Block chain Guide

Blockchain Guide 1 2 Blockchain Guide Blockchain Guide 3 WHY A CONTENTS BLOCKCHAIN

GUIDE? 1 MAIN APPLICATIONS 17

2 ENVIRONMENTAL 31 As revolutionary as it is comprehensive, Mattos Filho Advogados has deep Blockchain technology has shown that it knowledge in all these areas and 3 COMPLIANCE AND CORPORATE ETHICS 35 is here to stay. Far from being restricted applications and knows how to guide and 4 ANTITRUST 41 only to the universe of cryptocurrencies, advise its clients. Our firm stands out Blockchain will be the main tool for as a reference and has the necessary 5 LITIGATION 45 structuring and enabling business in a expertise for the technology industry 6 CYBERSECURITY 51 digital environment in the near future. and for companies that depend on it for 7 developing their business in different INVESTMENT FUNDS 57

If transactions are made based on trust areas. 8 SUCCESSION LAW 65 between parties and intermediaries, no 9 REAL ESTATE 71 technology in the digital world can better We hope that this guide will serve to translate this environment, whether clarify information about Blockchain 10 INFRASTRUCTURE 75 by its transparency, the immutability technology and provide a reference for 11 LIFE SCIENCES AND HEALTHCARE 79 of its records, or because it allows the how we can assist our clients. parties to be brought closer, removing 12 CRIMINAL LAW 85 unnecessary intermediaries in business. Happy reading! 13 PRIVACY AND DATA PROTECTION 91

Blockchain applies to several areas such * This guide should not be used as a legal 14 INTELLECTUAL PROPERTY 97

as environment, infrastructure, payment opinion, nor is it intended to guide anyone 15 INSURANCE 105 methods, contracts, investment funds, for legal purposes. 16 healthcare, insurance, and real estate. CORPORATE/M&A 111 Its impacts also vary, being felt across 17 TAX 115 a range of legal areas including criminal, antitrust, data protection, compliance, tax, cybersecurity, asset management, corporate, intellectual property and litigation.

4 Blockchain Guide Blockchain Guide 5 WHAT IS BLOCKCHAIN?

Blockchain is a technology for storing and is then included in the chain, and transmitting information in a referencing the previous block and transparent, secure, and distributed making it visible to the receivers of the network, that does not demand a transactions, as well as throughout the centralized control body to exist. rest of the network. Each transaction is recorded in blocks with date and As the name suggests, Blockchain time information (timestamping). is based on a chain of “blocks” that The information for each block in the store digital information related to Blockchain is summarized in its hash, the transactions made between its with each hash referencing the previous users. Like a ledger, each Blockchain hash, thus forming a series of verifiable constitutes a database that contains and permanent data, unable to be the history of all the transactions carried modified without the consent of the out and validated since the creation of entire Blockchain network. the first block of information. Once inserted into the chain, the content of these blocks is highly unlikely to How is this possible? be modified. If a network user tries to modify it, the number of the original Transactions made by Blockchain users hash will be changed and will show the are grouped into blocks, which are existence of a “new” block that does validated by network “nodes”. These not fit in the already validated and nodes are nothing more than individual authenticated chain. computers that make their storage and processing resources available to all Though it may seem complicated at first members of the chain, to ensure that glance, it becomes simpler when we seek decisions on the Blockchain are made in to understand the practical application a decentralized manner. of Blockchain.

After the transactions have been validated, the block receives a unique identification code known as a “hash”

6 Blockchain Guide Blockchain Guide 7 Blockchain in practice So then, why is the

The first news about the use of the parties - thus excluding them technology still not Blockchain dates back to 2008 when the from the chain of intermediaries who used on a large scale? technology was discussed in the article could make negotiations costlier and “Bitcoin: The Peer-to-Peer Electronic Cash more time-consuming. Notwithstanding all its advantages tool, Blockchain does not allow the System”, by Satoshi Nakamoto. This and benefits, there are still important modification of its data. Although data article sparked the dawn of the Bitcoin • Transparency: all decisions, such as challenges for using Blockchain. may be rectified when a new block of cryptocurrency, which enables individuals block validations and registrations, information is included in the chain, the or entities to transact directly, replacing are public and visible to all While Blockchain shows agility in previous block will remain registered in the reliance on intermediaries to perform members of the Blockchain, which completing transactions, there is no way the network. or validate transactions. On that gives greater transparency to the to prove the unequivocal consensus of occasion, Blockchain was introduced as transactions carried out. the parties involved in a transaction, Finally, it is difficult to determine where the technology that would serve as the or even guarantee the quick decision- modifications in the Blockchain take basis for Bitcoin transactions on the • Immutability: after the blocks making of important decisions. place in the real world, which makes network. have been validated by the identifying the jurisdiction applicable to “nodes”, they become part of the Another point of tension is the anonymity each transaction quite challenging. However, Blockchain’s disruptive blockchain definitively. Alterations guaranteed to transact by the use of potential and its ability to serve to information contained in a given public keys instead of personal data. As These factors – especially when other purposes was soon realized block can only occur through the users are not qualified in the system by combined with the exclusion of traditional Currently, besides being used to enable validation and registration of a new formal identification, assigning rights and intermediaries such as notaries and cryptocurrency transactions in a secure block, without excluding the previous responsibilities to acts undertaken inside banks –have led to distrust in the use and decentralized way, Blockchain is block. This factor makes Blockchain the network is difficult. of Blockchain by some stakeholders of also widely used in the realm of smart applications more reliable. . society. However, the range of potential contracts and tokenization of assets. There is also the difficulty of controlling technological applications related to The use of Blockchain provides several false information. For being an immutable Blockchain tends to increase its use in advantages, in particular: the medium and long term. Why use Blockchain? • Cost Reduction There are many advantages to using • Easy Data Sharing Blockchain, mainly due to its main • Cutting Red Tape characteristics of of decentralization • Reliability and disintermediation, transparency, and immutability:

• Decentralization and disintermediation: cas there is no need for the approval of a central entity for the registration of transactions on the Blockchain, transactions occur directly between

8 Blockchain Guide Blockchain Guide 9 BLOCKCHAIN IN THE WORLD

10 Blockchain Guide Blockchain Guide 11 STUDIES AND LOCATION SECTOR/SUMMARY/REFERENCE OTHER INITIATIVES In Switzerland, there is specific legislation on energy commercialization by consumers who have production capacity (via solar energy, for example) to other consumers SWITZERLAND through Blockchain solutions that measure the energy production and consumption to they are purchasing comes from via a QR enable more efficient commercialization. Public Policies in R&D: code, and get information on how it was Sweden has been using Blockchain technology in the real estate market since 2016 and Since April 2018, the European Union, produced. SWEDEN was the first western country to begin exploring the applicatins of the technology. along with Norway and Liechtenstein, Other American companies have also have created “The European Blockchain adopted monitoring of production in In Italy, Law No. 12/2019 created a legal foundation for adoption of technologies based on distributed ledger technologies and smart contracts and defined such technologies. Partnership” that states that its members the food sector. IBM created the IBM ITALY will work together to deliver Blockchain- Food Trust, one of several Blockchain based services for the benefit of citizens, consortia that aims to move complex According to the Internal Revenue Service (IRS), general tax principles apply to society, and the economy. In addition, food supply chains to a shared and USA property transactions that use virtual currency. the European Commission launched the distributed platform. European Blockchain Observatory and WWF-Australia and BCG Digital Ventures

USA Delaware already recognizes the legality of registering corporate actions and Forum, investing €200 million in research have launched OpenSC, a new online (DELAWARE) recording ledgers on Blockchain. and development projects supporting the platform that uses Blockchain to track use of Blockchain in technical and social food and help people avoid illegal, The Utility Token Bill addresses ambiguity around the definition of a utility token, exempting areas. environmentally harmful or unethical them from the state’s securities regulations, provided that (i) issuers do not market utility products. As WWF-Australia’s first tokens as investments; (ii) utility tokens can be redeemed for a product or service; and (iii) social impact venture, OpenSC recently issuers do not actively support the development of a secondary market for these utility tokens. Infrastructure: raised more than US$4 million in capital. ESTADOS UNIDOS The Crypto Property Tax Exemption Bill establishes that virtual currency is not subject to They are currently working to increase (WYOMING) taxation as “property” in Wyoming, as well as conventional financial assets, money, bank In Europe, Blockchain has been used visibility and transparency in supply balances, and precious metals, for example. to guarantee in real time that both chains with familiar names such as energy supplied and consumed is 100% Nestlé. The Blockchain Fillings Bill updates the Wyoming Business Corporations Act to authorize the creation and use of the Blockchain to (i) store records; (ii) identify the shareholder of a renewable. The Spanish group Iberdrola corporation; and (iii) the acceptance of shareholders’ votes by the network’s subscriptions. has implemented a pilot project based on the use of Blockchain technology that Fintechs: Since 2016, Japan has included two extremely relevant rules on virtual currencies even allows the enforcement of clauses within its legislative framework, namely: The Payment Services Act and the Transfers of long-term energy purchase and sale In 2018, the state of Arizona created Prevention Framework for Criminal Activities. contracts (Power Purchase Agreement a regulatory sandbox for fintechs, - PPA) based on renewable assets, pioneering the study of regulation of JAPAN The first deals with transactions with virtual currencies, establishing certain given that one of the requirements they new technologies in the United States’ obligations, such as the need for a representative domiciled in the country, as well as annual submission of transaction records to an inspection body. The Transfers establish is the need to prove the origin financial markets, including blockchain Prevention Framework for Criminal Activities, on the other hand, requires entities of the electricity supplied is 100% green. and cryptocurrencies. to verify the identity of Blockchain users, as well as transaction records, and any suspicious activity must be reported to the relevant authorities. Supply chain: Voting in meetings: All transactions involving cryptocurrencies must be confirmed by banking institutions, under SOUTH KOREA the Act on Reporting and Using Specified Financial Transaction Information. This document In the United States, Dole Foods has Proxy Voting Blockchain. The use of was created to deal with money laundering and the financing of terrorism. Among the adopted Blockchain throughout its Blockchain technology in shareholder obligations, cryptocurrency owners must answer to the country’s Financial Intelligence Unit. fruit processing system. At markets, meeting voting systems ensures greater consumers can check where the product efficiency, reliability, and security, and

12 Blockchain Guide Blockchain Guide 13 facilitates the counting of shareholders Government services: exchanges and authorities. There would regulatory authorities, such as the with voting rights. be due diligence procedures included, Central Bank (BACEN), the Securities The Australian government has Meeting information is imported (agenda, such as know-your-client programs. The Exchange Commission (CVM), and the been a strong supporter of new date, time, etc.) to the distributed ledger intention is to create a global standard Insurance Regulator (SUSEP) have been technologies in the field of Blockchain and the rules of the meeting are defined of transparency. proposing successful participatory and cryptocurrencies, having through smart contracts. After meeting initiatives in respect to other subjects. sent AUS$700,000 to the Digital conditions are defined and validated, These experiences can certainly be put Transformation Agency in 2018 qualified shareholders are granted to good use. to examine possible Blockchain BRAZILIAN access to the platform where their votes applications within government services. are imported into the distributed ledger CONTEXT: and encrypted in immutable registration In Brazil, Blockchain can open up blocks, guaranteeing the security opportunities for entities interested in of information. This application of Regulation of Regulatory sandboxes are using this technology, as well as for those Blockchain technology has already been environments created by exchanges: intending to offer it to the market as a used in Europe, North America and Asia, regulators that allow startups product. by institutions such as Banco Santander The United States-led FATF (Financial and technology companies (Spain), Nasdaq, the ICJ and ACCESS Action Task Force) has released to carry out tests and In view of the country’s traditional (Singapore). an updated practice guide so that experiments in regulated red tape, Blockchain represents an Blockchain exchanges may have the sectors of the market for opportunity for innovation, agility and same duties as traditional financial a specific time and under transparency, especially by means institutions. This includes identifying regulatory supervision. Environment: of smart contracts, which provide actors in transactions and developing Proxy Voting Blockchain. The use of security and speed for the execution processes for institutions to enforce the Blockchain technology in shareholder of transactions between the parties sharing of this information with other meeting voting systems ensures greater involved. exchanges and authorities. There would efficiency, reliability, and security, and be due diligence procedures included, facilitates the counting of shareholders There will certainly be adequate demand such as know-your-client programs. The with voting rights. for Blockchain in Brazil, since several intention is to create a global standard Meeting information is imported (agenda, fields of the market stand to benefit of transparency. date, time, etc.) to the distributed ledger from it – especially if public authorities and the rules of the meeting are defined adequately balance mechanisms to through smart contracts. After meeting foster innovation and the development of conditions are defined and validated, Regulação de technology. qualified shareholders are granted exchanges: access to the platform where their votes The regulation of the technology will are imported into the distributed ledger The United States-led FATF (Financial require the engagement of society. and encrypted in immutable registration Action Task Force) has released Public authorities can implement blocks, guaranteeing the security an updated practice guide so that regulatory sandboxes and launch public of information. This application of Blockchain exchanges may have the consultations, allowing for the testing of Blockchain technology has already been same duties as traditional financial new technologies in regulated sectors used in Europe, North America and Asia, institutions. This includes identifying and enabling stakeholders to take by institutions such as Banco Santander actors in transactions and developing part of the construction of a Blokchain (Spain), Nasdaq, the ICJ and ACCESS processes for institutions to enforce the legal framework. Some of the Brazilian (Singapore). sharing of this information with other

