and blockchain
Many people may not understand the background of the "Password Law". Soon after the eighteenth collective study, China's first "Password Law" was promulgated. Is it a coincidence that we don't read too much, but I want to tell you, where is the legal system's grasp on blockchain? That is the underlying technology of the blockchain.
If the underlying technology of the blockchain is a whole system composed of various encryption technologies, then if there are problems in the future, this law can be regulated. At the same time, this law has been extended to the Cyber Security Law. If password theft occurs, cyber security law and other administrative regulations, including criminal law, can be applied to deal with it, which is equivalent to a convergence here.
The "Cryptography Law" is the law applicable to the underlying technology of the blockchain, and the "Network Security Law" is the law applicable to the application layer of the blockchain. They are two laws that have direct management of the blockchain and need to attract everyone's attention.
Aspect 7: Legal boundaries of blockchain projects
First we talk about criminal borders. China's Criminal Law is extensive and profound, with a wide range of connotations and extensions. You must not think that there are no legal regulations in the field of blockchain. This is a mistaken understanding. Blockchain projects have legal boundaries. Although the blockchain technology has changed the form of the transaction, it has not changed the connotation and substance of the transaction. This sentence was said by the chairman of the US Securities and Exchange Commission. The core of law is the essential constraint on all kinds of things and legal relations.
Therefore, you must be cautious when writing the project white paper, don't think that this is a vain thing, this is actually your commitment to the public. Failure to do so may constitute fraud. When Hunan and Guangdong cracked down on virtual air currency, they first required to take out the white paper of the project and see how they promised it. If they did not do so, they might be suspected of breaking the law. Last year, the Legal Daily published more than a hundred pieces of fraud information. Nearly 70% of the typical crimes of fraud are fund-raising frauds in the name of blockchain, so we need to pay attention to them.
This is followed by civil and administrative boundaries. Many people think that the Central Committee of the Communist Party of China has begun to learn about blockchain, and they think they can let it go. This kind of understanding is wrong. On the issue of the financial field, the public should be soberly aware that the financial field is not an individual can do, Huitong world must be guaranteed by the national coercive force, and the state is required to enter. Then there is the filing of blockchain information services. Many companies have successfully filed. We understand that in P2P rectification, many companies have not filed records, so they may be suspected of illegal business operations, so we should act according to law.
Finally, let's look at this figure, the boundary of the blockchain project. The green part belongs to the safe area. These areas are related to the people's livelihood and technology mentioned in the eighteenth collective study. You can go to grab the commanding heights and business opportunities, and they will not be restricted by normal supervision. The yellow part belongs to the area that needs to be considered. This is the same reason that we often talk about seeing the yellow light stop. If you only make industrial products, there is no problem, but if you want to do asset transactions, it may cause problems. Finally, don't get near the red circle, which is the boundary of the law.
At the seminar, Zhonglun Law Firm, a legal think tank with extensive experience in the blockchain field, and LexisNexis, a world-renowned legal information service provider, jointly released the "Blockchain Legal Practice Report." To read the full report, please click on the link: https://www.chainnode.com/doc/3956