NXT Asset Exchange And Farla Webmedia Legal Concerns
Farla Webmedia launched a project on the NXT Asset Exchange which has created a bit of intrigue about the legal standing of crypto assets.
Editor`s note. When the article was already finished, Cointelegraph received an exclusive comment from the founder of project Peter Farla:
“The legislation on Nxt Assets (and assets on other crypto platforms) is still untested territory. I am simply trying to give people a way to help the growth of my small company and reward people for helping me to do so. I will continue to take advice and improve this as I don’t intend to do anything against the law. “
On November 9th 2015 Farla Webmedia launched a project on the NXT Asset Exchange which has created a bit of intrigue about the legal standing of crypto assets. What is particularly interesting is the promise of future profits the project makes. According to the company, assets only represent a share in the profits and do not represent any ownership or control over the operations of the actual business. But does that legally change the status of being a share?
Are these some form of digital bearer (unregistered) assets, or perhaps some fashion of uncanny IOU? What legal jurisdiction does this fall under? How might taxes apply to these assets? What precisely is the role of the devs and their marketing team when it comes to informing the risks and legal technicalities of these features?
Investigating the truth
To try and better clarify some of these issues, Cointelegraph contacted Bas Wisselink of the NXT Foundation. Wisselink commented,
“At this moment, there is no central place where this information can be found, mainly because we haven't had the resources to get a completely accurate guide up. As NXT Foundation, at this moment we advise people to be very careful with Assets that could be construed as "shares". As you say, it's uncharted territory and we do not want bona fide people getting into trouble, potentially. If they can, they should consult a lawyer, but preferably one up to date with the latest developments in crypto. In general, any other lawyer would not be completely suitable, and would probably advise against it, just to err on the safe side.
Ideally, in the future, the Foundation would become a consulting place for people who want to use the AE for such things, but we currently lack the means to do comprehensive research into this field, so for now we tend to use our layman's common sense and knowledge of the law as it is as a guideline”.
It is important to remember that legal acrobatics could leave careless parties facing fines. The legislative body in the realm of digital currency is one that's growing at an ever increasing pace and any legislation produced that applies to assets traded over the NXT platform will ultimately apply to most (if not all) assets created on other platforms, such as Ethereum.
In order to find out just how deeply regulation runs in regards to digital assets, Cointelegraph also contacted Adam Vaziri of the UKDCA. Vaziri holds a double masters in law from the University Robert Schuman Strasbourg France and University of Sussex (with distinction). He commented,
“If you devise a security or an investment asset that has the two features of unrestricted transferability and transactional anonymity then it is, most likely, a bearer asset security. Typical bearer securities are bearer shares and bearer bonds. Bearer shares were previously legal in the UK (as an example). However, in view of corporate transparency/ tax compliance there was a policy drive to eradicate the notion of bearer shares and, since May 2015, it is now prohibited for a company to issue bearer shares. The only acceptable form of shareholders are registered shareholders.
This is an important point when it comes to digital assets. If you issue equity investments, in particular shares, via Counterparty (without any multi-signature controls) you will, in effect, be creating bearer shares. This is not to say because it is prohibited in the UK that the creation of bearer shares is prohibited elsewhere. That said, the overall policy direction is adverse to bearer assets; note that FATF’s Transparency Guidance suggests that countries should take “effective measures to ensure [bearer shares or bearer share warrants] are not misused for money laundering or terrorist financing.”
Given the wildly complex and extremely speculative nature of how future legislation will change towards digital assets, it becomes easy to see why most users would simply prefer to avoid any sort of shares, assets, or other forms of investment. Once again, please note that the legally binding sector of what Vaziri said applies to ALL crypto platforms including, colored coins or whatever other form of smart ownership one prefers to use.
In regards to the Farla Web Media asset recently sold over the asset exchange, Vaziri noted:
“Next area is ‘substance over form’. If, for instance, the digital asset promises a return, provides a dividend, provides access to the capital appreciation of a project then you are building an investment instrument regardless of how it looks.”
Serious concerns for potential legal difficulties arising from the use of the NXT Asset Exchange is natural. Yet Bas wanted to be sure everyone understood a critical technicality about the NXT Asset Exchange:
“I think this (the legal standing) very much depends on how an Asset is used. For instance, and Asset just used as a token of issued for purposes of Voting rights or any other token would not fall under this definition. Please be careful to state that Assets in general are undetermined and the use you are talking about is specifically digital tokens used in a way that could be seen as "shares".
Otherwise there might be tremendous misunderstanding and one of the things I've been working hard at is getting people away from thinking of the NXT AE as some kind of digital Wall Street.
The AE has many uses that have nothing to do with "shares" at all.
I prefer to call it a "token machine" and the tokens can be used for several things, and one of them is "shares".