14 Blockchain Guide Blockchain Guide 15 MAIN APPLICATIONS

16 Blockchain Guide Blockchain Guide 17 CRYPTOCURRENCY Cryptocurrencies are independent another of its notable characteristics transactions carried out through of central banks, and the amount in is transparency. Every detail of Blockchain’s structure. Cryptocurrency is a financial asset that circulation can be increased by any each transaction that occurs is duly allows electronic payment based on person or group that follows the pre- registered in the Blockchain network, The term “mining” is used in comparison cryptographic evidence, thus removing established rules for their issuance in through its chain of interconnected to the work of miners to obtain gold, the need for financial intermediaries white papers. blocks, forming a large accounting book in the sense of it being extracted and (such as banks) to ensure its available to multiple participants. This then circulated. In the case of digital authenticity. A cryptocurrency transaction is a direct permanent, multi-faceted record raises currencies, once the mathematical transaction between two users (peer- the level of security for cryptocurrencies, problem has been solved, that is, once Cryptocurrencies are issued according to to-peer), thus their use as an instrument away from forgery, transaction fraud, the computational effort and the pre-established rules, publicly available of exchange does not depend on a theft, and robbery. work to achieve the result have been in so-called white papers. The most central verifying agent. Transactions demonstrated, the miner is awarded with famous white paper is attributed to can be validated by any of the points Although cryptocurrencies are cryptocurrency, duly registered on the Satoshi Nakamoto, who introduced in the Blockchain network, which act decentralized by nature, how agents will Blockchain network. the concept of cryptocurrency via as verifying agents and generate the use them and their application in society the creation of Bitcoin, along with necessary consensus for transactions are subject to constant evolution Blockchain’s support architecture. to be completed and recorded within the and regulation in several jurisdictions structure. around the world. News reports from Initial Coin Offering - Once cryptocurrency is issued, it is the countries that have started to regulate Blockchain architecture that allows the Just as with the issuance and transfer the circulation of cryptocurrencies – ICO asset to be validated. of cryptocurrencies, there are no such as Japan and Switzerland – are ICO (Initial Coin Offering) is the term central institutions with an exclusive recurrent. Thus, depending on the adopted to refer to what is essentially Blockchain’s continuous registration prerogative for cryptocurrency storage. country, cryptocurrencies can be an IPO (Initial Public Offering) for works like a stamp or digital signature. Some software options – so-called banned, regulated as currency, or cryptocurrencies. However, unlike It makes each cryptocurrency a unique “wallets” – provide means for creating considered as intangible assets, liable what would happen in a traditional IPO asset, preventing duplication, and and securing cryptocurrencies that can for commercialization without any – where a portion the capital raised allowing it to be used in transactions like be stored either in the cloud, or offline on regulation from monetary authorities. would be attributed to an investing a digital currency. physical media. shareholder, providing a certain amount of money – the ICO aims to raise funds Due to the absence of intermediaries, through public funding in exchange for cryptocurrencies are international Mining fractions or cryptocurrency units offered. Characteristics: in scope, with no conversion rates for different countries, or fees for Mining is the method by which a It is a procedure that is still awaiting Cryptocurrencies possess some international transactions. Transactions cryptocurrency is traditionally issued. specific regulation, but some central particular characteristics that make are not restricted to bank hours - the Despite its name, the process does not aspects must be taken into account: them different from traditional concept of a “business day” is not relate to any ores or minerals, rather currencies. Decentralization is applicable to cryptocurrencies. consisting of a process for solving • White paper - consistent with the fundamental to cryptocurrency, and is complex mathematical problems. description of the ICO’s scope, present in the creation, transfer, and So that decentralization does not “Miners” invest time and computing with an explanation of the related maintenance of cryptocurrencies. harm the reliability of cryptocurrencies, capacity to solve such mathematical technology behind it. problems, which involve verifying

18 Blockchain Guide Main applications Main applications Blockchain Guide 19 • Credibility/Team - it is important distribution, (iii) transaction speed, SMART to note who is behind the ICO and and (iv) algorithms used. The creation contractual, depending on the smart investigate its history, in order to method and the structure (Blockchain) CONTRACTS contract model, as will be discussed give the ICO greater credibility. that support them are usually the same. later. Smart contracts were well defined by Nick Szabo in 1996 as “a set of • Liquidity - attention should be Bitcoin – the precursor to all other • Digital form: This is related to promises, specified in digital form, paid to how the newly minted cryptocurrencies – remains the most the fact that the smart contracts including protocols within which the cryptocurrency will be used after the popular one with the highest market operate electronically through parties perform on these promises”1. In ICO has finished. value, with all other currencies that have lines of code and software that other words, they can be understood followed on thus known as altcoins. prescribe certain conditions and as lines of code that are stored in One of the most successful examples of Ether has become very relevant among consequences. The contractual a Blockchain and are automatically an ICO is the Ether cryptocurrency, the these altcoins due to the Ethereum clauses and/or functional executed when their predetermined currency of the Ethereum platform used platform, developed not only to serve consequences are described in the conditions are met. to create new cryptocurrencies, which as a model for cryptocurrency but for form of codes in the software, and raised approximately US$18 million from several other purposes such as smart the entire procedure is carried out Although old, this definition remains its ICO in 2014. contracts and tokens. digitally. compatible with what is understood by smart contracts today. Through • Protocols: Computational protocols this definition it is possible to reflect in the form of algorithms constitute on the technical, business, and legal a set of rules for which each party Cryptocurrency developments of this technology. must process data in relation to a Options: smart contract. It is the mechanism • Set of promises: They may have that performs the qualifications and There are thousands of cryptocurrencies been contractual – characterized as basic rules of the transactions, and available, with the main differences terms or rules of operation – or non- being (i) market value, (ii) form of

1 “[…] a set of promises, specified in digital form, including protocols within which the parties perform on these promises.” - Nick Szabo, Smart Contracts: Building Blocks for Digital Markets, 1996.

20 Blockchain Guide Main applications Main applications Blockchain Guide 21 allows the execution of actions such which are encoded in a Blockchain. as making payments. When particular conditions are met and verified, computer networks perform the • Pre-established promises: Self- actions called for in smart contracts, enforcement is one of the central updating the contract history while being points of these contracts. Because registered in the chain. they are traditionally stored in a Blockchain, their clauses are With such objectivity, smart contracts automatically enforced, and present several benefits, such as:(i) the effects of their predictions speeding up transactions and saving are unlikely to be avoided once time related to inaccuracies and underway. corrections in contractual wording; (ii) increasing the confidence of Unlike traditional contracts, where parties involved in a transaction, as all a third-party describes the terms conditions are automatically executed and writes the document, with smart in accordance with predetermined rules, contracts, the terms can be developed and encrypted records of transactions physically, or through an electronic are created and shared with all platform, and can be implemented and participants. signed in a digital manner that is secure and transparent for all parties. Thus, Examples of possible applications for smart contracts inserted in a Blockchain smart contracts are: have the ability to simplify interactions between parties in a given transaction or (i) Insurance contracts: the business activity, leading to transactions parameters of an insurance policy based on pre-established and automatic can be coded in a smart contract and commands. enforced automatically. A certain policy may provide for automatic payment of a It is important to note that there are a specific amount of insurance coverage variety of smart contract forms, which as a result of a certain event, without can be: (i) fully coded, (ii) a contract with the need for an administrative process one coded version and another in natural to ascertain what took place (if X occurs, language; (iii) a combination of contract then the insured will receive Y); with natural language, with codified enforcement; or (iv) a natural language (ii) Escrow: smart contract protocol contract with an encrypted payment retains funds until the occurrence of a system. certain event and the verification of a message. Once the event has occurred Despite this variety of forms, all smart and the content of the message has contract models involve coding. The been observed, the contract protocol operation of this technology is based automatically enforces a contractual on cause and effect (“if/when/then”), action such as the payment of a certain amount to the beneficiary.

22 Blockchain Guide Main applications Main applications Blockchain Guide 23 (iii) Royalties Distribution: automatic payment of royalties according to a certain event.

Despite these positive prospects, SMART CONTRACTS AND THE smart contracts are the result of INSURANCE MARKET: coding and may contain defects and/ or not correspond to parties’ initial Smart contracts could have several functions in the insurance market, plans. Command transmission can be including the automation of risk underwriting and claim regulation. hampered by network instability, and there is a risk that encrypted keys will In the risk underwriting process, a smart contract can be used for be hacked. In addition, the automation the insurer to issue an insurance policy if certain requirements are of some contracts becomes more established. For example, a customer seeking protection for robbery and complex as we face situations such theft of a smartphone could include their personal data and data about as the reversibility of transactions, the smartphone to be protected (brand, model, IMEI) in the Blockchain; subjective analyses, complex principles such data would be validated (by means of external checks and/or in the (such as reasonability), and many Blockchain itself) and if certain conditions are subsequently met, the other interactions between Blockchain smart contract could automatically generate an insurance policy for such structures and external information. an asset, all without human interference.

Therefore, while smart contracts have Another application of smart contracts occurs in the claims regulation positive prospects and may be able process, being especially interesting in the case of parametric insurance. to reduce costs and make contractual In parametric insurance, the regulation of the claim does not depend relationships less unstable, they are only on the verification of the damage caused to the insured asset (such not necessarily exempt from errors as the analysis of damages to an asset in an automobile accident), but and difficulties that may arise in new also on the verification of certain parameters. There is also climate- ways – something typically found in linked parametric insurance, in which the payment of indemnity is due if technological contract mechanisms. a certain meteorological event occurs (number of dry days, frost, volume of rain, etc.), and parametric insurance that provides for the payment of indemnity in case of delays on flights. In those cases where claim regulation depends on the verification of certain parameters, smart contracts can be widely used to verify these with external sources and, once verified, to adjust the claim and pay the compensation very quickly. This could even be done with the aid of data automatically transferred to the Blockchain using equipment that has incorporated IoT functionality.]

24 Blockchain Guide Main applications Main applications Blockchain Guide 25 TOKENIZATION

Tokens are security devices that will however focus on the process of generate unique, exclusive, and tokenization with the application of random digital identifier codes. The Blockchain technology, known as the transformation and individualization “security token”, which aims to cut red of data or assets in a token is called tape and speed up certain everyday “tokenization”, and has several transactions. applications, as we will see below. Through the Blockchain structure, it is In the payment industry, tokenization possible to “tokenize” real assets, in is a security mechanism in which the a process of converting all or part of complete data on a credit card, for assets into a certain number of tokens, example, is replaced by a token at depending on their value, such process random. Thus, all entities participating in being registered, moved and stored in SMART CONTRACTS the payment chain share only the token the Blockchain architecture. with each other, so as to not distribute AND THE IP MARKET the data on an individual basis and to The assets to be converted into tokens guarantee an additional level of security can be numerous: works of art, company Within the universe of intellectual property, these contracts could be used to quickly fulfill the for the cardholder. Even if a security shares and part of a property are just assignment or licensing of a certain asset between the parties, when negotiated in a simplified incident occurs, the attacker will not be some examples that can be converted manner. The moment any of the established conditions are met, the obligation corresponding able to revert the token to bank details, into one or multiple tokens and traded to the other party is automatically fulfilled. which could potentially cause great around the world. In this way, the damage to the cardholder. token digitally represents a fraction of An example of a smart contract used in the music industry came with the emergence of the the value of that asset in the market Choon streaming platform2 in May 2018. The idea behind the launch was to enable independent There are also utility tokens, a kind of and can be traded. This negotiation artists to launch their productions on the market and directly manage their copyright and unregulated digital asset that enables is commonly associated with smart receive payment (via cryptocurrency) for the reproduction of their music. However, the artists’ transactions in an online environment. contracts. remuneration varied significantly due to the fluctuating cryptocurrency financial market. From Via this instrument, interested parties the analysis of cases like this, new platforms have already been launched on the market with can exchange tokens for products or So, how does this work in practice? different guarantees and the tendency is that more and more players are fighting for space in services in a limited context. Imagine that a property owner intends to the entertainment industry3, already known by some as “Industry 4.0”4. The tokenization of IP sell such property. The owner can either assets has already been discussed by the World Intellectual Property Organization (WIPO) and It is possible to make a comparison carry out the sale in the traditional way its applicability may be directly connected with the enforcement of smart contracts, further between utility tokens and tokens – negotiating with a single buyer – or accelerating transactions and favoring automation. from an amusement park – the tokens he/she can tokenize such property. In from a park are issued and can only this case, the owner will be able to issue be used within that park, and it is not numerous tokens for a given unit value possible to use them at a competitor’s (at the owner’s sole discretion), in an

2 Choon - A Music and Digital Content Ecosystem Utilizing Smart Record Contracts, Choon White Paper. Available at: park or anywhere else. Likewise, issued environment linked to the Blockchain’s https://www.choon.co/public/pdf/choon_whitepaper_v1_07.pdf. Source: https://www.kryptographe.com/top-5-best-blockchain-based-music-streaming-platforms/. Accessed on: June 1, 2020. utility tokens will only work for the structure. Once issued, the tokens and

3 As an example, there was the launch of the Mycelia platform by Imogen Heap, Grammy winner in categories such as best singer and best lyrics. specific purposes determined by a the fractions they represent can be sold According to the British singer, the goal behind the development of this project is to empower a fair, sustainable, and digital environment for the music industry through the blockchain. TAPSCOTT, Don; TAPSCOTT, Alex. Blockchain Could Help Artists Profit More from Their Creative Works. Available at: particular company or entity. This guide to several individuals at the same time, https://hbr.org/2017/03/blockchain-could-help-artists-profit-more-from-their-creative-works. Accessed on: May 28, 2020.

4 ROSSOW, Andrew. How Can We Make Intellectual Property Rights ‘Smarter’ With The Blockchain? 2018. Available at: https://www.forbes.com/sites/andrewrossow/2018/07/24/how-can-we-make-intellectual-property-rights-smarter-with the-blockchain/#579e785785ec. Accessed on: May 29, 2020.

