Our Comment on the Swiss Blockchain Law

In March, the Federal Council presented a draft for a number of legal adjustments and invited Bitcoin Association Switzerland to take part in the public consultation. The consultation phase ends this month and we have filed an extensive comment, in which we support the position of the Swiss Blockchain Federation and lay out some of our common concerns in more detail. In this blog post, I will summarize the content of the proposed law as well as the comments of both Blockchain Federation and Bitcoin Association.

In its December report, the Federal Council identified three main obstacles for the proliferation of the blockchain and its applications in Switzerland:

  1. The creation and transfer of security tokens lacks a solid legal foundation.
  2. The law is silent on the question if and how clients can get their crypto assets back in case a custodian gets bankrupt.
  3. There is no suitable license for exchanges that want to list security tokens.

Academically, the first change is by far the most interesting as its solution requires adjustments to the Swiss Code of Obligations, which is part of the foundations our whole legal system. Generally, Switzerland's legal system is rooted in basic principles and its laws are much less detailed than those of most other countries. This allows courts and scholars to figure out the details on the fly as new circumstances present themselves. This is one of the secrets of why Swiss companies enjoy a high degree of freedom of innovation. A software engineer would say that the Swiss system is more agile than that of other countries. This agility has already been used in the past when stock markets started to get digital in the 1980ies. And it can be used today to find ways to legally bind shares or other securities to a blockchain-based token. The drawback of this approach is that it does not provide unconditional legal certainty. There is always a small risk that a judge follows a different interpretation of the law, thereby pulling the rug out from under such legal constructs. The Federal Council proposes to eliminate this risk by adding explicit legal foundations for security tokens into the Code of Obligations.

At first sight, enabling security tokens sounds straight-forward. However, there are subtle legal considerations to be made. From a legal and technical point of view, a token must fulfill two key properties. The first is to be resistant to manipulation (including counterfeits / copying) and the second is what Swiss lawyers call publicity. Publicity is the ability of the holder to prove to anyone that he actually holds the token. Just like I can prove to anyone that I own a certified security that is printed on paper by presenting that paper, I can prove to anyone that I am in control of a particular token by signing a publicly verifiable message with the right private key. In both cases, the holder can publicly prove that the security is in his possession. Sometimes people make the mistake of turning this upside down, assuming that the blockchain-based ledger allows the issuer to prove who the holders are. While it is conceivable to build such a blockchain, this is not how today's blockchains work. Today's blockchains assign tokens to addresses, and not to persons. Applications and legal considerations that are based on the assumption that there is a stable one-to-one relationship between addresses and persons will inevitable fail sooner or later. In that regard. tokens are very much like printed securities: the paper allows the owner to prove that he is in possession of the share, but the issuer generally has no means to pinpoint the location of the paper. This any many other subtle reasons make the drafted law an excellent proposal: by exploiting the parallels to printed securities, it was possible to craft a robust extension to the Code of Obligation that rests on proven principles.

With the proposed extension of the Code of Obligations, one can issue everything as a tokenized security that could also be issued as a printed security and transfer the security by handing over the possession over the token. It does not matter how the control over the token is transferred. Just like I can give you printed security by giving you a key to a deposit box in which it resides, I can also give a token to you through indirect means, for example by giving you a paper wallet that contains a private key that controls a smart contract that controls another smart contract that finally has the token. The indirections do not matter. The only thing that matters legally is that you gain the ability to prove that you control the token - directly or indirectly. These considerations also illustrate why white-listing only works for one-time transactions. There is no stable one-to-one relationship between addresses and people. As soon as you allow indirect possession (which is a must for applications like Uniswap), your white-list becomes unenforceable. The right way to identify the holders of a token is through a secondary register.

