Liechtenstein wanted to be the European blockchain pioneer, that’s why the government introduced the Blockchain Act. Now German lawmakers have introduced a bill for blockchain securities. What does that mean for Liechtenstein?
The German government presented draft regulation for a digital security, a blockchain-bond. Initially, German lawmakers wanted to introduce the bill already in Q1 2020. Delays in the ministry of finance and the ministry of justice have caused concerns among the digital industry that the idea might have been pushed off the table. Now, almost half a year later, the respective ministries delivered on their promises. According to the ministry of finance, the bill should be presented to parliament within this year.
The purpose of the law is to enable businesses to issue a digital bond based on blockchain technology. As a result, physical and centrally managed securities certificates will become obsolete. Issuers will, in the future, be able to choose if they want to issue a physical or a digital certificate, and existing physical certificates can be transferred into a digital format.
The bill is part of Germany’s Blockchain Strategy. It aims at “the modernization of the German securities law and governance law” and at “strengthening the German economy as well as improving transparency, market integrity, and investor protection,” according to the ministry of finance.
The digital format is limited to bonds at first and will be extended to stocks if the pilot proves successful. The reason for the government to start with bonds is that the “practical need of the financial market for this type of financing is the highest.” In the case of stocks, there are “more complex legal considerations.”
More competition for Liechtenstein?
Liechtenstein started in January 2020 with its Blockchain Act, a comprehensive legal framework that aimed at positioning Liechtenstein as a digital frontrunner. The law has caused euphoria in the European digital industry, and Liechtenstein’s goal was to attract more businesses to the country.
But it took more than two years for the Blockchain Act to come into force, giving neighboring countries time to come up with their own concepts. As a small country, Liechtenstein’s key advantage over neighboring countries like Germany or Switzerland is speed. Now that Germany is likely to introduce its own legislation, businesses might prefer moving to Germany.
That said, Germany and Liechtenstein have presented two different ways of dealing with digital securities. The German bill thus far only allows for bonds to be digitized. It does not establish an entirely new digital asset class and does not regulate other areas of the digital industry like the Blockchain Act does.
Industry representatives have welcomed the German bill; the German Blockchain Association believes the way German lawmakers address digital securities is more promising than Liechtenstein’s Blockchain Act. Whether or not that’s true remains to be seen. Eventually, the market will decide.