26 Blockchain Guide Main applications Main applications Blockchain Guide 27 and each of these individuals will hold • Despite these advantages (as TOKENIZATION AND a percentage of the ownership of the well as those derived from other property. common applications of Blockchain INSURANCE MARKET technology) tokenization faces In the same vein, some companies are several legal challenges, especially in Tokens could be used by the insurance market in a diverse array of forms. issuing debt securities using Blockchain highly regulated markets that have The use of cryptocurrencies and security tokens in the insurance market technology, with each token representing rules for negotiating and formalizing depends on their regulation by the Brazilian Central Bank and the Brazilian an issued security. Considering that the transfer of assets and goods. Securities and Exchange Commission, as these are matters under their Blockchain is an immutable technology, jurisdiction. On the other hand, there is no impediment for the insurance market the tokenization of the property or debt to make use of utility tokens right now. Utility tokens can be sold to finance security will be permanently registered. certain projects, giving their holders the right to use a certain product or service in the future. For example, an insurance marketplace could sell utility tokens for Some advantages of tokenization in a certain price and guarantee acceptance of that utility token in the future as Blockchain are described below: payment for an insurance premium greater than the original cost of acquiring the token. • Enables the opening of the market: considering that tokenization allows an asset to be divided up into millions of tokens, a greater number of people can acquire or invest in it. For example, traditional marketing of artworks regularly reaches a limited audience, since only individuals TOKENIZATION OF REAL ESTATE with a large purchasing power have access to this market. However, if a painting is divided into several Tokenization of real estate is recent and with no specific legislation in Brazil. tokens, several people can acquire Depending on the real estate tokens’ form of issuance and the rights granted to fractions of ownership rights over investors, they may be characterized as securities. They would thus be regulated the painting at the same time, for by the Brazilian Securities and Exchange Commission, which has already been drastically less than the total value analyzing the matter more closely. Tokenization would reduce intermediaries and of the asset; the costs involved in real estate transactions by reducing inconsistent information and increasing transparency in regard to third-party actions. To make tokenization • Cutting Red Tape: as in other public and ensure its legal validity and effectiveness, it must be carried out by applications of Blockchain splitting the rights as established in a public deed and filed at a relevant real technology, tokenization is yet estate registry. Notary services are also still essential for providing legal certainty another example of optimizing to property as an investment asset, as these notaries act as custodians of the a process by cutting red tape goods or rights that are divided up and transformed into digital assets (tokens). considering that all issuance, negotiation, and registration is carried out on Blockchain technology, without intermediaries.

28 Blockchain Guide Main applications Main applications Blockchain Guide 29 ENVIRONMENTAL

30 Blockchain Guide Blockchain Guide 31 Addressing complex environmental system can track the extraction of raw Blockchain technology can even be implementation of the technology, problems has become increasingly materials, management of suppliers used in the context of carbon credit ensuring high-quality information necessary in Brazil, and at a domestic and branches, production control and tokenization. It is possible to create checks for data that will be sent to level there are the legal guidelines that transportation of associated waste a network platform for companies to the Blockchain system, as well as an govern activities on Brazilian soil. More to its final destination, along with a easily and efficiently compensate their excellent and thorough implementation importantly, however, is the international potential reverse logistics system, carbon emissions, as the tokenization throughout all stages, considering system that demands transformation bringing greater transparency to waste of carbon credits allows them to be sold any necessary procedures and any in governance structures, models management6. Companies can therefore or exchanged, similar to the idea of a applicable regulations. of investment and socioeconomic increase control over their environmental digital currency. Carbon-neutral products engagement in adopting a more management and consumers are able and services are thus encouraged by the In this sense, we can assist in (i) sustainable way of life. to validate the information that the facilitation of these operations8. identifying opportunities for the use of company provides regarding the product Blockchain in a company’s environmental The possibilities of applying Blockchain life cycle. In other countries this technology management; (ii) verification of the in environmental matters are growing as has already been used to ensure that environmental information that must the world continues to search for more Brazil has examples of platforms that energy supplied to certain locations is be included in the Blockchain system sustainable development models. Tools use Blockchain and machine learning 100% renewable. Blockchain facilitates under the terms of the applicable found in Blockchain technology provide to track environmental assets, such compliance with contractual clauses that environmental legislation; (iii) legal possibilities for the proper traceability, as maintaining and preserving forests, require proof of the 100% sustainable advice on the programming of smart security, transparency and the allocation water resources and biodiversity7. In origin of the electricity supplied. contracts, in order to reflect the of environmental responsibilities derived the case of products originating from application of environmental regulation; from economic activity and operations. Brazilian biodiversity, Blockchain is able and (iv) environmental auditing to provide traceability, transparency, of projects capable of generating and security along the supply chain. HOW tokenizable assets, as well as providing Common uses This is because the species subject to legal advice on the transactions technological research and development, CAN WE involved. of Blockchain in derived products and their associated HELP? environmental matters: commercial value are all included in a digital platform by suppliers. Together with the implementation of smart In light of the growing demand for more Given its intrinsic characteristics of contracts, this type of technology sustainable organizations, products transparency and traceability, Blockchain guarantees to the interested parties and services, Blockchain technology has has already been used in the supply that they are compensated fairly and arrived at the environmental universe chain5 to track food and provide the equitably, as it also provides information ready to revolutionize sustainability- population with information on its origin, related to the proper sharing of benefits. related legal transparency and security production control and quality. The in business. Therefore, it is essential entities to be advised about the

5 Within a company’s monitoring system, suppliers include information about the products and services provided, information that is validated in the subsequent stages of the chain, up to the final stage, in which information about the final destination of the waste and eventual reverse logistics system are included. Information on the regularity of suppliers, such as the indication of which licenses and environmental authorizations they have, can also be included to facilitate environmental management by the company. 8 https://www.carbonx.ca/ 6 https://plataformaverde.com.br/?gclid=CjwKCAjwh472BRAGEiwAvHVfGlxQHgoIgpHt1gU-bWYU-WTJSufpZl01Pcg2PPJIzfixOjFwaR8LUhoCARM QAvD_BwE

7 https://nacoesunidas.org/brasileira-cria-tecnologia-que-rastreia-biodiversidade-utilizada-produtos/

32 Blockchain Guide Ambiental Ambiental Blockchain Guide 33 COMPLIANCE AND CORPORATE ETHICS

34 Blockchain Guide Blockchain Guide 35 Blockchain’s versatility has been used in for automatic measuring of the the corporate environment in different efficiency of companies’ compliance ways, including as a tool for structuring, management. implementing, and monitoring compliance programs, such as: • Efficiency gains: companies can experience significant efficiency • Audits: With the automation gains. As all changes made to the of companies’ internal risk information block are permanently management controls, Blockchain registered, the resulting traceability can facilitate the creation of audit means that the technology trails for internal compliance can be used for the validation verification and create risk maps and certification of documents, broadly and securely. contracts, which places it as a future substitute for traditional notaries. • Internal investigations and supervisory administrative In spite of the lack of regulation in procedures: as the information in most countries, the characteristics and the Blockchain chain is immutable, versatility of Blockchain technology all changes to the history of a digital make it an important tool for companies asset are recorded. looking to maintain their integrity. Be that as it may, companies must have an • More efficient management: effective and pre-existing compliance Blockchain’s automation and program for Blockchain to make a synchronization capacity allows difference. After all, Blockchain does

36 Blockchain Guide Compliance and Corporate ethics Compliance and Corporate ethics Blockchain Guide 37 not replace integrity standards. Instead, HOW it facilitates the measurement and implementation of monitoring controls CAN WE for those standards. In this sense, it is HELP? essential that companies adopt integrity policies, codes of ethics and conduct, • Elaborating codes of conduct and undertake employee training, create integrity policies that consider the reporting channels and other control and use and storage of information in disciplinary measures. Blockchain;

The use of Blockchain technology has • Review of companies’ compliance an enormous potential to strengthen programs if they intend to benefit and refine internal procedures for from Blockchain through smart integrity, for auditing, for encouraging contracts; the report of misconduct and for the effective application of codes of ethics • Advice on internal investigations and conduct within companies. All of whose results are stored in these factors are mentioned by the Blockchain; Anti-Corruption Law as indicative of an effective compliance program. • Advice on the implementation of Blockchain as a tool for monitoring Thus, the use of Blockchain technology risk maps; in companies may prove to be a very positive element in the event of an • Advice on the implementation of evaluation of compliance programs, either Blockchain as a tool for reputational to attest to the credibility and efficiency analysis of clients and business in programs such as Pró Ética, or in the partners; event of an administrative proceeding or leniency negotiation. • Advice on administrative proceedings that require analysis of documents encrypted with Blockchain technology;

• Drafting reports and risk mapping about the implementation of Blockchain in companies in their integrity policies.

38 Blockchain Guide Compliance and Corporate ethics Compliance and Corporate ethics Blockchain Guide 39 ANTITRUST

40 Blockchain Guide Blockchain Guide 41 technical standards applicable that they are in compliance with to platforms. Such agreements antitrust law, and recommendation can be pro-competitive because of mechanisms for mitigating they create compatibility/ associated risks; interoperability between systems of different companies, but they • Representing companies in regard to can also prevent the entry of new administrative proceedings before competitors and consequently CADE, when investigating alleged have the potential to close off the anti-competitive behavior related to affected markets. the use of Blockchain technology; and • Facilitation of market and remedy monitoring: Competition • Acting in relation to antitrust authorities can use Blockchain matters before the Brazilian Central platforms to identify suspicious Bank and other authorities that activities in markets and ensure may be created to regulate markets that they are able to monitor any that use platforms with Blockchain imposed remedies in relation to technology. When considering the possible • Risk of collusion/cartels: If all conduct and structure control – for interactions between antitrust law and companies in the same market example, through “memorization” Blockchain technology, the following use the same Blockchain platform/ and automatic execution of smart aspects stand out: technology, there is a risk of contracts. competitively sensitive information • Constitution of a consortium flow between competitors (such or joint ventures to explore as costs and prices of products or Blockchain technology may be services). This can not only facilitate HOW subject to mandatory filing to CADE collusive behavior among the CAN WE (Administrative Council for Economic competitors in question, but also Defense): the formation of consortia monitoring of deviations from cartel HELP? or joint ventures, and the signing participants. of associative contracts for the Our Antitrust practice area can assist implementation and exploration of • Risk of abuse of a dominant clients throughout the technology Blockchain platforms/technology position by refusing access: If creation, implementation and granting of that satisfy the following criteria a Blockchain platform becomes access to Blockchain technology stages, will be mandatory for CADE: (i) essential for activities in a certain including: the consortium or joint venture is market, the unwarranted refusal of constituted or has activities in Brazil; access to that platform may have • Representing companies in regard and (ii) if the groups involved in the the potential to exclude or prevent to merger control filingsinvolving the operation fulfill revenue criteria the entry of new competitors. formation of consortia for the use of in the year prior to the formation Blockchain technology; of the consortium (i.e. one of the • Risk of market closure through groups registered a minimum of technical standardization: The • Advice on the creation and BRL$750 million, and the other group use of Blockchain technology implementation of Blockchain registered a minimum of BRL$75 can facilitate agreements on platforms/technology to ensure million in gross revenues).

42 Blockchain Guide Antitrust Antitrust Blockchain Guide 43 LITIGATION

44 Blockchain Guide Blockchain Guide 45 IMPLEMENTATION PHASE JUDICIALIZATION FASE DE IMPLEMENTAÇÃO FASE DE REGULAÇÃO FASE DE CONSOLIDAÇÃO OF TECHNOLOGY IN BRAZIL: • Little or no standardization; • Once the legality of services has • Attempts to regulate by the THE INTERPRETATION been established, with a final decision Legislative Branch or sectoral bodies; OF TECHNOLOGICAL • Little or no interpretation by the or regulation of the topic, the litigation is Courts regarding the application no longer about the regulation process • Conflict of case law of the Brazilian INNOVATION BY THE of the new technology; and focuses on the use of innovation by courts; JUDICIARY AND POSSIBLE consumers and users; • Economic agent with greater • Faced with an eventual conflict of IMPACTS ON SMART freedom for development, but • In the case of smart contracts, the case law or excessive regulation, the with greater inherent risks; solution to issues between parties can CONTRACTS AND debate can be taken to the Supreme be defined; Federal Court, such as in regard to: CRYPTOCURRENCIES • Strategic moment for the . - Brazilian Civil Code: - Illegality of laws restricting definition of understanding immutability and self-enforcement individual transport applications10; by the courts: few cases of the contract with coding errors or - Illegality of decisions that Technological innovations change living become a paradigm for future problems of expression of will. block messaging applications11. standards and raise new social and economic understandings; dilemmas. Naturally, differences between users, • In the case of cryptocurrencies, suppliers, and control and inspection bodies • The responsibility of internet solutions can be defined for issues such arise during this process. platforms for third-party content9, as: for example, was first established - Responsibility of brokers Brazil is a country with a highly litigious tradition by precedents and later and Blockchain platforms; and these debates are invariably taken to standardized by the “Marco Civil - Legal nature and which the Judiciary. This has happened with private da Internet” (Brazilian Civil Rights bodies are responsible for inspection transport applications, cryptography, internet Framework for the Internet). and regulation. service providers’ liability for third-party content, and even with electric scooters. It could therefore happen with smart contracts and cryptocurrencies too.

Below, we present the general characteristics of three distinct phases of this litigious process resulting from technological innovation, and how it can impact the use of smart contracts and cryptocurrencies in Brazil:

9 Marco Civil da Internet (Lei n. 12.965/2014), art. 19, caput. 10 STF, RE 1054110 RG, Justice Roberto Barroso, judged on Dec.12, 2017. 11 STF, ADI 5527, Justice Rosa Weber, judgment pending.