When issuing registered shares, the company must keep a shareholder registry that identifies all shareholders by name. The alternative of issuing anonymous bearer shares is not recommended as they do not conform to today's standards of accountability. So the question is: how can one issue registered shares on the blockchain without writing personal data onto the blockchain? The answer is simple: just split the registry into two parts, the token registry and the shareholder registry. The token registry resides on the blockchain and is anonymous. And the shareholder registry resides in a database and contains a list of all shareholders and their addresses. This split stems from the paper-based world and is already present in today's Code of Obligations. The token is freely transferrable (just like a piece of paper would be). However, in order to actually enjoy the rights of a shareholder, you must present the paper to the company and demand to be registered, providing your name and address. Until you have done so, the company can for example pay out dividends to the previous owner of your shares and there is nothing you can do about it. That results in having the best of both worlds: you can engage in short-term trading without filing any forms, but there is still a high level of transparency regarding the ownership of the company as long term holders are forced to register themselves.

This brings us to the next topic and the second big proposed change to the existing laws: the handling of tokens under bankruptcy. As outlined in an earlier post, there is an important distinction between possession and ownership. Possession is who control something. Ownership is who it belongs to. If I borrow your car, I gain possession over it, but you retain it ownership. Swiss law uses this distinction to find out who stuff belongs to if someone goes bankrupt. If I go bankrupt while having borrowed your car, you can get your car back. However, the problem is that Swiss law only allows this distinction to be made to tangible items and "controllable forces of nature" (e.g. electricity but not wind). That means it is unclear whether you would be able to get any Bitcoins back if you borrowed me some and I go bankrupt. To fix this, the Federal Council proposes to allow you to get your crypto assets back as long as I kept them on a separate address. This is already a step forward, but unfortunately - as we point out in our comment - not future-proof. For example, if you used lightning network to send me the borrowed Bitcoins, a literal interpretation of the proposed law would not allow you to get them back again as lighting network transactions do not lead to a separation of our two balances that is directly observable on the block chain. Thus, we urge the Federal Council to fix this issue and extend your right to get your tokens back to all cases where you can prove that they are actually yours. There are plenty of other use-cases besides lightning network where this is essential and we really hope that this rather small adaption will be made in the next step of the legislative process, where the Federal Council reviews all comments and revises the proposal.

The third important change is the creation of a new license category "DLT-Trading-System" (whereas DLT stands for Distributed Ledger Technology) in the Financial Markets Infrastructure Law, which would allow license-holders to operate an exchange for security tokens. That law contains roughly 14'000 words and is - as far as I know - a condensed version of the European Union's Directive 2014/65/EU on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (72'000 words, also known as MiFID II) and the Regulation No 648/2012 on OTC derivatives, central counterparties and trade repositories (43'000 words, also known as EMIR). Even though the Swiss Financial Markets Infrastructure Law much more compact and stringent than its EU counterpart, it is still seen as relatively bloated and not very elegant among Swiss legal scholars. As the European laws have been designed with only the large, established exchanges in mind, they do not leave any room for innovation - and neither does the Swiss copy. In order to fix this without touching the regulation of the established exchanges, the Federal Council proposes to establish a new, more light-weight license category. An important and well-chosen characteristic of that proposal is that it provides the Federal Council with a lot of leeway in the actual implementation. That way, once the parliament (hopefully) passes the proposed law, the Federal Council can write a relatively permissive act to regulate the DLT-Trading-System while retaining some agility which allows to adjust the regulation without going through the parliament again.

All in all, this is an excellent proposal with the right priorities. If the law passes (after our small adjustments, of course :) ), it could greatly contribute to globally making Switzerland the first address for the issuance of security tokens.

Taso's Tech Talk: Last Bitcoin Update for 2018

As we approach the end of the year, BTC and cryptocurrencies in general remain weak and it looks like this market space will end the year on the current softer note. The final BTC video for 2018, discusses the Hurst cycle relationship and how this reinforces the current bearish trend. Furthermore, a new approach is introduced that evaluates intraday data and the underlying trend condition. This method too reinforces the current bearish tone that, for now shows little sign of changing.

On the Federal Council Report

The federal council published its 170-page report on the legal foundations of the blockchain in Switzerland. It incorporates the findings of the consultation that took place in September and to which the Bitcoin Association also provided some inputs. All in all, it is great that the Swiss government not only recognizes the potential of the blockchain, but also applies the right strategy for allowing the blockchain-ecosystem to flourish.

