Blockchain Comparative Guide – – Cayman Islands

1 Authorized and enforcement framework

1.1 What basic regulatory regimes and points ought to
blockchain builders take into account when constructing the governance
framework for the operation of blockchain/distributed ledger
know-how protocols?

The first regulatory regime to contemplate within the Cayman Islands
is the Digital Property (Service Suppliers) Act (‘VASP Act’).
The VASP Act regulates sure blockchain-related actions and
due to this fact could also be related for sure protocols.

The opposite regulatory regime which may be related for protocols
with an related token or which allow buying and selling of securities is
the Securities and Funding Enterprise Act (SIBA).

1.2 How do the foregoing concerns differ for public and
non-public blockchains?

The Cayman Islands regulator, the Cayman Islands Financial
Authority (CIMA), doesn’t differentiate between private and non-private
blockchains. Nonetheless, the VASP Act and SIBA could possibly be related for
private and non-private blockchains, relying on their traits
and operation. For instance, each a personal and public blockchain
might contain the issuance of a token which could possibly be captured beneath
the VASP Act and may be thought-about a safety beneath SIBA.
Specialist recommendation is beneficial.

1.3 What basic regulatory points ought to customers of a blockchain
software take into account when utilizing a specific blockchain/distributed
ledger protocol?

The person of a blockchain or protocol ought to take into account:

• the safety of the blockchain or protocol; and




• the recourse it might need within the occasion of a loss as a consequence of
  hacking or some occasion unfavourable occasion.

1.4 Which administrative our bodies are liable for imposing
the relevant legal guidelines and rules? What powers have they got?

CIMA (as outlined above) is the federal government physique tasked with
imposing the VASP Act and retains wide-reaching powers to control
individuals and entities regulated pursuant to the VASP Act.

1.5 What’s the regulators’ basic method to
blockchain?

CIMA has usually been pretty open and pleasant in its method
to blockchain, whereas on the similar time adopting a level of warning
so as to preserve the very excessive requirements of the monetary
providers trade.

1.6 Are any trade or commerce associations influential within the
blockchain area?

Probably the most influential trade physique is the Cayman Islands
Blockchain Affiliation, whose acknowledged aim is to “promote
every little thing blockchain associated within the Cayman Islands”.

2 Blockchain market

2.1 Which blockchain functions and protocols have change into
most embedded in your jurisdiction?

The principal blockchain functions which have change into embedded
within the Cayman Islands relate to digital belongings and cryptocurrencies
– particularly:

• governance and utility tokens;




• buying and selling and trade platforms; and




• decentralised finance and non-fungible tokens.

2.2 What potential new functions/protocols are most actively
being explored?

Within the Cayman Islands, a variety of functions and
protocols are being explored, with decentralised autonomous
organisations the preferred given the existence of the Cayman
Islands basis firm.

2.3 Which industries inside your jurisdiction are making
materials investments inside the blockchain area?

Many service suppliers (eg, legal professionals, accountants, company
service suppliers) are investing time and assets in having the ability
to grasp, advise on and facilitate newer blockchain
functions by means of the supply of essential infrastructure and
help. There are additionally particular anti-money laundering and
compliance providers for cryptocurrency-related tasks.

2.4 Are any initiatives or governmental programmes in place to
incentivise blockchain growth in your jurisdiction?

Other than the Digital Property (Service Suppliers) Act mentioned
inquestion 1, there are numerous organisations and our bodies trying to
entice expertise within the Cayman Islands, together with:

• Cayman Enterprise Metropolis, which facilitates entry into the
  particular financial zone; and




• Tech Cayman.

3 Cryptocurrencies

3.1 How are cryptocurrencies and/or digital currencies outlined
and controlled in your jurisdiction?

The Digital Property (Service Suppliers) Act (‘VASP Act’)
governs any entity that points digital belongings or offers sure
digital asset providers.

The VASP Act’s implementation is happening over two phases
and commenced in October 2020. Part 1 introduced into power the
anti-money laundering, counter-terrorist financing of terrorism,
compliance and supervision provisions of the VASP Act.

Part 2 has but to return into power. When applied, Part 2
will introduce extra licensing necessities relevant to
custody providers and buying and selling platforms and can present for sandbox
licences.