46 Blockchain Guide Litigation Litigation Blockchain Guide 47 How have the courts HOW PRECEDENT OF • In the case of fraud in a digital ruled in Brazil? CAN WE account leading to the loss of THE STATE OF SÃO Brazilian precedents on smart HELP? bitcoins, the Brazilian Consumer contracts and cryptocurrencies are Protection Code was applied to the PAULO COURT OF scarce and limited to matters that have relationship between the broker As there is no specific legislation and little to do with technological innovation and the contracting party15. there are only few decisions, sensitivity APPEAL itself. and legal precision are required in the use and creation of these tools. Mattos After having an online purchase Filho’s Litigation and Arbitration practice frustrated twice, the marketplace Smart contracts area works on the most complex platform blocked the plaintiff’s PRECEDENTS OF As this technology is not widespread in national and international cases with account because it understood there Brazil and lacks specific regulation, the clients in the technology sector. Our were signs of fraud12. According to the THE SUPERIOR courts have interpreted smart contracts professionals remain up to date with the court, despite being a smart purchase using basic contractual concepts most current debates in the sector and and sales contract, the “fundamental COURT OF JUSTICE provided for in the Brazilian Civil Code: their legal implications, in order to offer notions and categories to Private good faith between parties, respect for adequate and safe solutions to issues Law” apply. So, the plaintiff cannot the terms of the contract, respect for • In the case of contracting arising from innovation processes. claim for damages due to emotional the allocation of business risks, social bank account services, it was distress for the blockade, as it agreed function of contracts and civil liability. Cybersecurity relates to the need to considered possible for banks to to this possibility by agreeing to the ensure the continuity and protect the unilaterally terminate the contract terms of use of the platform. with prior notification16, given that the purchase and sale of Cryptocurrencies • In the case of fraud in a digital cryptocurrencies is not a regulated account that caused a loss There is a tendency to protect investors service in Brazil. of bitcoins, the court decided in cases where brokerage contracts • In the case of an analysis of that the brokers were liable for are breached, with the awarding of which court (Federal or State) supervening causes that go damages due to the mismanagement of should have jurisdiction over beyond the natural risk of the assets, the non-transfer of dividends or crimes related to the public investment13. the security flaws within the platform. offer of collective investment • In the case of non-compliance contracts in cryptocurrency, it was with clauses in trading contracts, acknowledged that the transaction it determined the payment of involving the purchase or sale of moral damages for the non- cryptocurrencies is not regulated in fulfillment of the brokerage Brazil17. contract by the broker14.

12 The purchase and sale contract, in this case, is a simple smart contract - the interested party pays the value 15 It was considered to be the broker’s liability to protect the user from fraud in his digital account, either on the of the product and the enforcement of the contract is automated by the platform. TJSP, Apelação n. 1017332- internal network or that of on its computers; TJSP, Apelação n. 1035890-47.2018.8.26.0100, Appellate judge. 26.2018.8.26.0068, Appellate judge. Artur Marques, judged on Jan. 28, 2016. Flavio Abramovici judged on Jan. 28, 2016.

13 For cryptocurrencies, there is no need for a third intermediary for transactions. Thus, the service would be 16 TJSP, Apelação n. 1006504-35.2018.8.26.0176, Appellate judge. Morais Pucci, judged on Feb. 11, 2020. used to increase financial transactions, with the Brazilian Consumer Protection Code (CDC) not being applied. STJ, Resp n. 1.696.214-SP, Justice Marco Aurélio Bellizze, judged on Oct. 09, 2018. 17 TJSP, Apelação n. 1030080-87.2018.8.26.0554, Appellate judge. Jonize Sacchi de Oliveira, judged on Oct. 24, 2019.

14 This is because “virtual currencies are not considered by the Central Bank of Brazil (BCB) as currency, nor are they considered as securities by the Brazilian Securities and Exchange Commission (CVM) ”. STJ, HC n. 530.563-RS, Justice Sebastião Reis Júnior, judged on Mar. 5, 2020.

48 Blockchain Guide Litigation Litigation Blockchain Guide 49 CYBERSECURITY

50 Blockchain Guide Blockchain Guide 51 existence of electronically-stored data, (ii) vulnerabilities of operating systems communication networks and critical and platforms (e.g. hardware and infrastructure from illegal use, access, software); or interference. It aims to ensure confidentiality, integrity, data availability (iii) vulnerabilities of end-users, and communication networks. exploiting vulnerabilities in connected systems (e.g. stolen private key, attacks The development of new technologies on online wallets), and unauthorized such as Blockchain may allow companies impersonation of Blockchain users. (iii) develop a plan to respond (viii) implement security measures to develop controls and systems to to potential cyberattacks, including (e.g. encryption); reduce cyberattacks and associated As no 100% secure information system notifying authorities and individuals; risks. Blockchain can incorporate exists, companies that use or intend to (ix) constantly evaluate and adjust security mechanisms to make the cost use Blockchain must adopt cybersecurity (iv) implement adequate internal procedures; and of the breach or attack exceed potential controls, standards, practices, and management of suppliers, including due rewards. policies to protect the organization from diligences, policies, processes, contracts (x) contract and maintain cyberattacks. and audits; cybersecurity insurance. However, Blockchain does not offer an impenetrable solution to all cyber For the design and implementation of (v) Increase awareness and conduct The lack of adequate cybersecurity risks and, like other technologies, it adequate cybersecurity governance, training of employees, executives, and governance in the Blockchain system must include system and network companies must: suppliers; can lead to negative impacts, such as cybersecurity controls, due diligence and financial and reputational damages, best practices and procedures. Security (i) identify the laws and regulations (vi) implement organizational, the application of fines and sanctions, incidents that permeate Blockchain applicable to each specific sector, as well technical, administrative cybersecurity indemnities, and possible individual or can range from service interruptions as the best international practices and measures, policies, and processes; collective legal actions. to robbery of sensitive data and standards; cryptocurrencies. (vii) implement measures to prevent, (ii) perform risk analyses applicable test, and monitor vulnerabilities to Blockchain’s most common risks include to processes, people, systems, and potential cyberattacks; but are not limited to: suppliers, which must be periodically reviewed and updated; (i) software coding errors;

“Hackers exploited an error in the code of the Decentralized Autonomous Organization (DAO) – a capital investment fund managed via smart contracts – allowing them to carry out repeated attacks and diverting around 3.6 million Ether (approximately USD 55 million).”]

52 Blockchain Guide Cybersecurity Cybersecurity Blockchain Guide 53 HOW CAN WE HELP?

• Legal advice regarding data • Consultancy and legal advice on breaches and cyberattacks; the relationship between data processing agents and data • Assistance in the development of subjects that are processed using preventive measures related to Blockchain technology; security incidents; • Preparation and review of contracts • Development of internal processes and documents involving the to adequately respond to contracting of third-party Blockchain cybersecurity incidents related to technology service providers who data subjects, authorities, and other collect or process personal data for third parties, including preparation the benefit of the company; in regard to people, processes, technologies, and information • Legal advice and cyber insurance reports; review – important tools in a company’s cybersecurity program, • Development of cybersecurity and covering risks that cannot be other corporate policies to regulate practically prevented or reduced. personal data processing;

• Team training on best practices and cybersecurity measures;

• Assistance in the development of educational materials for employees, third-party service providers and other collaborators, focusing on cybersecurity issues;

• Conducting internal cybersecurity training;

54 Blockchain Guide Cybersecurity Cybersecurity Blockchain Guide 55 INVESTMENT FUNDS

56 Blockchain Guide Blockchain Guide 57 Similar to the other areas covered in this which provides for rules regarding The so-called “tokenization” of assets, a million from private investors. guide, distributed ledger technologies the constitution and operation of a process of issuing a security token that (DLT) could potentially have an enormous regulatory sandbox in the Brazilian digitally represents a real and negotiable The use of Blockchain technology impact on the investment fund industry, capital markets. By granting asset, can simplify investment funds allows investment funds to simplify whether in supervisory activities authorizations for certain participants liabilities control and the monitoring administrative and compliance performed by the Brazilian Securities to test innovative business models, the of the fund’s investors base. Quotas procedures. This technology and Exchange Commission (CVM) or by sandbox opens an opportunity for the represented by tokens can be traded provides market players with reliable investment fund service providers. study of the application of DLT systems on the market without third-party and transparent data on market to the investment fund industry, together intermediaries as long as players transactions, reducing the need for Through the Regulatory Activities with the CVM. register to the Blockchain network. This (i) direct interaction and exchange of Information Integration Platform (PIER), can simplify internal procedures and information between the parties and announced on April 1, 202018, the CVM The CVM’s initiatives are in line with streamline investments through the (ii) intermediaries in their legal and will adopt a DLT system-based platform what has been observed in pioneer adoption of smart contracts. commercial relations. for the exchange of information with countries. the Brazilian Central Bank (BACEN) The European Union is paying special Technology companies are already and the Brazilian Insurance Regulator In 2018, the US Securities and Exchange attention to the development of seeking to simplify the exchange of (SUSEP). Through this technology, the Commission (SEC) declared its support digital innovation mechanisms and the information in private equity investment platform records data relating to its use, for the innovation agenda and for the adoption of Blockchain technology. In negotiation and in monitoring mitigating improper access to available adoption of new technologies such order to attract investments to the processes through initiatives that information and to its consultation as digital tokens, acknowledging their sector, in November 2019 the European use Blockchain technology, in order history. The expectation is to optimize benefits to the investment fund industry. Investment Fund and the European to allow the parties involved in any the cost of regulatory compliance by Such operations may take place as long Commission announced a EUR 100 negotiation to view a single compiled reducing redundancies in requests for as they, among other obligations: million investment initiative for venture version of the transaction documents information rearding regulators and capital funds and investors that and all the other data related to the capital markets participants in general. (i) are properly registered; supported Blockchain-based products business. This reduces the need for (ii) comply with the applicable rules; and and services, and artificial intelligence20 exchanging e-mails and face-to-face Furthermore, on June 1, 2020, the (iii) are reported to the SEC whenever In addition to private investors, co- negotiations, and parties can negotiate CVM enacted the Instruction No. 626, necessary19. investments with public investment remotely, simultaneously, transparently banks will also be allowed. This is and securely after registering on the projected to attract another EUR 300 platform21.

18 http://www.cvm.gov.br/noticias/arquivos/2020/20200401-1.html 20 Available at: https://panoramacrypto.com.br/uniao-europeia-tem-planos-ambiciosos-para-blockchain/ and https://ec.europa.eu/digital-single-market/en/investing-blockchain 19 https://www.sec.gov/news/public-statement/digital-asset-securites-issuuance-and-trading 21 https://mediacenter.ibm.com/media/ Northern+Trust+Corp.+simplifies+private+equity+management+with+IBM+Blockchain/1_ktsdst1h

58 Blockchain Guide Investment Funds Investment Funds Blockchain Guide 59 Among the various Blockchain initiatives the settlement of credit rights. in the investment fund industry22 23, the record of the fund’s transactions and In terms of public offerings of an assets on the ledger: investment fund’s quotas, DLT technologies would allow: (i) facilitates data protection, while simplifying the disclosure of (i) documents to be registered in information about an investment fund a ledger, making the instant sharing of among its third-party service providers, documents and validated information thus facilitating compliance and risk between intermediary institutions and management activities; other third-party service providers, as applicable; (ii) speeds up access to investment and divestment information in order to (ii) subscription through smart calculate a fund’s net worth; contracts that consider the offering conditions; and (iii) facilitates the reporting of periodic information to quotaholders (iii) greater reliability and security in and regulators, based on the updated clearing, settling and monitoring quotas’ information contained in the ledger; ownership.

(iv) allows auditors to use the In this sense, the Luxembourg Stock data stored in the ledger to access the Exchange and its affiliate Fundsquare, information they need to carry out any together with Clearstream, Credit necessary periodic reports, with direct Suisse Asset Management, and Natixis access to the fund’s database. Investment Managers, announced a Series A funding for the “FundsDLT”24 For Brazilian credit rights investment in March 2020. It is a platform for funds (FIDCs), Blockchain technology investment funds with distributed ledger is especially relevant to activities technology, based on the Ethereum undertaken by the fund’s custodian. Blockchain, which optimizes the Since the controlling, verification and distribution of funds. The system allows monitoring of credit rights are complex asset managers, distributors, service activities – requiring both considerable providers and the supply chain to reduce time and resources to control widely costs as it removes redundant activities dispersed asset portfolios –, associated – providing transparency and allowing guarantees tend to be simplified with the distribution of digital funds, records the use of data control technologies. and account management, transaction 22 https://www.investidor.gov.br/portaldoinvestidor/export/sites/portaldoinvestidor/publicacao/Apresentacoes/IECBrazil/FinTechDay_DLT_Oliver-Cunnigham_14h.pdf Thus, the use of Blockchain tends to processing and settlement, and - Relatório KPMG, 2016

increase asset traceability, facilitating generation of corresponding reports. 23 https://www2.deloitte.com/content/dam/Deloitte/br/Documents/financial-services/Blockchain_portugues.pdf - Relatório Deloitte, 2017

the verification of maturity dates, 24 Available at: https://cointelegraph.com.br/news/european-financial-institutions-to-launch-blockchain-investment- platform guarantees and default rates, as well as

60 Blockchain Guide Investment Funds Investment Funds Blockchain Guide 61 HOW CAN WE HELP?

• Strategic assistance to fiduciary administrators, portfolio managers and other third-party service providers working in the investment fund industry in adapting and complying with the legal and regulatory requirements for the use of Blockchain;

• Development of internal corporate policies and documents regulating the use of Blockchain in the structuring, development and maintenance of investment vehicles in the Brazilian capital markets; and Interaction with regulatory and self-regulatory authorities regarding the adoption of Blockchain-based solutions, including participation in the CVM’s Regulatory Sandbox.