In particular, the report focuses on removing barriers and establishing legal certainty in various legal areas except taxes, which are planned to be looked at in 2019. It does not propose a specific “blockchain law” like Liechtenstein and it does not try to pro-actively steer the development into a specific direction. This is the right approach and in the Swiss tradition of a principles-based legal system that ensures freedom of innovation and a sound foundation for economic prosperity.

A particularly interesting idea is the proposal to create a new exchange category for crypto exchanges that list security tokens. Before 2016, Finma could have allowed such exchanges at its own discretion. But then, the Financial Market Infrastructure Act was introduced in order to make the Swiss regulatory environment compatible with that of the European Union. It mandated that exchanges must be one of three specific types (stock exchange, mutual trading facility, or organized trading system). Unfortunately, none of these types fits the needs of crypto exchanges very well, making it necessary to create a new type in order to allow such exchanges to exist in Switzerland. This shows once again how the traditional Swiss approach of having principle-based laws that give a lot of discretion to citizens and regulatory agencies are much more innovation-friendly than overly detailed European-style laws.

Another interesting question that we discussed before in this blog is the storage of crypto assets for clients and what happens to them in the case of a default. Here, the report is not as optimistic as it could be regarding the current legal situation, but we welcome its conclusion that a legal clarification is desired and that clients should get their assets back when the custodian defaults, assuming the assets can be clearly identified as belonging to the clients.

Is the Ethereum system a legal subject?

There are some hints that abstract systems like Ethereum should legally be treated like their own entities. The latest such hints comes from the context of value-added tax (VAT or MWST in German), where the taxation of transaction fees is practically impossible when trying to find a taxable relationship between miners and users. If the government ever wants to charge VAT on IT-services rendered by abstract systems such as Ethereum, it cannot get around recognizing these abstract systems as legal subjects. In the context of VAT, they could treat them like foreign firms, thereby enabling tax authorities to demand VAT (Bezugsteuer) when firms "import" IT services from such systems. However, such a change would require the law to be adjusted, which is not worth doing at the current adoption rate of blockchain-based services (we estimate that the ESTV misses out on about 50'000 CHF in taxes by not being able to levy VAT on services rendered by systems such as Ethereum).

So for now, all these services should remain untaxed as everything else would cause completely disproportionate costs to everyone involved. That is at least the position we have taken in our comment to the latest draft of the Swiss federal tax authority (ESTV) on how to treat crypto currencies from a VAT-perspective. The important part is to have a perspective on how it could potentially be done in case the economic significance of transaction fees from blockchain-based services grows by a few orders of magnitude.

Technical Analysis Update for Bitcoin

Technical Analysis Update for Bitcoin

In the last BTC update, I suggested that the risk was skewed to the downside. This was clearly incorrect given strong gains seen over the course of July. Also, I had suggested that the 200D Hurst cycle phase that began off the 7-Feb low was completed on 14-Jun. Having evaluated price action since 14-Jun, a decision has been made to shift the cycle phases slightly to the right to accommodate the low on 25-Jun.

Technical Analysis Update for Bitcoin

Technical Analysis Update for Bitcoin

The Hurst cycle approach was developed by J.M. Hurst and is a powerful analytical and trading tool. The premise is that markets moves in cycles of varying nominal lengths and that all these cycles are interrelated. We are thus able to analyse price action on all frequencies, from short-term to long-term, and formulate an opinion on where price action is in relation to the overall trend/cycle structure.

Bitcoin Association Switzerland 2018: General Assembly

The Bitcoin scene in Switzerland has been strong since Mike Hearn, former Bitcoin developer and author of Bitcoinj, organized the first local Bitcoin meetup in February 2011. Over the years we have grown from a handful of people to over 5’500 Bitcoiners,  making Switzerland home to one of the biggest Bitcoin communities in the world.

To foster this development the not-for-profit Bitcoin Association Switzerland (BAS) was founded. Since 2013 we serve as a vehicle to talk to regulators and organize educational and networking events, making us one of the oldest Bitcoin Associations of the world.