The VASP Act defines ‘digital belongings’ as “a digital
illustration of worth that may be digitally traded or transferred
and can be utilized for fee or funding functions however doesn’t
embrace a digital illustration of fiat currencies”. On this
regard, the VASP Act distinguishes between digital belongings and
‘digital service tokens’, that are outlined as
“digital representations of worth which aren’t transferable
or exchangeable with a 3rd celebration at any time and consists of digital
tokens whose sole perform is to offer entry to an software
or service or to offer a service or perform on to its
proprietor”.

The VASP Act requires all digital asset service suppliers
(VASPs) to register or receive a licence (as relevant). A
‘digital asset service’ is outlined because the issuance of
digital belongings or the enterprise of offering one in every of extra of the
following providers or operations for or on behalf of a pure or
authorized particular person or authorized association:

• trade between digital belongings and fiat currencies;




• trade between a number of different types of convertible digital
  belongings;




• switch of digital belongings;




• digital asset custody service; or




• participation in, and provision of, monetary providers associated
  to a digital asset issuance or the sale of a digital asset.

3.2 What anti-money laundering provisions apply to
cryptocurrencies?

Below the Proceeds of Crime Act (2020 Revision) and the
Anti-Cash Laundering Rules (2020 Revision), and their
relevant steerage notes (collectively, ‘the AML legal guidelines’), any
particular person, shaped, registered or primarily based within the Cayman Islands
conducting “related monetary enterprise” is topic to
varied obligations geared toward stopping, figuring out and reporting
cash laundering and terrorist financing. VASPs should adjust to
the AML legal guidelines.

The necessities embrace (however usually are not restricted to) the
following:

• appointing a managerial degree worker as an AML compliance
  officer (who have to be authorized by the Cayman Islands Financial
  Authority (CIMA) beneath the VASP Act);




• appointing a managerial-level worker because the money-laundering
  reporting officer and a deputy for a similar; and




• implementing complete procedures to make sure that shoppers
  are correctly recognized, dangers assessed and requisite information
  maintained.

3.3 What shopper safety provisions apply to
cryptocurrencies?

Other than the necessities of the VASP Act, which offers a
degree of shopper safety, CIMA has up to now made statements
regarding the operation of sure exchanges from the jurisdiction
the place these exchanges could have been working with out licences or
registration.

3.4 How are cryptocurrencies handled from a tax
perspective?

No Cayman Islands taxes at present apply to cryptocurrencies.

3.5 What regulatory necessities apply to a cryptocurrency
dealer/trade?

No regulatory necessities apply to a person who’s buying and selling
cryptocurrencies on his or her personal behalf, supplied that she or he
just isn’t providing any digital asset providers as outlined beneath the
VASP Act. An trade working as a enterprise could also be topic to the
VASP Act and due to this fact might want to register as a ‘registered
particular person’ or receive a licence beneath the VASP Act.

3.6 How are preliminary coin choices and securities token
choices outlined and controlled in your jurisdiction?

On the idea that the coin being provided falls inside the
definition of a ‘digital asset’ as outlined in query 3.1,
and that the preliminary coin providing falls inside the definition of
an ‘issuance of digital belongings’ as set out in query 3.1,
the entity conducting the issuance might be required to register as
a ‘registered particular person’ beneath the VASP Act.

A securities token providing could also be regulated by each the VASP
Act and the Securities and Funding Enterprise Act (SIBA). This
would be the case the place the token falls inside the definition of a
‘digital asset’ as set out in query 3.1 and the
definition of a ‘safety’ as set out in Schedule 1 of
SIBA. At present this may require the issuing entity to change into
regulated beneath each acts; nonetheless, a waiver course of is anticipated to
be launched whereby regulation beneath each regimes shouldn’t be
required.

As soon as the waiver provisions are introduced into power, CIMA could
grant a waiver to any particular person already licensed beneath one other
regulatory act (eg, SIBA). Part 16 of the VASP Act expressly
offers that CIMA could difficulty such waiver if it determines that:

• the digital asset service doesn’t materially change the character
  of the exercise for which the present licensee is already
  licensed; and




• the supervision and oversight in relation to that licensee is
  enough to incorporate the digital asset service carried on by
  it.

The aforementioned waiver provision within the VASP Act seems
designed particularly to deal with a securities token providing
scenario and in that context, have been the entity already regulated by
SIBA, it might apply for a waiver from the VASP Act (or vice
versa).

4 Sensible contracts

4.1 Can a wise contract fulfill the authorized necessities of a
authorized contract beneath the legal guidelines of your jurisdiction? What might be
thought-about when making this dedication?

Whereas there isn’t a Cayman Islands precedent addressing this
query, we see no purpose why a wise contract couldn’t be
enforceable as a authorized contract beneath the legal guidelines of the Cayman
Islands.