62 Blockchain Guide Investment Funds Investment Funds Blockchain Guide 63 SUCCESSION LAW

64 Blockchain Guide Blockchain Guide 65 CRYPTOCURRENCIES person possesses impossible. Thus, universe, or it could even be used as an the United States, other alternatives due to the decentralized nature of instrument of defrauding the heir’s legal could be: (i) storing the written password AND THEIR IMPACT the system, there would also be share. in a physical safe; (ii) the use of an email ON SUCCESSION limitations on the Judiciary’s ability account absence system, via which a to intervene and ensure that heirs In searching for these alternatives, determined period without access by the LAW have access to this information; private wills could be used as holder would automatically trigger the mechanisms to ensure that heirs can sending of the password to the heirs; On one hand, the impact of cryptoassets • disintermediation: as it is a access information about their digital and (iii) the use of smart contracts in the on Succession Law seems clear-cut. technology independent of the inheritance, without compromising form of a digital will. Whether these assets are classified as protagonists of the real world, in holders’ rights to keep wills financial assets, currency, or property, it the cryptocurrency system there confidential. However, such a will would These alternatives all have potential is certain that these assets constitute is no intermediation of financial require constant updating, as each weaknesses that require assessment in undeniable economic content. Precisely institutions, which implies the cryptocurrency transaction generates specific cases, to ensure they would be for this reason, cryptoassets would be difficulty of monitoring its transfer. a new key for the holder to use with the sustainable and secure when combined transferred from the holder to any of The lack of control over the remaining resources in his/her wallet, with the Blockchain system. This could his/her heirs in the event of the holder’s circulation of cryptocurrencies thus potentially making the holder’s include the convenience of plastering death. makes the environment conducive wallet unusable. the use of such assets through a private to the use of this new form of will, trusting and depending on a single However, the intrinsic characteristics investment as a fraud mechanism Drawing on international experiences in heir to receive a password stored in a of Blockchain and cryptoassets do to the portion of the holder’s asset places such as the United Kingdom and physical safe, and poor management by pose certain compatibility issues with that, by law, is up to his heirs. Succession Law. A summary of these issues is presented below: In addition to the lack of cryptocurrency regulation by a central controlling • inviolability: all Blockchain body (whether in Brazil or abroad) and technology is based on an encrypted the absence of official indexes for system, accessed through a unique conversion between cryptocurrency password made exclusively available and official state currencies, there has to its holder. Therefore, in the case also been a lack of legislative action that a password has not been made regarding inheritance of cryptocurrencies available to an heir prior to the death in a legally secure manner. of the cryptocurrency holder, a Court would need to rule on the breach of Considering the characteristics of confidentiality of a digital wallet, as cryptocurrencies and their lack of a way of ensuring heirs’ access to national and international legislative that information; regulation, there is a need to think about alternative methods for their transfer • decentralization: As Blockchain’s and use in accordance with Succession system is supposed to be free Law. After all, if a cryptocurrency holder of government influence, there is fails to show interest in handing down no central body that controls a virtual inheritance to his/her heirs, it is person’s money, making measuring most likely to become lost in the digital the total Bitcoin that a certain

66 Blockchain Guide Successsion Law Blockchain Guide 67 this recipient resulting in the violation of the legitimate rights of the other heirs.

Consequently, there is some uncertainty and questions about the new and emerging forms of investment borne out of Blockchain, which also extend to the legal universe. Especially in light of the current legislative void regarding the transfer of digital inheritance, it is necessary to search for suitable alternatives so that legislation may keep up with advances in technology.

HOW CAN WE HELP?

• Assistance in transmitting digital inheritance with respect to Succession Law and assessment of any relevant weaknesses in each specific case;

• Altering matrimonial regimes in courts to protect holders’ assets, when applicable;

• Preparation of documents aimed at protecting the rights of cryptocurrency holders in case of divorce;

• Development instruments that guarantee the transfer of cryptocurrencies to third parties in the absence of the holder.

68 Blockchain Guide Successsion Law Successsion Law Blockchain Guide 69 REAL ESTATE

70 Blockchain Guide Blockchain Guide 71 Blockchain technology will bring major compatible with the country’s registry Blockchain has been adopted in the changes to the real estate market, and notary system. registration of real estate in countries especially due to the possibility of such as Sweden, Honduras, Georgia and streamlining and simplifying business, Considering the particularities of real Ghana. However, the registration system lowering costs and strengthening estate legislation, the role of registry in these countries is very different from security. officers and notaries is still essential the Brazilian system, and the application and indispensable to guarantee the of Blockchain is merely ancillary. Sweden This technology allows for the legal security of transactions. They are has been using Blockchain technology in automation of property transfers required to formally qualify title deeds the real estate market since 2016 and is through the immediate access to and check the parties’ compatibility with the first western country to explore its information about the property and the the entire real estate registration, as potential applications. parties involved in the transaction, thus well as verifying any tax collection and/ accelerating analysis of the transaction or notifying authorities. history and the operation’s viability. Notaries and registry offices should While parties depend on notaries therefore also be taken into account in and other centralized entities for the the implementation of Blockchain for HOW traditional validation of documents electronic registration in the real estate CAN WE – representing a security risk – the sector. The automation and efficiency existence of an unchanging base of of their internal operations could be HELP? hashing data will allow users to certify increased, cutting red tape in regard the existence and authenticity of a to accessing information. Users would • Assistance in the development of document on an exact date, from then benefit from both more convenient a range of smart contract models, anywhere at any time. services as well as more secure and including for purchase and sale efficient real estate transactions. commitment agreements, lease Blockchain technology should also lead agreements, construction contracts to the removal of some intermediaries, In Brazil, a bill has been proposed and guarantees (i.e. fiduciary sales, making the process faster, cheaper and that seeks to make the registration mortgages, pledges); simpler. of documents and properties with Blockchain technology mandatory25. It • Consultancy and legal advice on Although Blockchain technology has proposes changes to the Public Registry matters related to the tokenization already been used in Brazil for the Law, along with the creation of the of assets; and purchase and sale of real estate and real National Blockchain Electronic System estate development, such transactions for the Registration of Title and the • Interaction with notaries, real also had to be carried out by traditional Electronic Blockchain System for Real estate registry officers, and the means in order to be legally valid and Estate Registration. Brazilian Securities and Exchange effective. This is because there is still Commission to jointly build no regulation that makes Blockchain alternatives that provide Blockchain technology transactions with legal certainty.

25 Bill No. 2,876/2020, by Senator Acir Gurgacz (PDT / RO).

72 Blockchain Guide Real Estate Real Estate Blockchain Guide 73 INFRASTRUCTURE

74 Blockchain Guide Blockchain Guide 75 The potential for innovation resulting that is currently done through Renewable of the services (which are provided by from the introduction of the Blockchain Energy Certificates;(ii) the automation private entities through authorizations HOW technology in the infrastructure sector of the energy commercialization or concessions). In this sense, Decree No. CAN WE and as interface in interactions with public process within the free market, as in the 56,981 (May 10, 2016) of the Municipality entities is immense, especially in logistics, Energychain project, currently supported by of São Paulo provides for the rules for HELP? electricity and smart cities projects, as well forty energy concessionaires in Europe; and information sharing by public transport as in the contractual management of those (iii) improving the efficiency of back-office operators. • Proposals for Expression of Private projects. processes for companies in the electricity Interest (MIPs) and participation in sector, such as in asset management and The impacts of using Blockchain Proposals for Expression of Interest Solutions that combine Blockchain with security and billing activities. technology in contractual administration (PMIs) that aim to include Blockchain logistics projects, either in people or in relation to infrastructure projects have tools in public contracts; cargo transportation, make the tracking The Blockchain technology may also cause been widely discussed in the United States of operations more effective, resulting a revolution on smart cities, that depend and in Europe. The central issues of this • Interaction with relevant authorities in costs reduction, services optimization on the strategic use of infrastructure, debate point out that Blockchain could in ongoing concessions to promote and more efficiency in related payment information and communication services affect in a very positive way the efficiency adoption of Blockchain-based transactions. Accordingly, the are already associated with urban management and of procedures, such as compliance check solutions; some good examples of successful planning to meet the social and economic of milestones, along with hiring and paying applications of Blockchain technology needs of society26. In other words, suppliers instantly and in real-time. • Advice on ongoing bidding in the ocean freight sector, due to an Blockchain will enable the coordination, procedures to submit requests for efficiency gain in the dispatch of goods, as integration and control of different urban Although in very early stage of clarification regarding the possibility well as a reduction in storage costs. services in a transparent, coordinated development, it is already possible to verify of implementing tools and solutions and efficient way, for instance, real-time the use of Blockchain technology by public that are based in Blockchain As examples of the application of street monitoring services via cameras and entities in Brazil. It has been used in bidding technology; Blockchain in the electricity sector there integrated public transportation are among proceedings via the SOL application are: (i) its use in commercialization of a number of possibilities. (Solução Online de Licitação - Online • Advice on participating in public P2P energy - between producers and Bidding Solution), which was developed consultations opened by public consumers - with the first application This topic became so relevant that the by the states of Bahia and Rio Grande do entities aimed at adopting occurring in 2016 in the United States United Nations (UN) has created a working Norte and has been used by the state of Blockchain-based solutions. (commercialization of solar energy using group to study and determine the practical Bahia to carry out bids to purchase goods, Blockchain); and (ii) in the context of electric applications of Blockchain in smart cities, and to procure services and construction mobility, through the recharging of electric called United Smart Cities (USC). works for organizations benefiting from vehicles, whish use tends to increase in the the “Bahia Produtiva” project. It has also following years. Regarding urban mobility and smart been used for similar purposes as part of cities, the Municipality of São Paulo has Rio Grande do Norte’s “Governo Cidadão” Another application of Blockchain and specific rules that allow the data sharing project. The use of Blockchain in bidding smart contracts in the electricity sector with the Municipality’s Executive Branch. proceedings also results in more efficient may occur in (i) the registration of Regulations in the city of São Paulo are supply chains and facilitates relationships renewable energy, in order to facilitate and more focused on the interaction with between private parties. automate the tracking of renewable energy, public entities, given the public nature

26 Concept defined by the European Union

76 Blockchain Guide Infrastructure Infrastructure Blockchain Guide 77 LIFE SCIENCES AND HEALTHCARE

78 Blockchain Guide Blockchain Guide 79 The continuity of traditional healthcare health posts, basic health units, models seems increasingly unlikely laboratories) can exchange information with the disruption of new technologies safely and minimize bureaucratic in the life sciences and health procedures - including avoiding fraud or industries. This change is due, in wasting of resources, which is common large measure, to the development of in health systems. Another example digital health initiaties, which diverges comes from the Estonian government, from traditional health care models which in 2016 created an initiative by implementing a wide range of to store its population’s medical technological tools to benefit the health data electronically using Blockchain and well-being of individuals. infrastructure, through the Estonian E-Health Foundation project. Blockchain emerges as a promising tool in this context, as it is capable of The tool also has the potential to addressing industry challenges related allow patients unrestricted access to the interoperability, integrity and and control to their own health data, security of the immense volume of enabling the creation of governance data shared in a variety of contexts mechanisms to authorize or limit throughout health care assistance. access, or even to share this data This includes prevention, diagnosis, according to the owner’s preferences, treatment, monitoring and rehabilitation stimulating engagement and self-care. actions, as well as clinical research and This is what the MyHealthMyData the supply of health-related products. (MHMD) platform does, a project that consists in a consortium of European There are already non-monetary companies connecting patients, applications in use for registration hospitals and research centers. It seeks technology distributed in the public to allow the safe sharing of behavioral, and private health sectors. One of the clinical, biological data, images most evident concerns the organization (computed tomography, ultrasound, MRI and management of electronic medical scans, x-ray, scintigraphy) and other records, as Blockchain enables the information via a private Blockchain integration and decentralization of this network. data, which is commonly fragmented in different health institutions that Blockchain technology can also a patient goes through during their contribute to the verification and journey. authentication of digital identity, genetic data and/or patient history, as well as in This is the case of the Ministry of the auditing of medical procedures and Health’s National Health Data Network coordination of information between (RNDS). The RNDS uses virtual health plan operators, service providers containers in cloud networks so that all and patients. types of health institutions (hospitals,

80 Blockchain Guide Life Sciences and Healthcare Life Sciences and Healthcare Blockchain Guide 81 In the pharmaceutical sector, Blockchain aim to encourage individuals to have including data protection and has been used to trace steps in healthy habits by way of monetary compliance with applicable manufacturing processes and the incentives. regulations, e-health, telemedicine, marketing of medicines and other health- Blockchain, big data & analytics, regulated products, helping to avoid Another example is DentaCoin (DCN), a artificial intelligence, tailored medical fraud and counterfeiting, as well as cryptocurrency whose goal is to improve devices, 3D printing, electronic health contributing to the eventual collection access to oral hygiene worldwide, records, Internet of Things (IoT), of revenues when necessary. The value offering alternative ways to pay for discount programs and new payment of the technology is currently being dental treatment. The use of distributed models; assessed by the United States’ Food and ledgers and blockchains has the potential Drug Administration (FDA), the agency to significantly increase security and • Regulatory consultancy in matters responsible for regulating and inspecting transparency and to empower patients involving the Ministry of Health, health products. It has received projects with greater control over their medical National Supplementary Health developed by IBM, Merck, Walmart, care, all while helping them contain or Agency (ANS), Brazilian Health Mediledger and others about how even reduce associated costs. Regulatory Agency (ANVISA), National the features offered by Blockchain Health Council (CNS), Medicines technology can meet the Drug Supply Market Regulation Chamber (CMED), Chain Security Act’s (DSCSA) sanitary National Commission for the requirements for drug supply-chain HOW Incorporation of Technologies in SUS control, in effect from 2023. (CONITEC) and professional councils CAN WE (Medicine, Pharmacy, Nursing, Clinical research initiatives can also HELP? Nutrition, among others); benefit from the immutability offered by Blockchain, in that it can guarantee the • Preparation and negotiation of date and time when information was Our Life Sciences and Healthcare practice typical industry contracts, including included in patient monitoring and follow- is formed by a multidisciplinary team supply, distribution, agency, research up reports, preventing any manipulation with expertise in different practices and and development, licensing, of results verified in clinical trials. When themes related to the Life Sciences & technology transfer, partnership, associated with other technologies Health sectors. Our experience covers training, technical services and such as wearable devices, artificial a wide range of subjects and clients, outsourcing contracts. intelligence and big data, it also allows including pharmaceutical,biotechnology, the continuous collection of patient data medical device and other health products in real time, as well as predictive and companies, HMO’s, hospitals, healthcare behavioral analyses of each individual’s providers, healthtechs, food companies, health. beverage companies and investors.

