Since the emergence of cyberspace there have been different legal principles evolving, such as functional equivalence and technology-neutrality, with the aim to ease the regulator´s challenge of coping with the new paradigm of virtual, digital and electronic. Currently our societies have reached the doorstep of another similar disruption: infrastructures decentralized on the basis of blockchain and distributed ledger technology, or so-called cryptoeconomics. It is time to turn to cyberspace-related principles for inspiration on how to solve similar concerns, such as applying existing regulation(s) to new technological disruption. This article looks at different understandings of the functional equivalence principle, its shortcomings and the guidance it provides to regulators and courts in dealing with the challenges related to technological innovation including that of cryptoeconomics.
This article looks at whether the principle of technology neutrality can be applied to the centralised-decentralised scale in a manner similar to its application to the offline-online scale. The analysis is based on two cases of similar circumstances relating to bitcoin exchanges run by early adopters in Estonia and Sweden. The cases exhibit two different ex ante legislative approaches aimed at payments in currencies and the interpretation of the respective legislation by the judiciary in applying these rules to bitcoins and to the activity of exchanging bitcoins. The article examines whether the legal rules applied to the payment infrastructure of currencies were technology neutral and also implemented neutrally or whether, contrary to the principle, there was difference of treatment of decentralised technology outputs – bitcoins – from the centralised technology outputs – legal tender – irrelevant of the functional equivalence of these units of payment.
The article investigates the smart contract used in the Initial Coin Offering (ICO) process and its qualification under the typology of form of contract and the EU electronic signature regulation eIDAS.1 ICOs took the globe by storm in 2017 and created a lot of turmoil among the regulators due to a new form of raising funds globally. In addition to their effect on the capital market, another phenomenon that saw a rise in popularity was the smart contract. The smart contract is usually built into the ICO process as a protocol to execute the issue of a token. The article suggests that the contract in the ICO process does not only refer to the smart/contract code in silos but should be considered in the larger context as the so-called hybrid smart contract agreement with the smart contract protocol being merely the execution motor for the issuance of the token. The article qualifies the contract concluded during the ICO process under the general typology of forms of contract with the aim to identify whether the hybrid smart/contract agreement is in electronic form of contract. Some states in the USA and a few Member States in the EU have also introduced smart contract-specific regulation clearly stating that smart contracts are contracts either in electronic or written form. Still, as this is not prevalent in the EU law, the principle of functional equivalence is used to assess whether the signature on a smart contract used in an ICO process is functionally equivalent to the qualified electronic signature under eIDAS. The existence of a qualified electronic signature allows the contract to be qualified as a contract in electronic form equivalent to a paper-form agreement with hand-written signatures. Furthermore, the article investigates whether the centralized trust system of the eIDAS creates an infrastructural bias against the source of trust in case of distributed ledger technology that in itself could be non-compliant with the principle of technology neutrality.
The article focuses on whether it is possible to use new technologies such as distributed ledger technology (DLT) in shareholder ledger maintenance systems. The article uses Estonia as an example to describe the shortcomings of shareholder ledger maintenance regulation and possible suggestions for reform and applies the principle of technology-neutrality to the subject matter to assess whether the regulation allows the adoption of new technologies, such as DLT, in ledger maintenance. The aim of the principle of technology-neutrality is to secure that the regulator does not create regulation that prefers any particular technology and discriminates against other technologies. Any regulation that is built around a pre-existing technology could suffer from preferring the use of that particular technology and consequently hinder innovation. In the article it is examined whether the ledger maintenance models used in Estonia are benefitting or suffering from the non-existence of technology-neutral technical standards for ledger maintenance and whether the differentiation of treatment of shareholder ledger administrators is justified on the basis of the principle of technology-neutrality.
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