4.2 Are there any regulatory or governmental tips or
insurance policies inside your jurisdiction which offer steerage on
regulating/defining sensible contracts?

There aren’t any regulatory or governmental tips concerning the
enforceability of sensible contracts. Nonetheless, the Digital
Transactions Act (2003 Revision) helpfully offers that that the
supply and acceptance of a contract could also be expressed by the use of
digital document. On the face of it, this may counsel that sensible
contacts are enforceable beneath Cayman Islands regulation.

4.3 What components of conventional contract would possibly sensible contracts be
capable of change?

Elements of contracts which require third-party involvement could
be replaceable by sensible contract. Escrow preparations and
notification provisions are two apparent examples. Sure insurance coverage
contracts can be improved upon by way of sensible contracts
the place set off occasions and pay-outs could be hardcoded.

4.4 What components of conventional contracts would possibly sensible contracts
be unable to interchange?

As a result of their self-executing nature, the attainable outcomes of a
sensible contract are sometimes restricted to being binary. The dangers of
an unintended consequence could be excessive if the sensible contract itself
accommodates errors or has not been correctly coded. As well as, widespread
but subjective phrases (eg, ‘good religion’) are incapable of
being integrated into sensible contracts.

4.5 What points would possibly current themselves in your jurisdiction
with regard to judicial enforcement of sensible contracts?

No particular points have introduced themselves earlier than the courts
within the Cayman Islands. Nonetheless, points that may come up are probably
to centre on the best way during which a wise contract could be undone or
amended.

4.6 What are some sensible concerns that events ought to
take into account when drafting a wise contract?

On condition that sensible contracts are immutable, this can be very
essential to contemplate intimately all points of the contract earlier than
executing it. Such concerns embrace:

• efficiency measures;




• pricing metrics;




• discover;




• execution authority (together with the potential use of
  multi-signature mechanisms for added safety); and




• pockets addresses.

4.7 How will the foregoing concerns differ when sensible
contracts are working on a personal versus public blockchain?

Presumably a personal blockchain might be extra amenable to alter
and alteration, and due to this fact points which might come up could also be extra
simply resolved for a personal blockchain in contrast with a public
blockchain (which is able to probably require the consensus of a a lot
bigger group).

5 Knowledge and privateness

5.1 What particular challenges or issues does blockchain
current from a knowledge safety/privateness perspective?

The Cayman Islands has applied information safety laws
largely primarily based on the UK/EU requirements of the Normal Knowledge Safety
Regulation (GDPR).

The GDPR and different information safety legal guidelines are constructed round
the notion that centralised entities ought to management and course of
private information, with statutory obligations referring to attributed to
‘information controllers’ and ‘information processors’.

This method is basically at odds with blockchain’s
decentralised nature, making it laborious to reconcile present information
safety legal guidelines with blockchain’s different principal
traits – that’s:

• the dearth of centralised management and storage;




• the immutability of the blockchain; and




• the storage of knowledge endlessly.

The next principal points come up:

• It’s typically troublesome (if not unattainable) to establish inside a
  blockchain software who the ‘information controllers’ and
  ‘information processors’ really are for the needs of
  compliance with information safety laws.




• Stakeholders within the blockchain area could have a unique
  angle to anonymity and pseudonymity, which has an impression on how
  information safety and privateness legal guidelines can (or ought to) apply.




• The worldwide participation in blockchain functions (eg, within the
  buying and selling of cryptocurrencies) signifies that transactions are sometimes
  performed on a cross-border foundation, which raises questions of:




• • whether or not any restrictions would possibly apply to the switch of
    private information to a different jurisdiction; or

  
  

  • whether or not that different jurisdiction has equal information safety
    or privateness laws.




• It should additional be thought-about whether or not, in a blockchain
  software, the usage of private information is for respectable
  functions.




• A person’s ‘proper to be forgotten’ is
  troublesome to reconcile with the blockchain’s immutable nature
  – a knowledge topic might discover his or her private information encased
  onto a blockchain endlessly.

5.2 What potential benefits can blockchain supply within the information
safety/privateness context?

The realm of knowledge safety/privateness on which blockchain could
probably have the most important constructive impression is the recording and
retention of anonymised information. The flexibility to repeatedly replace
and document essential information and statistics (eg, medical journals,
authorities statistics) might supply the flexibility to make sure that such
info is public, simply accessible, auditable and on the similar
time safe and uneditable. This has many potential advantages
– one in every of which is that an individual needn’t rely a on a 3rd
celebration to offer protected preserving of essential information.