On May 16th 2018, the Bitcoin Association Switzerland held it’s 6th Annual General Assembly. At the general assembly the most engaged members of our community come together to discuss the past years and future activities.

The last year has been one of the most successful years for Bitcoin and the BAS. The number of Bitcoin Meetup Switzerland members grew more than 100% (2’000 to 5’500), the number of corporate members increased from 9 to 65 and the number of events we organize from 30 to 45. While we had constructive talks with Swiss regulators the Bitcoin price rose to 8’263 CHF ;)

The entire association and our endeavours is run on a volunteer-basis, by unpaid individuals driven by the idea behind Bitcoin.

The Swiss have a thing for voting, you say?

Giacomo Zucco Joins the Board

Myself and the entire BAS board would like to thank our former board member Mathieu Buffenoir Gonzalez for his work over the last years. Serving on the board since 2014, Mathieu represented the non-German speaking part of Switzerland and helped building up the Geneva Bitcoin community.

I’m very happy to welcome Giacomo Zucco on the BAS board. Giacomo is a perfect fit for the board of the Bitcoin Association because of his long-time involvement in the Bitcoin community and achievements in educating corporates as much as individuals. In 2015 Giacomo co-founded AssoB.it, the main Bitcoin Association in Italy as well as the Milan Bitcoin Meetup. In 2016 he founded the non-profit initiative BHB Network, aimed to help the development of Bitcoin open standards and R&D, as well as the consultancy company Blockchainlab Switzerland. He hosted the third Scaling Bitcoin Conference and participated as speaker in many major conference since 2017. With Giacomo's help we plan to grow the number of Bitcoiners in Ticino as well as strengthen our collaboration with Milan and other international Bitcoin communities.

Giacomo Talking to our Members

The General Assembly approved all board members. The new board for 2018 consist of Isabella Brom, Roger Darin, Luzius Meisser, Bernhard Müller Hug, Giacomo Zucco and myself. We are thankful for the trust our members have in the board and I’d like thank my colleagues for their work and their commitment to promote Bitcoin in Switzerland for another year.

If you’d like to support our activities please consider becoming a member https://www.bitcoinassociation.ch/individual-membership.

I’m looking forward to a successful 2018/2019 for Bitcoin and the Bitcoin Association Switzerland.

To the moon.



Technical Analysis Update for Bitcoin

The Hurst cycle approach was developed by J.M. Hurst and is a powerful analytical and trading tool. The premise is that markets moves in cycles of varying nominal lengths and that all these cycles are interrelated. We are thus able to analyse price action on all frequencies, from short-term to long-term, and formulate an opinion on where price action is in relation to the overall trend/cycle structure.

Bravis Offers a Brave Vision of the Future and Joins as Corporate Member

Today we are introducing Bravis. As one of their first official actions, the freshly founded company joined our association as a corporate member earlier this month.


Bravis stands for Brave Visions: Their vision is to enable every person to successfully invest in digital assets. Bravis aims to achieve this through three pillars: Asset Management, consulting, and events.

AMA: Ask Me Anything Session Ipchain (12.03.2018)

AMA: Ask Me Anything Session Ipchain (12.03.2018)

Ipchain is doing a Token Sale at the moment. IPCHAIN database covers the protection of intellectual property (IP) through the use of Blockchain technology and has been developed for the needs of scientists, inventors, artists and companies.

At Monday the 12th of March the CEO of the project Dr. Dominik Thor and Lukas Fiedler (Corporate Strategy) have been in our Telegram channel to answer all questions from the community regarding their project.

Technical Analysis Update for Bitcoin

From a cycle perspective BTC is seen currently trading in the final stage of the first of two 80-day cycles (55 trading days). At this latter stage of the 80-day cycle, the cycle phase is down and highlights the fact that short-term pressure on prices is likely to be bearish. This leaves the 19-Mar low of 7321 exposed and attention will be on whether the 7-Feb low of 6012.62 can remain intact. This is a key chart point and key support.