In financial areas – where use of We advise and represent our clients in Blockchain is more significant – it is matters related to: also possible to integrate Blockchain with actions promoting health. • Digital health initiatives, healthtechs Cryptocurrencies such as Healthcoin+ and other health-related initiatives,

82 Blockchain Guide Life Sciences and Healthcare Life Sciences and Healthcare Blockchain Guide 83 CRIMINAL LAW

84 Blockchain Guide Blockchain Guide 85 From a criminal perspective, few information about their clients’ Conversely, an agent who uses There are even services that analyze authorities in Brazil are prepared to deal transactions, including transaction cryptocurrency for money laundering whether cryptocurrency is tainted. These with Blockchain and related matters, dates, types, currency holders, the purposes can do so without the services check if traces have been especially the courts. cryptocurrency used, transaction intermediation of an exchange, or successfully cleared via cryptocurrency amounts and fee amounts. otherwise use an exchange that requires mixing processes. The most illustrative examples of less information.31 Agents could use Blockchain in the criminal field are Individuals or legal entities that do not several wallets, different exchanges (or Brazilian legislation is scarce on cryptocurrencies such as Bitcoin, which use exchanges to transact cryptoassets none at all), and even make transactions issues associated to the regulation of has had all its transactional records or use foreign exchanges must also in different countries. cryptocurrencies and possible related recorded on the Blockchain ever since its provide this information on a monthly crimes in virtual environments. These first transaction. basis if their transactions exceed Despite the immutability of Blockchain, money laundering methods can be One way to interfere in the production BRL$30,000. there are services called mixers or considered relatively secure for the of new blocks would be a so-called ‘51% tumblers that receive cryptocurrencies agent, as authorities are not yet properly attack’. Such an attack would require Anyone who fails to provide mandatory from clients and intermix them to equipped to investigate, while judges lack dominating more than half of all the information or provides it inaccurately wipe traces of the currency’s origin. the appropriate technical knowledge to computational power of the Blockchain or after the prescribed deadlines will Cryptocurrencies are deposited by make decisions. network, but it would also allow for the be subject to fines, depending on the several clients, put into a larger group same cryptocurrency to be used more specific case. and then replaced randomly. Withdrawals In theory, another crime that could be than once27. can be made in other cryptocurrencies, committed via cryptoassets would be The Normative Instruction also provides and varying fees can be charged for each the tax evasion, provided for in Law No. It is worth noting that cryptocurrencies for the possibility of the Brazilian Federal transaction – further preventing tracing 7,492 / 86. Upon acquiring cryptocurrency, are legal in Brazil, but not regulated. This Revenue reporting cases where there are the operation and enabling future capital agents are able to withdraw it abroad means that cryptocurrencies are not indications of money laundering to the integration as if it were lawful. immediately. As there is no proper considered currencies or securities - just Federal Prosecutor’s Office, as provided remittance, it would also make it more equity assets. If capital gain takes place for in Article 1 of Law No. 9,613 / 9830. Another form of money laundering difficult to criminalize. Furthermore, and there is an omission or any fraud that is less widely used – or at least cooperation between international before the Brazilian Federal Revenue, in Despite the relative anonymity of those more difficult to detect – occurs when authorities is not yet strong enough to theory, there could be the practice of tax who transact cryptocurrency, Blockchain cryptocurrencies are exchanged for detect and remedy this type of operation. crimes, as provided for in Law 8,137 / 9028. stores all transactions carried out on virtual game currencies32 before being the network. In this respect, Blockchain exchanged back into cryptocurrencies or Even though the Brazilian Federal The Brazilian Federal Revenue forces29 serves as an ally to transparency once fiat currency, eliminating criminal trails. Revenue tries to control exchanges and cryptoasset exchanges to provide again.

27 In the case of cryptocurrencies, blockchain serves both to give them validity and to prevent double-spending – I - convert them into lawful assets; maliciously using the same cryptocurrency more than once. II - acquires, receives, exchanges, negotiates, gives or receives them as a guarantee, keeps them, deposits, Cryptocurrency transactions like Bitcoin are usually registered in the blockchain and, simply put, moves or transfers them; each transaction generates a note in the amount to be transacted, containing a kind of timestamp. If a 51% III - imports or exports goods with values that do not correspond to the real ones. attack happens, it is possible to use the same note more than once, as its registration on the blockchain will be compromised. 31 For example, some exchanges require a name, Individual Taxpayer Identification Number (CPF); and date of 28 Even with the possibility of configuring these crimes, the courts have no means of blocking assets as they birth. A person with malicious intent can easily use the CPF of a third-party they do not know to register and thus would in the BACENJUD system (a platform that connects the Judicial Branch to financial institutions via make tracking difficult. the Central Bank of Brazil).. 32 Particularly MMOs (Massive Multiplayer Online Games), where thousands of people can play at the same 29 Normative Instruction RFB 1,888, of May 3, 2019, which became effective on August 1 of the same year. time on the same server. These games generate a kind of parallel economy with virtual currencies peculiar to This instruction has tax effects: there is still no regulation specifically aimed at preventing money laundering each game that can be bought with real money or cryptocurrencies - and, later, be sold (and repurchased with cryptocurrency. again) with real money or cryptocurrencies, erasing any possible criminal trails. Authorities around the world do not yet have sufficient capabilities to investigate this type of transaction efficiently. 30 Article 1, Law No. 9,613 / 98: Hide or conceal the nature, origin, location, disposition, movement or ownership of assets, rights or values arising, directly or indirectly, from a criminal offense. Penalty - imprisonment, from 3 (three) to 10 (ten) years, and a fine. Paragraph 1. The same penalty applies to anyone who, aiming to conceal or conceal the use of assets, rights or values arising from a criminal offense:

86 Blockchain Guide Criminal Law Criminal Law Blockchain Guide 87 individuals and companies that trade this information with other exchanges in cryptocurrency, from a criminal point and authorities. Among the obligations, of view there is currently no structure there would be due diligence procedures, capable of identifying, preventing and such as know-your-client programs. The eventually sanctioning possible conduct. intention is to create a global standard of transparency. In Brazil, the Public Prosecutor’s Office has already provisionally implemented a Support Group on Cybercrime (GACC) and is in favor of the regulation of a cybercrime law and the ratification of the Budapest Convention, which aims HOW to harmonize national laws of different CAN WE countries on the subject and increase international cooperation to improve HELP? investigative techniques. There is also a Center for Combating Cyber Crimes, which • Consulting on possible criminal has a trained technical team to assist in implications resulting from the use investigations. of cryptoassets;

EC3 (European Cybercrime Center) is a • Legal advice on preventing and division of Europol focused on cybercrime, combating money laundering, tax with subdivisions that investigate crimes evasion, and other crimes through such as fraud and child pornography. cryptoassets. Europol has already expressed itself in favor of using Blockchain for greater transparency in all types of transactions, as well as bringing government officials closer to the private sector to prevent and detect crimes facilitated by cryptocurrencies, and to assist in asset recovery.

The United States-led FATF (Financial Action Task Force) has released an updated practice guide recommending that exchanges and similar institutions have the same duties as traditional financial institutions. Such duties include identifying who sends currency to whom, as well as developing processes to enforce these institutions to share

88 Blockchain Guide Criminal Law Criminal Law Blockchain Guide 89 PRIVACY AND DATA PROTECTION

90 Blockchain Guide Blockchain Guide 91 As demonstrated in this guide, have been shown as a possible • Processing Agents: The main specific conditions for data collected Blockchain is nothing more than a data solution to collecting personal data characteristic of a Blockchain in Brazil to be transferred to processing technology that promises while preserving the privacy of the is that it is a decentralized other countries. These conditions to revolutionize different sectors of the data subjects. iReport Covid-19 is technology, which waives the generally require controllers to adopt economy. a questionnaire developed by the need for intermediaries to support centralized governance systems, Singapore-based Algorand Foundation, the transactions that occur in it. which may prove incompatible with Some of its basic functionalities – which has a global reach and collects However, this attribute may be in the use of Blockchain technologies. such as encryption, transparency and data from volunteers about the direct conflict with basic principles consensus mechanisms for verifying pandemic, such as the existence of of data protection laws: liability and • Subject’s rights: Another striking the veracity and integrity of data – can symptoms and positive diagnosis. accountability. The identification feature of Blockchain technology increase the security and confidentiality The records are distributed on the of processing agents such as is immutability. It is very difficult of data. In this way, there are already Blockchain and all changes are updated controllers and processors is to remove information once it is some initiatives that propose the use at the various ends of the chain, essential for the exercise of the inserted into Blockchain, especially of Blockchain for the establishment making it extremely difficult to delete or rights of data subjects. Thus, when in notary registration applications, of privacy management platforms, for manipulate any data already registered. considering the use of Blockchain smart contracts and supply example for the proof of consent and Furthermore, the encryption used on the technologies, it is necessary to chains, where the auditability transparency about the sharing of data platform makes it virtually impossible to keep in mind the role of each of of transactions is of utmost with third parties33. identify respondents. the stakeholders involved and their importance. Thus, a new consensus respective responsibilities. is needed among the participants One example that has gained However, even though Blockchain to change certain information, who prominence recently is the use of technologies may prove to be allies • Extraterritoriality: Data protection simply add a new block with the Blockchain in tackling the Covid-19 in information security and privacy laws such as GDPR and LGPD updated information instead of pandemic. Access to personal data agendas in certain circumstances, it have extraterritorial application. eliminating the data. This activity has become increasingly necessary is necessary to reconcile these tools As Blockchain is a decentralized goes directly against the rights of for developing efficient public policies. with data protection laws, such as the technology, in which different data subjects, including the right to However, the manipulation of a large European General Data Protection stakeholders may be spread rectify or delete data. amount of information – especially Regulation (GDPR), and Law 13.709 / 18, across different jurisdictions, these health-related information – has raised better known as the Brazilian General platforms may be subject to the Considering the above, it is clear that there are several challenges to the adoption of several discussions about privacy and Data Protection Law (LGPD). This is application of different laws. This Blockchain technologies in compliance with data protection. because some intrinsic characteristics can prove to be a challenge not data protection laws. Thus, public or private of Blockchain, especially of public only for regulators but also for the organizations that wish to implement this Certain initiatives based on Blockchain Blockchains35, can counter the platform owners, who must consider technology must conduct a careful analysis of the limits imposed by applicable legisla- technology, such as iReport Covid-1934 principles advocated by these laws: factors such as cost to comply with tion and assess the risks involved for data all applicable laws and regulations. subjects.

• International data transfer: The decentralized nature of Blockchain

33 Zyskind et al. Decentralizing Privacy: Using Blockchain to Protect Personal Data. 2015 IEEE CS Security and presents challenges even in relation Privacy Workshops. Available at: http://homepage.divms.uiowa.edu/~ghosh/blockchain.pdf to the restrictions imposed on the 34 https://ireport.algorand.org/pt international transfer of data. For 34 Public blockchains are fully decentralized networks and open to anyone who wants to participate. These networks do not have an organization that controls them, so their rules are defined by the consensus of the example, the LGPD establishes participants. Private blockchains are controlled networks, in which you need to be allowed to participate or read the data of the chain.

92 Blockchain Guide Privacy and Data Protection Privacy and Data Protection Blockchain Guide 93 HOW CAN WE HELP?

• Assisting companies’ adaptation to legal and regulatory requirements for the use of Blockchain, from a consumer and data protection perspective;

• Consultation and legal advice on legal and regulatory aspects related to the processing of personal data in solutions that use Blockchain, including the storage, sharing and international transfer of data;

• Development of privacy policies and terms of use that regulate Blockchain- based solutions;

• Interaction with regulatory and supervisory authorities and the construction of the argument for the adoption of Blockchain-based solutions.

94 Blockchain Guide Privacy and Data Protection Privacy and Data Protection Blockchain Guide 95 INTELLECTUAL PROPERTY

96 Blockchain Guide Blockchain Guide 97 Within intellectual property (IP), the from potential unauthorized disclosures. application and potential development of The parties involved in the transaction Blockchain technology can be observed are therefore able to assume on several fronts, including (i) patents; responsibility for verifying any and all (ii) trade secrets; (iii) smart records of interactions that occur on the network, intellectual property rights; (iv) evidence again removing any need for a central of prior use; (v) combat of piracy and authority figure to oversee transactions. plagiarism; (vi) confirmation of origin and authorship of a given work; (vii) tracking The information stored on Blockchain the production of a merchandise; (viii) can even serve as a certificate of copyright management; (ix) control of authenticity for a product protected digital copies; and (x) smart contracts. by geographical indication. Blockchain allows its users to access information One of the great innovations in the use about each stage of the production and of Blockchain for intellectual property is distribution chain of a given asset36. its decentralized quality, which allows Given the impossibility of monitoring and the simultaneous and direct occurrence fully ensuring the protection of products of several transactions between in foreign markets, the use of Blockchain users of the system in a reliable and to store information about the transparent way. By enabling the parties manufacture and authenticity of goods to verify the information that will be can help to indentificate infractions. inserted in the transaction records in advance, blocking any changes to the As an example, the Australian entries already made, the technology government has discussed the removes the need for a central authority applicability of Smart Trademarks37, figure to monitor or even to validate which involve a similar concept of using the transaction, the latter of which is the consumers of a product to verify usually the responsibility of government its authenticity. By tracking Blockchain agencies specialized in IP rights around hashes, such as bar codes or QR the world. codes, all stakeholders involved in the chain of a product’s sale can check its All information stored on Blockchain has registration and even determine its the advantage of remaining anonymous origin. The proposal also involves the and having its content protected by the creation of a software that authorizes encryption itself, giving its records a payment through cryptocurrencies from high degree of reliability. This technology the product’s manufacturing to its sale is able to ensure that the confidentiality process. of information will be maintained throughout the transaction and may An important movement in recent years 34 Through blockchain technology, it is possible to monitor the authenticity of a product’s elements during all its production stages, from the storage of raw materials to the manufacturing of the final product. even protect corporate trade secrets has been the search for ways to protect

35 Concept presented at the “Workshop on Blockchain” organized by WIPO. Presentation “Smart Trade Mark - IP Australia”, available at https://www.wipo.int/meetings/en/details.jsp?meeting_id=51407. Accessed on June 1, 2020.

