The digital assets, a powerful impact on Turkish and international law?
Today, I would like to write you a relatively simple article to demonstrate some links to be established between digital assets and the regulation. May I put it this way, a simple draft in a personal reflection. If this new format works, it is very likely that I will be able to reiterate the content by going into the heart of the detail, point by point, through a series of articles.
But then, for what reason? This is mainly explained by my daily research and my professional activity which, after a year and a half, now allow me to establish a real reflection between law and digital technology. In this context, I wish to demonstrate the heterogeneity of this sector on multiple aspects. Happy reading to all…
What about regulation at the national level?
First of all, we can address the constant questioning, since the beginning of the 2010s, about the use of cryptocurrencies in the context of terrorism.
Long maintained as an absolute truth, reality shows the opposite. It seems relevant to me, here, to mention the recent Crypto Crime Report from Chainalysis which evokes an increase in illicit activities, but a decreasing proportion in the total volume of transactions.
Money laundering would be 0.05% compared to 5% of global GDP for fiat currencies. In this context, although the various governments very regularly recall the danger of digital assets and the relationship with terrorism, the reality is however very different.
However, the Turkiye Republic has not yet published the regulation for digital assets. You may be familiar with AML regulation, which includes some issues about digital assets. Also, there is a regulation draft which regulates this sector in details.
Implicitly, we can deduce from this draft a clear objective of the Turkiye: to control the digital “jungle” and the proliferation of service providers, some of which where the watchword is malevolence. However, the latter are a minority.
We have already told the upcoming regulation in another article.
And what does European regulation say?
May I ask you, are you aware of MiCA, a European regulation whose objective is clear: to establish a (too) strict framework for the digital asset sector. A constantly changing sector, it is clear that it is difficult to harmonize the regulation of digital assets for the countries of the European Union.
But then, how to make a tax declaration in good and due form when the formalities to be completed are… not even existing? Truth be told, there is no answer at present, other than good faith in trying to find the tax system that best fits. However, although the digital asset sector shows a real need for decentralization, the MiCA regulation wants to have a grip on the entire sector. Which isn’t really viable, is it?
Whether it is the abolition of privacy for transactions greater than a specific amount, a ban on the use of non-custodial wallets or the attempt to exclude Proof of Work on European territory, there are many abuses. Of course, this remains specific to each according to the relationship that a person wishes to maintain with society, the freedoms that he is ready to concede to a State which, over the years, always tries to have a 360° vision. on our actions.
In this context, should we advocate absolute regulation of the digital asset sector? Or, is it necessary to establish, in this context, an opaque boundary between European law and the issue of privacy and freedom of users on the Internet? A very complex question where the watchword is undoubtedly reflection. In this context, a step back is essential by our politicians in a sector which is more than ever in turmoil. When events go beyond our areas of competence, we do not regulate directly. First, we research, we study, we try to understand. Second, we advise. Finally, we regulate (if possible). Unfortunately, in view of the events of recent months, the scheme mentioned does not seem to preoccupy the minds of regulators…
What about the regulation of stablecoins?
In this third part, it seems important to me to take advantage of my comments on regulation to address a point that has caused a lot of noise in the digital asset sector: algorithmic stablecoins.
The Terra ecosystem, with its native asset LUNA, created an economic disaster during the month of May with a loss of $60 billion in the digital asset market. As part of an increase in the use of decentralized finance on this blockchain and poor management of protocols and their collaterals, the algorithmic stablecoin (asset whose value is backed by a fiat currency) UST ended up exploding, reducing into a thousand pieces an ecosystem that has been recognized for several months.
This demonstrates an interesting point: the youth of an ecosystem trying to understand itself. More than ever, critics of decentralized finance are surfacing on the grounds that the sector is too dangerous, that regulation is an absolutely necessary step. But ultimately, at what cost?
In this context, we can question ourselves on the application of economic law, in particular one of its branches which is competition law. Would it be possible to regulate competition between companies/players in this market, preserve a healthy and fair quality of competition, without undermining an ecosystem that wants to be decentralized? Yes, we are indeed talking about avoiding centralization, not using trusted third parties, all of which is originally advocated by Bitcoin, right?
To tell you the truth, I’m afraid not, it is impossible to regulate the decentralized finance sector without harming it, impacting it. Do you think it is possible to apply unfortunately outdated legal principles in the current state of affairs? The legislator does not yet know about NFTs, it will be relatively difficult to go further in the coming months… Of course, we hope to see a positive evolution in the way the law could look at the digital asset sector. For the moment, we are far from it. To tell you the truth, I have no well-defined opinion on the regulation to come during the second half of the year 2022.
There are still too many gray areas, Turkish law law will be technical and complex. But it doesn’t stop there. It is slow and overloaded with useless texts. But in the end, it’s nothing new, right? So many actors know the current issues and understand this Turkish tradition of putting a law on everything that has none, a perpetual codification of our society until the moment when lawyers even manage to get lost in it…
What is the relationship between NFTs and intellectual property?
Finally, I will take advantage of the paragraph on the question of decentralized finance to make the transition to a last point, quite quick but very interesting, concerning intellectual property law and NFTs (non fungible tokens).
Particularly in vogue since the beginning of 2021, it is one of the digital assets that has made the most noise in the world. NFTs are currently used in many cases such as works of art, collectibles, finance with staking, video games, music, logistics with the control of the authenticity of a product and I pass.
Let’s take the case of the first example, that of works of art. In the digital world, Internet browsers have been a real springboard in the explosion of intellectual counterfeiting. Unfortunately, the means to counter these practices are not perfect.
But then, how to know the true owner of a work between two people? How do I know if the published image really belongs to the person who posted it? In fact, the answer to this question is complex. It is obvious that NFTs add a layer to these issues with their technology which, to tell the truth, is very innovative.
The NFT, traceable from start to finish, is neither interchangeable nor modifiable. Thus, it is unique and acts as a certificate of ownership. It is clear that NFTs can be a very interesting tool if their application does not exceed the limits of morality by being content with the simple reproduction of an image available on Google…
Let’s take the example of an NFT collection made by an artist recognized in auction houses. He launches his collection on Opensea. However, lacking the skills to perform in the marketing and visibility of his project, a malicious user tries to take advantage of it, stupidly copying/pasting the collection. The latter, competent in marketing with a formidable mastery of networks, is a full house: SOLD OUT…
Yes, the NFTs make it possible to know the date of creation of the work itself, but it is complex to determine if its author is indeed the initial creator. This is a limit on which platforms try to work with the certification of collections, which is very well done on Kalao for example. Conversely, other platforms have more difficulty. Many works are copied, the operation of the platform does not lead to protection of the original collections, to the detriment of the most naive who buy in panic and unfortunately get cheated.
The relationship of NFTs in intellectual property law is still unclear, so it is not straightforward to determine whether each NFT is a creation of the mind that has come to fruition. Thus, the road to the democratization of this tool will be very long, there are still many prejudices against this technology. Only the next few months and years will be able to shed light on the viable establishment of NFTs in the digital assets and the removal of gray areas as to their relationship with intellectual property law.
Here we are at the end of this short reflection, mixing the digital asset sector, in concreto, with different spheres of law. As mentioned in the introduction, the objective was simple: to demonstrate my reflection, the development of my thought on the current challenges of a sector in full growth over the long term. In this context, let’s be attentive to the events to come in the coming months, let’s continue to inform about the issues facing the sector and how we can potentially respond to them.