Tokenization Series, Episode 8:
The Assignment to TT-Identifiers
The constitutive elements that make up the definition of the “Token” have been identified thus far, with the past few Series going into detail on the definitional and constitutive elements.
This Episode considers the final element of the definition of a Token within the TVTG, which speaks of “those that are assigned to one or more TT identifiers”.
According to the definition in Art. 2, para. 1 lit. d of the TVTG, the TT-identifier allows for the clear assignment of tokens. The use of the term “public key” or “address” has correctly been avoided. This is because, it is clear that there are many forms of TT-identifiers, for example for Bitcoin alone, that are not only “public keys”. In practice, at least in the case of Ethereum and Bitcoin, the term “address” has become established in the sense of a paying agent.
Sometimes, however, the “address” is equated — not entirely correctly — with the public key. Bitcoin addresses are character strings comprised of numbers and letters that serve as “paying agents” and can generally be disclosed. Put simply, bitcoins can be sent to the address. At the beginning of Bitcoin, it was possible to “pay” to the IP address directly. Logically speaking, this is not a public key.
In most cases, the public key is now no longer used for transactions. To ensure an approach that was as functionally and technologically neutral as possible, the term “TT-identifier” was thus introduced together with the “TT-key”.
The TVTG uses the TT-identifier to create the connection/assignment between tokens and legal subjects (persons).
The token is assigned to the TT-identifier, which is, in turn, controlled via a TT-key (power of disposal). The TT-key can be used by people to, for example, sign transactions. Even if multiple TT-keys are needed (multi-signature) or other conditions have been defined, the corresponding hashes for a locking script, for example, can also serve as the TT-identifier. The term “relationship model” tokens and persons entitled to dispose over the token has become established
With Ethereum, there are two account types: smart-contract accounts and externally owned accounts (“EOA”). The “standard accounts” are the EOA, which are assigned to people or TT-identifiers (addresses) and enable transactions via private keys (TT-keys). Smart-contract accounts are only activated when they receive a transaction and can only carry out other smart-contracts when they are triggered. A transaction to a smart-contract address on Ethereum is carried out by the corresponding software code. Thus, with Ethereum the conditions for token transfer can be structured much more flexibly than with the Bitcoin script function (locking script). Smart-contract accounts are not TT-identifiers pursuant to the TVTG.
This thus exemplified the final constituent feature of the term “Token” introduced through the TVTG.
On the whole, the Liechtenstein legislator was successful in introducing a suitable legal object into Liechtenstein law through the legal definition within the TVTG. Only after a close analysis of the features, placed in their context as a container for the transfer of rights in the token economy, is it clear why the individual constituent features were characterized the way they were. It also sheds light upon why the token was not only defined as a new legal object, but also separate transfer regulations were required. The legal definition is the clear focus of the TVTG, and the Token-Container-Model already serves as the basis for foreign legislators, emphasizing the high level of innovation. By providing the legal definition, Liechtenstein created the basis for the tokenization of rights. It will be exciting to see how the approach works in practice and how the technologies behind it develop further.
Authors:
Elisabeth Frommelt, LL.M., M.A. HSG
Disclaimer:
All information provided in this article is given without warranty as to its accuracy or completeness. This article is meant for the personal use of the reader only. This article does not constitute legal or tax advice. You must independently seek legal and/or tax advice in regards to any matter of personal concern.