98 Blockchain Guide Intellectual Property Intellectual Property Blockchain Guide 99 the Blockchain technology itself. Filing backlogs from analyzing IP assets via a centralized database, due to patent applications seems to have registration applications. This common Another important aspect is the the existence of prior registers that been the most accepted strategy so far. database may also provide easy application of Blockchain to IP assets may present themselves as potential Currently, China dominates the market interaction between different IP offices. or digital copies. When purchasing a impediments. If implemented, such for the development of blockchain- book, the limit on the exhaustion of technology could even be able to clarify related technology patents, leading the Blockchain can serve as evidence IP rights applies to that copy, so the any lingering doubts about the originality world in filing patent applications, ahead of creation for different copyrights owner of this copy may decide to sell of a patent, as it would be able to search of other countries, such as the United purposes, complementing its protection, it to a third-party or lend it to a friend. the database for pre-existing products States. China is also the most prepared interacting with different copyright Due to the ease of copying digital files, that possess a similar utility or quality. for this topic, having invested more in laws and facilitating the exercise of this freedom is not found in today’s blockchain technology than anywhere the exclusive right of use against digital world – copyright holders have else. It is not by chance that the country third parties’ violations. In this case, adapted to provide access to content could become a pioneer in eventual the technology is able to spotlight through platforms, instead of a copy of Regulation: initiatives to regulate or adapt regulation the creation of an author’s work, from the book. With Blockchain, however, the of Blockchain for IP applications. its very conception to its use. When digital file starts to rely on timestamping inserting original work into the system and becomes unique again. As seen The regulatory landscape for the use Another widely discussed topic is the with information about its author, it in cryptocurrencies, digital copies of Blockchain in intellectual property is possibility of Blockchain replacing or is possible to ensure its authenticity registered on the Blockchain can be sold still somewhat cloudy41. This is because supplementing traditional data storage through registration in a public network. and loaned, reactivating the purchase there has been much discussion about bases in local offices. The idea behind Several international offices, including of books, films and other works the difficulty of placing this technology this would be to reduce the high costs the European Union Intellectual Property protected by copyright. In addition, the within a legal status common to several that international offices allocate to Office (EUIPO) , have already commenced combination of Blockchain and computer countries. Today, the understanding keep IP asset records updated and discussions on the applicability of programs that rely on integrated of the legal status of Blockchain stored on their own databases , saving Blockchain for identifying illegal copying artificial intelligence systems provokes fluctuates between its identification resources, time and money. In this and reproduction. This measure could interesting discussions for the future as an asset, as a form of payment or scenario, one of the potential uses of be quite transformative, since copyright of intellectual property. It is estimated as an intermediary service in terms Blockchain technology is to provide a protection is not generally dependent that in the future, these technologies of e-commerce. Depending on the secure and easily accessible system on registration among the almost will be able to assess the likelihood classification applicable in a given with a central database, so these local 200 signatory countries of the Berne of a trademark or patent application, country, different regulations and legal offices are able to reduce costs and Convention40. for example, being granted or rejected

38 In 2018, the European Union Intellectual Property Office (EUIPO) published a presentation about the 41 Brazil does not yet have clear regulations on blockchain and its applications for IP. However, the country expenditures for the maintenance of its database, which exceeded €10 million. GÜRKAYNAK, Gönenç. seeks to update itself by participating in international conferences on the topic, such as “International Intellectual property law and practice in the blockchain realm. 2018. Available at https://www.sciencedirect. Conference 1.0 on Digital Transformation: Intellectual Property and Blockchain Technologies”, held in 2018 in com/science/article/abs/pii/S0267364918302218. Accessed on May 28, 2020. Moscow, Russia. Available at https://www.gov.br/inpi/pt-br/assuntos/noticias/inpi-participa-de-evento- na-russia-sobre-novas-tecnologias-em-pi 39 In 2019, EUIPO organized an anti-piracy forum to combat piracy through blockchain technology. The forum called “Anti-Counterfiting Blockaton Forum” sought to bring together several organizations to rethink the future of infrastructure to combat piracy. Available at https://euipo.europa.eu/ohimportal/web/observatory/ blockathon, EUIPO Blockathon, anti-counterfeiting blockchain competition.

40 Convention promulgated on September 9, 1886, which regulates the protection and principles related to copyright worldwide.

100 Blockchain Guide Intellectual Property Intellectual Property Blockchain Guide 101 requirements will be applicable to technology is able to provide evidence of HOW this technology, which may impact its the existence of a trade secret without Another new Chinese development applications for IP. exposing any content or information. involves the Central Cyberspace CAN WE Since 2018, the Supreme People’s Court Affairs Commission’s announcement HELP? Furthermore, recognition of the of China has already ensured that the of the first domestic blockchain lot for integrity of the information stored on Internet Courts of Hangzhou, Beijing archiving information in March 2019. the Blockchain is essential for this and Guangzhou accept digital data as These commercially available blocks In addition to analyzing and drafting technology to be able to gain clout legitimate evidence, should the claimant offer protection services for IP assets, new forms of contracts, we can also among intellectual property asset be able to prove its authenticity. suitable for pointing out the moment help with risk analysis for Blockchain holders, and to become viable through of creation of copyrighted works, for applications and their use with IP assets. the execution of IP assets transfer This provision makes it legal for both example. According to China, there Likewise, we can help in administrative and licensing agreements. Perhaps Chinese and foreign companies to is a platform called “Anne Copyrights and judicial defenses of disputes related the greatest challenge is the degree validate information via Blockchain Blockchain”44 which offers DCI (Digital to the use of this technology, particularly of acceptability of this information as technology before Chinese courts. Copyright Identifier) registration services by developing arguments that involve evidence in judicial proceedings. The Hangzhou Court leading case through Blockchain technology for the use of Blockchain as evidence in “Huatai Yimei Culture Media Co., Ltd. registering copyright works. legal proceedings. We can thus assist In regard to this aspect, it has not yet and Shenzhen Daotong Technology our clients in understanding and facing been possible to reach a consensus in Development Co., Ltd.” (the Huatai case), As we can see, the innovations legal restrictions, without impeding the Europe and Oceania (different countries of June 28, 2018, was the first case in presented by Blockchain are countless outlining of new possible legal paths of the two continents are still seeking to which the judiciary recognized electronic and hold transformative potential over that seek to adapt to the disruption understand more about the architecture documentary evidence via Blockchain the traditional processes that are sparked by Blockchain. of Blockchain and its legal framework)42. technology as valid. The decision report known and still enforced. With further On the other hand Asia, and more also suggests that the technology will be development and knowledge of this specifically China, is already showing used to demonstrate priority for use in technology, there will be a trend towards progress. the case of trademarks. the emergence of more regulatory frameworks for Blockchain, further In China, Blockchain can now be used to Furthermore, at the end of 2019, China’s ensuring the reliability of this system. protect trade secrets in legal disputes patent and trademark office43 updated For the future of intellectual property, and also serve as evidence of the the regulation of its guidelines for Mattos Filho believes that it is essential existence of prior supporting documents. patent examinations. The document to prepare for the changes brought on Information stored on Blockchain determined that patent filings relating by this technology and keeps monitoring becomes encryptable “hash algorithms”, to Blockchain technology must undergo all stages of this development. guaranteeing that the protected content special analysis in order to make the will not be exposed. This way, Blockchain patentability examination more accurate.

42 Between 2018 and 2019, WIPO conducted a workshop to unveil the future of Blockchain and its impacts on 44 COMMISSION, European. IPR Protection for AI Technology & Application of Blockchain in China. 2019. Available intellectual property. The movement created from this action was called “Blockchain Task Force at https://www.china-iprhelpdesk.eu/sites/china-hd/files/public/Guide%20-%20IPR%20protection%20AI%20 Work Plan” which has developed several actions to better understand blockchain activities in the world and %26%20Blockchain%20-.pdf. Accessed on May 28, 2020 share the experiences of several countries with this technology. As presented by the Australian government “Smart Trade Mark - IP Australia”, available at https://www.wipo.int/meetings/en/details.jsp?meeting_id=51407.

43 Called CNIPA (China National Intellectual Property Administration) since 2018. Available at https://www.epo.org/ searching-for-patents/helpful-resources/asian/asia-updates/2018/20180905.html. Accessed on June 1, 2020.

102 Blockchain Guide Intellectual Property Intellectual Property Blockchain Guide 103 INSURANCE

104 Blockchain Guide Blockchain Guide 105 Data analysis has always been at the of ICP-Brasil or another root certifying involved in Blockchain enables the better analysis and more competitive center of the insurance market so that authority, along with confirmation of the sharing of sensitive data by the platform, pricing of risks, increasing the efficiency the increase of data available45 and of date and time of submission. so that only authorized parties have of the market as a whole. the improvement of tools for storing and access to such information. processing such data has clear effects In 2017, the Brazilian Insurance Authority Database sharing via Blockchain also on the insurance market. (SUSEP) held a public consultation on has applications for the duration of the the purchase of insurance using remote risk, and in the operation of any risk- Blockchain – especially when combined means and on December 20 of that year, Database sharing related event it can be used to publicize with timestamping – is an excellent tool CNSP edited CNSP Resolution No. 359 those involved – for example, inclusions for recording, storing and sharing data, – modifying CNSP Resolution No. 294. and/or exclusions of assets and people and it can also be used together with This modification meant that documents in insurance collective. The insurance and reinsurance risk smart contracts. These characteristics issued remotely no longer require transfer process is complex and involves allow Blockchain to be applied in certification by ICP-Brasil or another root Nevertheless, the positive effects several participants (brokers, insurance several different manners within the certifying authority, requiring only that of database sharing via Blockchain companies, reinsurance brokers, insurance market, such as in document authenticity, non-repudiation, integrity would be even more noticeable in the reinsurers, among others) who share registration, database sharing and and identification of date and time were loss adjustment - crucial in the user/ and negotiate based on a huge amount process automation. guaranteed47. policyholder experience. The traditional of data, aiming to combine capital with loss adjustment process can involve risks. Blockchain meets all of these numerous forms, exchanges of requirements (authenticity, non- documents between insurers and is Data storage Blockchain has the potential to allow repudiation, integrity and timestamping). generally quite time-consuming. Once insurance market participants to remove Thus, the use of Blockchain for the information about a particular claim inefficiencies arising from segregated On September 6, 2013, the Brazilian registration of insurance policies and is entered and shared between the data storage, (i.e. there is a risk of Private Insurance Council (CNSP) edited certificates issued in remote operations parties involved via Blockchain, this inconsistencies and the need for data CNSP Resolution No. 294, regulating began to be authorized, which has led process can cut red tape, allowing for reconciliation and verification), as it the use of remote means in operations to the reduction of costs associated faster loss adjustment and payment of can allow for the sharing of the same related to insurance and open private and increased document security, as compensation, with less inconvenience stored data on the Blockchain among pensions. At first, this rule required that the policy or certificate registered in the to policyholders. all involved participants in an operation. insurance policies and certificates issued Blockchain is immutable and verifiable. It Such benefits of Blockchain can be seen remotely46 have either the certification is also worth noting that the encryption Finally, the registration of operations in more clearly in the processes of risk Blockchain could guarantee regulators, underwriting, loss adjustment and also in auditors and rating agencies easy the supervision of the insurance market. access to the records of insurers and reinsurers operations, reducing In risk underwriting, whenever the supervision costs and leading to 45 In an article by Forbes, Bernard Marr declared that the amount of data generated in 2013 and 2014 would be relevant information regarding a risk to greater than the amount generated by humanity before such a period: “the data volumes are exploding, more increased transparency and improved data has been created in the past two years than in the entire previous history of the human race.” be insured is entered into the Blockchain, (https://www.forbes.com/sites/bernardmarr/2015/09/30/big-data-20-mind-boggling-facts-everyone-must- supervision of the insurance market. read/#2e13851517b1, accessed on 31/05/2020). brokers, insurers and reinsurers involved in the operation can have access to such 46 For the purposes of such rule, remote media refers to “ones that allow the exchange of and/or access to information and/or any type of data transfer through communication networks involving the use of data simultaneously. This could lead to technologies such as the world wide web, telephony, cable or digital television, satellite communication systems, among others.”

47 Article 4, paragraph 3, of CNSP Resolution No. 359, of December 20, 2017.

106 Blockchain Guide Insurance Insurance Blockchain Guide 107 Regulations HOW CAN WE

Blockchain can be used to store data HELP? from remote operations under the terms of the current regulations. The Insurance, Reinsurance and Private Pensions team is prepared to help build Moreover, in April 2020, SUSEP, the customized solutions for your activity Brazilian Insurance Authority (SUSEP), the through the use of Blockchain, including: Securities and Exchanges Commission (CVM) and the Brazilian Central Bank • Assistance in adapting companies to put the Regulatory Entities Information legal and regulatory requirements for Integration Platform (Pier) into operation. the use of Blockchain; This platform makes use of Blockchain technology and allows instant sharing • Consultancy and legal advice on the between the databases of the various legal and regulatory aspects related agencies, decreasing the cost of to storage and sharing of databases compliance required from regulated on insurance, reinsurance, private parties, while strengthening and cutting pensions and capitalization, as well red tape in the supervision and inspection as application of smart contracts processes. and tokenization;

Finally, SUSEP developed a regulatory • Development of internal corporate sandbox that aims to develop innovative policies and documents regulating products and services. This environment the use of Blockchain; could become a platform for testing and innovating Blockchain-based products, • Training in regard to the possibilities contributing to the development of the of using Blockchain in insurance; national insurance market.

