What laws apply to crypto-blockchain transactions?

In case of a dispute in cryptocurrency and blockchain, the relevant authorities would need to follow the rule of law based on their respective jurisdiction over the dispute arising out of a blockchain transaction and identifying the persons in question. Then, the court is to determine the law applicable to the said transaction.

It would be reasonable to assume that such a dispute usually arises out of a contract made effective outside of the digital world. In which case, the chosen law is expressed and agreed upon by the parties in the agreement. It is important to choose the law of a country or state that recognizes blockchain transactions and is more blockchain-friendly when drawing up an agreement.

Given that VHCEx is regulated under the Philippine’s authorities,  transactions are subjected to Philippine law, which regulates the cryptocurrency platforms, remittances, as well as initial coin offerings (ICO). This makes it easy for parties to trade on the VHCEx platform with peace of mind, knowing that their assets are governed by a strong body instead of relying solely on private companies with a strong brand.

In other cases, things can get far more complicated when the parties fail to determine the applicable law. Many times, blockchain transactions fall out of scope, thus making the choice of law invalid when it is undetermined where it is sanctioned.

When intending to apply the law it can undergo certain vagueness when people find it mere impossible to define the geographical location of a transaction. When that happens, should one take the law of the country of the location of the mining pool that mined the block? Or, where the transaction was listed? Maybe the country of the sender, or recipient? What if both jurisdictions do not deal with blockchain transactions in courts?

The most on-the-surface answer to this appears to be the application of lex fori, whereby the law of the country in which an action is brought. This paradigm would not refer to the location of the transaction but would apply the law of the jurisdiction that has at least some connection with the question of the case.


Image source: Medium

The challenge is to establish a direct or the closest connection to a prior case, as it is also related to the determination of the law applicable to securities held with an intermediary. In the search for the help with determining the applicable law to blockchain transactions, plaintiff would need to resort to the help of the Hague Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary. One might argue that this Convention fully applies to blockchain transactions related tokenized securities, as Art. 1 (1)(a) states that the term ‘securities’ includes all financial instruments or assets (other than cash). If this notion can be accepted, it can be assumed that the Convention is among the first international legally binding documents that takes into account all aspects of flow of securities in the dematerialized environment.

With regard to the choice of law, the Convention provides for the task of court to seek for an objective connection of the law of a state where the direct intermediary of the account holder maintains his or her securities account as a fallback rule.

One more important feature of the Convention is that it allows for a choice of a designated law, not to the whole dispute and the rights arising out of the securities in question but also to the third parties obtaining direct or indirect relation to these securities. It also sets the order of priority of creditors to a tokenized security. This is especially important to tokenized securities as their ownership is always fractional. However, in relation to the tokenized securities encountered in practice, this order is sought to be unnecessary, as the token holders have equal rights when a sale of the security takes place.

In order to avoid unnecessary complications, it is best to trade and transact cryptocurrency on blockchains platforms that are recognised and licensed by a governing body that will provide a fair and just system to protect users in this new world of digital assets. Trade safely and securely on VHCEx.

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26 Jul 2019


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