Science & blockchain – a great match

For years people have been talking about the Bitcoin as an electronic means of payment. The technology on which the Bitcoin is based, the blockchain, offers far more applications than just the “Internet money”. There are already numerous concepts that could decisively influence the life of tomorrow. It is foreseeable that the public administration will also use this trend because the blockchain provides a framework for the simplification of work processes, which are still characterized by high administrative overhead.

Which ideas exist and in which way they have already been implemented or are to be applied soon is shown below. The focus is on projects and ideas regarding blockchain-based applications in science.

What is blockchain?

The blockchain is a decentralized database, which is continuously being extended by the users. In the beginning, there was the first block (creation block). Each new block is checked for validity by a consensus principle, such as “proof-of-work” or “proof-of-stake”, and appended chronologically to the back. The result is a “blockchain”.

The distinctive feature of this database is decentralization. Contrary to our previously known databases, which are usually stored on servers or computers, the database of the blockchain is distributed among its users. It has two advantages: Firstly, the operator’s information monopoly is dissolved in favor of all users. On the other hand, the blockchain is forgery-proof. Within this chain, each block has stored the data of the previous block and the entire chain in the form of their checksums (similar to a checksum).

The chain is firm and unalterable. The information stored in it requires no administration or certification. Such technology, which replaces the middlemen, has the revolutionary potential to simplify processes and procedures for public administration as well.

What are “cryptocurrencies”?

Cryptocurrencies are digital currencies based on blockchain technology. The range of cryptocurrencies is enormous, with the best known today being Bitcoin, Ether, Litecoin, Ripple, and Dash. These currencies have different characteristics and can be changed and traded like traditional currencies. The unique thing about cryptocurrencies is that, unlike traditional currencies, they are not controlled by financial institutions and governments. As global currencies, cryptocurrencies are less dependent on the economy and policies of a state and are accessible to everyone. Cryptocurrencies have other advantages: they can be traded 24 hours a day in the absence of official stock exchange, and they can generate significant profits by trading with them because of their volatility. Also, due to the use of blockchain technology, all transactions are recorded and stored. The recipient receives only the required information about the sender, not all the details. The flip side of volatility, on the other hand, is that the value of the cryptocurrency may fall sharply overnight due to sharp price fluctuations. Besides, the increasing use of cryptocurrencies may necessitate regulation. Central benefits of cryptocurrencies could be lost. It should also be remembered that while cryptocurrencies are becoming increasingly popular and their value is increasing, whether or not cryptocurrencies are long-established and valuable remains uncertain.

The legal classification of cryptocurrencies also appears problematic. In any event, the legal means of payment is, in accordance with § 14 section 1 of the German Federal Bank Act and Article 128 section 1 sentence 3 of TFEU, only the euro. Another means of payment need not be accepted either privately or by the public. Cryptocurrencies are also no book money. It is such money, which is available on banks´ accounts at the bank customer´s free disposal. A similarity between cryptocurrencies and book money exists in the electronics of both procedures. The difference is that there are no claims against a bank by cryptocurrencies. The same applies to electronic money. It would be in accordance with § 1 section 2 of German Supervision on payment methods Act if there were an electronic claim against an issuer. The typical issuer is the bank. Whether holders of a cryptocurrency are to be rated as issuers, seems questionable. It would be conceivable to value the users of the same cryptocurrency as a civil law partnership (in German: GbR). This partnership with legal capacity could act as an issuer to the outside world. There is, however, no individual legal intention of the users to join partnership as a society by using the cryptocurrency and to set the “central issuing point” of the cryptocurrency (Schlund / Pongratz, DStR 2018, 598, 600). The philosophy of blockchain is just the decentralized application. A regulatory authority should not exist. The Federal Financial Supervisory Authority (in German: BaFin) also supports this assessment.

The idea of ​​cryptocurrency as a form of local money excretes also. Regional funds (like the Chiemgauer or the circulation-secured “Freigeld”) are limited in their area of ​​distribution and are issued in the case of “Freigeld”, according to the philosophy of their conceiver, Silvio Gesell, by the state. Cryptocurrencies, on the other hand, are “market money”. They are distributed decentrally by all users. A regional restriction does not exist.

As an interim result, it remains to be noted that cryptocurrencies cannot be qualified as money under the current legal situation.

What could cryptocurrencies be then? Due to the financial assets of cryptocurrencies, these could be accepted as “performance in lieu” (analogous to § 364 section 1 of German Civil Code), as an “another” performance than money. Also at this point, the question arises, what is this “another”? Cryptocurrencies are not things within the meaning of § 90 of the German Civil Code, because they lack the embodying. Although computer software and data were already qualified as things when they were stored on data carriers. Such a parallel to cryptocurrencies does not exist, as they exist only virtually and the wallets serve exclusively for the storage of the private and public key (Schlund / Pongratz, DStR 2018, 598, 600). Finally, the protection over the copyright law, since cryptocurrencies are neither computer programs within the meaning of § 69a section 1 of German Copyright Act, – there are no instructions sent to an information processing device (OLG Hamburg CR, 332, 333 f.) – nor they are “personal intellectual creations” according to § 2 section 2 of German Copyright Act, since cryptocurrencies arise over a mathematical procedure.

According to the current legal situation, no legal construct could explain cryptocurrencies. The existing legal uncertainty of entrepreneurs will therefore not lead to any implementation of the technology in the state administration. It remains to be seen how the federal government plans the future of the cryptocurrency in Germany in the summer of 2019.

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von Dennis Hillemann

Rechtsanwalt bei KPMG Law

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