• Interacting with regulatory and On October 2020, SUSEP informed supervisory authorities and the 11 (eleven) companies approved constructing arguments for adopting to participate in the abovementioned Blockchain-based solutions. regulatory sandbox, amongst which there . are companies using Blockchain.

108 Blockchain Guide Insurance Insurance Blockchain Guide 109 CORPORATE/ M&A

110 Blockchain Guide Blockchain Guide 111 USE OF interested in using the technology to particularly accurate when it relates The Blockchain technology maintain internal records may also to controlling general shareholders’ BLOCKCHAIN consists on a valuable tool to register corporate acts directly in a meetings rules, their acceptance by TECHNOLOGY ensure efficiency, agility and Blockchain network. Additionally, upon attendant shareholders via smart reliability in the registering the confirmation of the validity of the contracts, encrypted records of platform BY BRAZILIAN process of corporate content by boards of trade, documents access, as well as votes presented by BOARDS OF documents and maintenance may be registered in a secure and the attendant shareholders. Although of internal records. immutable basis. it is still in its early stages, the Brazilian TRADE Association of Fintechs (ABFintechs), for The implementation of Blockchain instance, has started a transition using technology as described above would the technology to enable the attendance In Brazil, it is possible to identify corporate transactions and payment-in of guarantee greater reliability and of its associates to the corresponding some initiatives for the adoption of companies’ corporate capital. As provided efficiency in the chain of corporate meetings. Blockchain technology by certain public in such regulation, there are no specific events, contributing for a faster and administration entities. The Board of formality for registration of corporate more accurate verification of the Blockchain technology proves to be a Trade of the State of Ceará (JUCEC) acts involving cryptocurrencies, provided corporate shareholding structure. useful alternative for ensuring efficiency stands out for being a pioneer in the that it shall comply with the applicable and reliability for the whole process country due to the use of this technology, rules for the payment-in with goods, in connection with virtual meetings, contributing to index the background of considering the corporate type of the with the possibility of ensuring greater business records filed before JUCEC until relevant entity. safety in the process of accounting the the 2017 fiscal year (i.e., in a database). VOTING shareholders entitled to voting rights, as REGISTRATION well as the respective votes presented in The efforcement of Blockchain such meetings. technology in the scope of corporate MAINTENANCE AND MONITORING acts’ filing procedures before boards GENERAL of trade in Brazil follows the digital OF CORPORATE transformation of these entities which BOOKS AND SHAREHOLDERS’ was promoted by the Department of MEETINGS VIA HOW Business Registration and Integration CORPORATE ACTS CAN WE (“DREI”), regulating in 2018 the digital VIA BLOCKCHAIN BLOCKCHAIN registry of documents. Blockchain HELP? technology contributes to increase data The implementation of virtual general • Legal assistance and advisory quality and provides better reliability in Blockchain technology could be used shareholders’ meetings are already a on legal and regulatory aspects the registration process of corporate for the maintenance of share registry reality in Brazil; however, the platforms related to the storage of electronic acts, ensuring the chronology of the filing and share transfer books, in order to available for this purpose are still being corporate documents on a procedure, and besides also improves the facilitate and modernize Brazil’s records improved. Blockchain platform; and agility and efficiency for this process. registration process considering the method currently adopted in Brazil for It is possible to notice the use of • Assistance in coordinating meetings DREI enacted on December 1st, 2020, this purpose, which is still manual. Blockchain technology in foreign and/or virtual general shareholders’ the Ofício Circular SEI No. 4081/2020/ME, companies’ general shareholders’ meetings with both identity establishing that cryptocurrencies and Upon the dissemination of the use of meeting in connection with the verification and voting registration other digital currencies may be used as Blockchain technology among boards applicable voting systems. This is through a Blockchain platform. a payment mechanism for purposes of of trade, the companies which are

112 Blockchain Guide Corporate/M&A Corporate/M&A Blockchain Guide 113 TAX

114 Blockchain Guide Blockchain Guide 115 CRYPTOASSET All types of transactions involving According to the RFB, a transfers of cryptoassets must be cryptoasset is the “digital informed, including purchases and representation of value sales, exchanges, donations, transfers denominated in its own unit of of cryptoassets to an exchange, account, whose price can be withdrawal of cryptoassets from an expressed in local or foreign exchange, temporary assignments currency, traded electronically (loans), donations in payment and using cryptography and distributed issue. The RFB has also clarified that registration technologies, used transactions involving the exchange of as a form of investment, value one cryptoasset for another must be transfer instrument or access informed49. to services, and that is is not CURRENT recognized as currency.” Especially when considering REGULATION cryptocurrencies traded by individuals, the RFB has clarified that cryptoassets are equivalent to financial assets, which In the scope of tax law, there is no financial instrument, asset, must be declared at their acquisition definednormative framework in property)? As a rule, transaction information must value in the DIRPF (Income Tax Return), relation to the use of Blockchain be provided periodically by the Brazilian in accordande to the specific codes and the tax treatment applicable to • How should transactions involving legal entity offering services related to provided below: transactions involving cryptoassets cryptoassets be characterized cryptoasset transactions – including (cryptocurrencies, tokens and smart for the purpose of enforcing tax intermediation, negotiation or custody contracts) in general. legislation? – and who can accept any means of payment, including other cryptoassets Nevertheless, there has been an (Exchange), regardless of the amount of increasing use of these resources and Cryptocurrencies the transaction. technologies over the last few years, resulting in repercussions in the tax However, if (i) the transaction is carried Despite the lack of effective regulation area. Regulations must adapt to the out via a foreign exchange or without in Brazil, particularly with regard to current reality, particularly addressing the intermediation of any exchange; cryptoassets, the Brazilian Federal the following questions: and (ii) the total amount of the monthly Revenue (RFB) issued regulations transactions exceeds BRL$30,000, the imposing the obligation to provide • What is the legal nature of information must be provided directly by information of transactions involving cryptoassets from a tax perspective the individual or legal entity resident in such assets (IN RFB nº 1,888/2019)48. (i.e. currency, means of payment, Brazil.

48 Normative Instruction RFB No. 1,888, of May 3, 2019. Available at 49 Guide for providing obligatory cryptoasset transaction information to the Brazilian Federal Revenue and Open http://normas.receita.fazenda.gov.br/sijut2consulta/link.action?visao=anotado&idAto=100592 Data. Available at http://receita.economia.gov.br/orientacao/tributaria/declaracoes-e-demonstrativos/criptoativos/arquivos/ manual-de-preenchimento-criptoativos-versao-1-0-0.pdf ; and http://receita.economia.gov.br/orientacao/tributaria/declaracoes-e- demonstrativos/criptoativos/criptoativos-dados-abertos.pdf.

116 Blockchain Guide Tax Tax Blockchain Guide 117 CODE CODE OBLIGATION TO DESCRIPTION DECRIPTION DECLARE

81 Bitcoin - BTC Acquistion value of Quantity, name of the legal entity where the assets R$ 1.000,00 or more are in custody, legal entity’s taxpayer registry. In case of individual’s own custody, the model of digital wallet used (Ledger nano, Ledger X, Trezor, etc).

82 Other types of Acquistion value of Type and quantity, name of the legal entity where the cryptocurrencies R$ 1.000,00 or more assets are in custody, legal entity’s taxpayer registry. In case of individual’s own custody, the model of digital wallet used (Ledger nano, Ledger X, Trezor, etc). Different types of cryptoassts must be declared separately. For example, Ether (ETH), XRP (Ripple), Bitcoin Cash (BCH), Tether (USDT), Litecoin (LTC), Brazilian Digital Token (BRZ), USD Coin (USDC), TUSD, Cardano (ADA), Binance USD (BUSD), among others. disposed of in the month exceeds this an equity increase must collect amount, the capital gain related to all the income tax on capital gains. disposals will be subject to taxation. However, there is no specific 89 Other cryptoassets Acquistion value of Type and quantity, name of the legal entity where the The payment of this income tax must guidance for cryptoassets exploited not considerd R$ 1.000,00 or more assets are in custody, legal entity’s taxpayer registry. be made by the last business day of the for commercial purposes (i.e. cryptocurrencies In case of individual’s own custody, the model of month following the transaction(s)51. taxation as income or capital gains) (payment tokens). digital wallet used (Ledger nano, Ledger X, Trezor, etc). or received as wage payments (i.e. Examples: Chiliz (CHZ), Binance Coin (BNB), Chainlink Therefore, in the absence of specific social security contributions), as (LINK), Government Debts’ Tokens (MBPRK03), tax legislation involving cryptoassets, occurs in other countries such as Consortium Tokens (MBCONS02), WiBZ (WBZ), PAX Gold the RFB has issued acts and guidelines the United States52 and the United (PAXG), among others. seeking to subject such transactions to Kingdom53. current taxation. Nevertheless, current regulations and guidelines are still in • Exchange between cryptoassets: early stages of development and do not there is still no specific regulation As there is no official rate for this asset, BRL$35,000.00 per month will have this provide further details and clarifications – the RFB only clarifies that such there is no legal rule determining how taxed as capital gains by way of income for specific situations, including: transactions must be informed. the amounts should be converted for tax tax, via progressive rates established Several countries have adopted purposes, so the taxpayer must keep according to amount of gains assessed • Capital gain: in principle, the understanding that it would be documentation proving the authenticity (15% to 22.5%). The RFB considers that transactions involving possible to measure the “gain” in of the reported amounts50. such exemption must consider the set of cryptocurrencies that generate the transaction when exchanging cryptoassets (including cryptocurrencies) Individuals who obtain cryptocurrency disposed in Brazil or abroad, regardless revenue totaling or exceeding of their name and type. If the total 51 IRPF 2021 Questions and Answers. Available at https://www.gov.br/receitafederal/pt-br/acesso-a-informacao/perguntas-frequentes/declaracoes/dirpf http://normas.receita. fazenda.gov.br/sijut2consulta/link.action?visao=anotado&idAto=100592

52 United States. Available at https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual- currency-transactions 50 IRPF 2020 Questions and Answers. Available at https://receita.economia.gov.br/interface/cidadao/irpf/2020/perguntao/pr-irpf-2020-v-1-2-2020-04-13_publicacao.pdf 53 United Kingdom. Available at https://www.gov.uk/government/publications/tax-on-cryptoassets http://normas.receita.fazenda.gov.br/sijut2consulta/link.action?visao=anotado&idAto=100592

118 Blockchain Guide Tax Tax Blockchain Guide 119 one cryptocurrency for another asset which the tokens refer to, and Given the automatic enforcement and (e.g. United States54, Canada55 and the rights conferred on its holder – in other disruptive features associated with HOW the United Kingdom), while others addition to the regulations applicable to smart contracts, one must be aware of CAN WE choose to treat the transaction as cryptoassets in general. the moment in which the taxable events

fiscally neutral until it is converted and ancillary obligations actually occur. HELP? into fiat currency (e.g. France). In the case of utility tokens that provide International transactions involving Meanwhile, some do not tax such access to services, the mere acquisition more than one jurisdiction may also • Tax advice on transactions involving transactions in certain situations, of a token should not result in the user’s present particular issues, which must be cryptoassets (cryptocurrencies, provided that particular legal taxation. For service providers, taxation assessed on a case-by-case basis. tokens and smart contracts), for both requirements are met (e.g. Germany should only occur when the services are cryptoasset issuer and acquirers and Singapore). actually carried out, although there may Blockchain: (owners) of an asset, aiming to be discussions in this regard (especially if mitigate the risk of undue tax • Payment of goods and services intermediaries are involved). opportunities collection – especially in the absence with cryptocurrencies: Individuals of specific regulations and possible or legal entities remunerated with Regarding security tokens and hybrid Blockchain can present itself as lack of clear interpretations by tax cryptoassets must subject amounts tokens acquired as investments that an effective instrument for the authorities. received for goods and/or services represent a fraction of specific goods, documentation and compliance of to the applicable taxation, as a the rights conferred to the owner should transfer pricing rules applicable to • ax assessment of specific situations payment in kind. be verified under this instrument (e.g. transactions between parties. It can involving cryptoassets, such as soft remuneration derived from market facilitate the traceability of transactions fork, hard fork and airdrop events, • Donation of cryptoassets: must fluctuations), in order to assign them a and the disclosure of financial flows, in order to determine and apply the be subject to ITCMD taxation (a specific tax treatment. The same rule based on the technology’s permanent correct tax treatment. tax for causa mortis transfers and applies to royalty tokens that guarantee and immutable records. donations), with variable rates holders remuneration and other rights • Evaluation of the supporting depending on each state (São Paulo, over intangible assets to which they are The consistency and transparency of documentation necessary to support 4%). linked. information documented on Blockchain operations with cryptoassets and can also benefit other types of necessary conduct for transactions intercompany transactions, including documented in Blockchain. Tokens cost-sharing contracts. This ensures Smart Contracts greater reliability of documentation and • Identifying application opportunities reconciliation of the information flow for Blockchain and cryptoassets in Along the same lines as cryptocurrencies between companies. specific sectors. For transactions involving tokens, in and tokens, there is also no specific addition to the comments above, the regulation or guidance applicable to In regard to tax compliance, the • Identifying possible available uses confirmation oftax effects will depend smart contracts. Thus, the particularities adoption of Blockchain for the of Blockchain to promote tax essentially on the specificcharacteristics of each contract must be analyzed in issuance of invoices, submission of compliance. of the instrument traded, the underlying order to apply the appropriate taxation. declarations and statements and for the fulfillment of ancillary obligations • Tax and estate planning involving before tax authorities could increase cryptoassets. the reliability of information provided, 54 United States. Available at https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions- on-virtual-currency-transactions as well as reduce costs associated with

55 Canada Revenue Agency. Available at https://www.canada.ca/en/revenue-agency/programs/about-canada- procedures and tax defenses. revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html

120 Blockchain Guide Tax Tax Blockchain Guide 121 www.mattosfilho.com.br

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122 Blockchain Guide