Christiana Aristidou: The use of blockchain is legal- The cost of the legislation’s withdrawal

There has been an intense reaction in the legal community, and beyond, to the withdrawal of legislation on decentralised technology which has shelved—if not completely disposed of—two years of consultations and intense preparation.

As blockchain technology continues to develop at an ever-faster rate and incorporated in companies’ day to day operations, it seems incomprehensible that there is no national framework, or even guidelines, that cover it. Responding, the Cyprus Bar Association (CBA) has issued a relevant announcement and sent a letter to the Finance Ministry requesting the legislation’s reexamination.

InBusinessNews communicated with the President of CBA’s Technology Committee, Christiana Aristidou, who relayed the concerns not only of the legal sector but those of the market as a whole, underlining the usefulness of this kind of legal framework on a national level. Aristidou noted that blockchain technology was recognised as being legal with or without the legislative framework. Without this “legislative umbrella” though, Cyprus remains lagging behind other countries.

The lawyers’ reaction

The CBA announcement confirmed a recent report by InBusinessNews and the information on the reasons why the Ministry of Finance, together with the Law Office of the Republic of Cyprus decided to withdraw the relevant bill.

Specifically, as we had mentioned, and CBA emphasises in its relevant announcement, the Ministry of Finance gave the following reasons for withdrawing the aforementioned bill:

1) The anticipated approval of the Markets in Cryptoassets (MiCA) Regulation by the European Parliament, which regulates the provision of services and issuance of cryptoassets.

2) The limited scope of the bill that had been prepared.

3) The judgment by the Law Office of the Republic that significant parts of the provisions are redundant and the Law Office subsequent raising issues of unconstitutionality.

In its announcement, CBA emphasised, among other things, that "the Ministry of Finance does not seem to take into account in its decision, the important purposes that the bill attempted to and could serve, such as the promotion and development of Distributed Ledger Technology (DLT)”.

The Association also responded directly to the decision and the Finance Ministry’s reasoning, noting:

1) The bill covers a different scope than the Markets in Cryptoassets (MiCA) Regulation. Indeed, the bill could achieve a comprehensive and comprehensive regulation of various issues related to DLT and crypto-assets. The MiCA regulation does not regulate DLTs as a whole.

2) The scope of the bill that was initially put out for public consultation was somewhat more limited, however the bodies that took part in the consultation, including the CBA, worked hard to strengthen and expand the scope to the extent that the bill served.

3) In order to examine, evaluate and respond to the conclusions of the Law office of the Republic, transparency is required as to its complete and comprehensive rationale.

In conclusion, the CBA calls on the Ministry of Finance to reconsider its decision, or to re-promote a bill that will attempt to regulate DLT. At the same time, it requests transparency and a greater explanation as to the specific reasons for withdrawing the bill, stressing that there is scope and perspective for improving the original bill, both legally and substantively.

A letter on the next steps

What should be noted, however, is that the withdrawal of the relevant bill does not mean that blockchain technologies have become illegal, as they are recognised on international, European and local levels. This means that businesses and individuals looking to engage and integrate this new technology have complete freedom to do so.

What the CBA has pinpointed as necessary is an umbrella piece of legislation that will clarify/confirm definitions and help court decisions as they move more quickly.

Speaking to InBusinessNews, Christiana Aristidou, who specialises in business and technology law, stated that the CBA has sent a relevant letter to the Ministry of Finance for the review of the bill, as well as the strengthening of transparency. It also questions the decisions of the Law Office of the Republic and the unconstitutionality of the bill.

What does the CBA want from such a legislation/framework?

In addition to the announcement, the President of CBA has also sent a relevant letter, which embraces the content of the announcement. In the letter we request that what was intended to be done, in the effort we made, be followed. That is to say, we cite that the bill covers a different scope than MiCA, we mention that there has been a public consultation and public bodies and stakeholders took part and we worked on it, and in view of the fact that the Law Office considered some provisions unconstitutional, that there was redundancy and it is covered.

I believe that the decision that the bill is covered by MiCA belongs to the Ministry, the decision that certain provisions are unconstitutional belongs to the Law Office, and that they both may have concluded that there is redundancy. We believe that the bill can be reexamined. We request and put out there as the CBA, that we all look at it again together and this time to do it right. To do this, we ask that there be transparency and that they explain to us why they made these decisions and that we evaluate their positions. We have to wait for them to answer us as to which provisions are considered unconstitutional.

Why is it important for a state to have its own framework?

We would be ahead from a political point of view, because first of all it is a political decision and then it becomes institutionalised and emerges as a framework. They ignored the blockchain strategy, which says should create legislation. In any case, the strategy is pending because no amendment has been made to the state's blockchain strategy and we expect to see some legislation that will be local and national. It doesn't mean that just because Europe makes laws we can't make a Cypriot one too.

It was a good time to move ahead. What was it that prevented us as a country from implementing this policy? It would put us a step ahead of all the other states, in a secure environment with security for the reason that it has already been recognised.

Cyprus, with such a great Securities and Exchange Commission, which has taken very good steps towards embracing this technology, at this stage had the right environment for this legislation to finally come out. Because there aren't many factors arguing for it not to happen anymore. There are no reasons for insecurity or concern. It was the best time to do it and I think a big mistake has been made. I want to believe we will reexamine it.

What was proposed was general and was like an umbrella legislation, which recognised the technology, which in any case is recognised by global legislation and beyond. From policies coming out of global bodies. It is very important to always have a legislative framework in a country. You study all that the global bodies and trends. Why not do something first?

Concern in the business world

In our case, what could have wrong and caused the sudden turnaround?

I am concerned that perhaps some provisions have to do with the rationale of decentralised technology. Blockchain emerged as a decentralised technology. Anyone who reads about it on the surface and doesn't dig deeper thinks it's just a decentralised technology. Which goes against a "centralised government".

Maybe this is what was misinterpreted and perhaps a discussion is needed to explain what this decentralisation is and that it exists in degrees and that yes it was born decentralised, but it is also used less decentralised and not at all. This is why we talk about the evolution of blockchain and it is used both as a private ledger and as a public ledger and permission and permission-less. But these terms require enormous analysis.

What comments have you received from your members and, by extension, from clients/businesses that are connected to this sector?

This withdrawal of the bill caused concern mainly due to ignorance. When we are dealing with companies and professionals who are now entering this field we cannot cause panic by saying "these provisions are unconstitutional". Those who hear or read about it, worry that the technology itself is unconstitutional, precisely because they are is unable to carry out proper interpretation, because the person or company does not have the necessary background to do so.

So, in this case it caused concern for those who have started to study the technology and its possible application in their company. And they were saying "am I doing the right thing entering this space? Am I doing the right thing by learning this technology?' and many people called us. The most correct way is to tell the truth, that there was a mistake on the part of the institutions and the executive powers and we withdrew the bill. This does not mean that blockchain or its use is unconstitutional.

What message would you like to convey?

Such legislation would be something very important for the country. Using blockchain is completely legal. It is not something illegal and that we have a problem, because the bill did not come out. On the contrary, it is legal. But if we had (the relevant legislation) we would be better off. We could also get the necessary evidence in court, which we still can, but it would be easier if the legislation existed because it would recognise "smart contracts", blockchain, consent mechanisms within the network, etc. They don't need to be recognised, because they have already been recognised, this legislation would simply be a confirmation to the market and the wider world.