6 Cybersecurity

6.1 What particular challenges or issues does blockchain
current from a cybersecurity perspective?

Personal keys: Personal keys are used to work together
with the blockchain and, in distinction to person passwords, can’t be
restored. If a person loses the non-public key, all information encrypted with
it is going to most definitely be unattainable to get well. This may be mitigated
by way of third-party custody providers; albeit that in actuality,
this passes the accountability of guaranteeing safekeeping to the third
celebration.

Hacking: Like all know-how, blockchain
functions are susceptible to hacking or being compromised. This threat
could be mitigated by way of third-party custody options;
nonetheless, these suppliers can themselves be hacked.

Out-of-date software program/vulnerability protection:
The quick tempo of the blockchain area signifies that it’s typically
troublesome to maintain blockchain software program up to date. In the identical vein, it
is difficult to maintain observe of safety updates to enterprise blockchain
software program as a result of there’s a lack of protection on related nationwide
databases.

6.2 What potential benefits can blockchain supply within the
cybersecurity context?

Blockchain functions supply the next main benefits in
the cybersecurity context:

• Safe information storage and processing: Blockchain information are
  immutable and any change recorded on the blockchain is clear
  and non-removable. Subsequently, information saved on a blockchain is
  protected higher than conventional digital or paper-based
  information.




• Switch of knowledge in a safe method: Blockchain facilitates
  quick and safe transactions of knowledge and funds. Options equivalent to
  sensible contracts enable for the automated execution of agreements
  between a number of events.




• Traceability/transparency: All blockchain transactions are
  digitally signed and time stamped, so contributors can hint
  transaction historical past and observe accounts at a cut-off date.




• Person confidentiality: The confidentiality of blockchain community
  contributors is excessive because of the public key cryptography that
  authenticates customers.




• No single level of failure: Permissionless blockchains are
  decentralised so the failure or compromise of a single node will
  not compromise the operation or safety of the blockchain as a
  complete.

6.3 What instruments and measures could possibly be applied to mitigate
cybersecurity threat?

The best instrument we’re conscious of that may assist to
mitigate cybersecurity threat (in all blockchains, however particularly
in new and due to this fact extra centralised chains) is a safety audit.
Briefly, it is a course of whereby a blockchain safety entity is
contracted to run a rigorous evaluation of a blockchains code,
figuring out weak factors and permitting the builders to patch them
previous to (or after) a public launch. Most of the current
decentralised finance hacks and exploits might have been prevented
by a radical safety audit.

7 Mental property

7.1 What particular challenges or issues does blockchain
current from an IP perspective?

One problem for mental property is that totally different
protocols can contain mental property in numerous methods, from
code to branding. For decentralised tasks, it’s not all the time
clear the place the possession of the related mental property
sits.

7.2 What sort of IP safety can blockchain builders
receive?

Blockchain builders can reap the benefits of the UK Copyright,
Design and Patents Act 1988, which has been prolonged to use (in
half) within the Cayman Islands. This will, for instance, afford
computerized copyright safety for code. Nonetheless, anybody trying to
register any type of mental property within the Cayman Islands
ought to take into account the potential impression of the Worldwide Tax
Co-operation (Financial Substance) Act.

7.3 What are the most effective open-source platforms that could possibly be used
to guard builders’ improvements?

Not relevant.

7.4 What potential benefits can blockchain supply within the IP
context?

It’s predicted that blockchain know-how will rework the
method during which IP rights are recorded or evidenced.

An instance of this pattern in motion is evidenced by the meteoric
rise in reputation in non-fungible tokens. Whereas they have been
initially used to characterize digital art work, their use in different
industries is growing as a method of offering digital
identifiability and authenticity for property of all varieties.

8 Tendencies and predictions

8.1 How do you suppose the regulatory panorama in your
jurisdiction will evolve within the blockchain area over the subsequent two
years? Are any pending modifications at present being thought-about?

The obvious change would be the implantation of Part 2 of
the Digital Property (Service Suppliers) Act (‘VASP Act’),
mentioned in query 3.1. Other than that, it’s hoped that the
course of for changing into registered (and licensed when Part 2 has been
applied) will change into extra streamlined and sure with regard
to timing.

8.2 What regulatory modifications would you want your jurisdiction to
implement to additional advance the blockchain trade?

The VASP Act as drafted is a stable piece of laws and
offers certainty to individuals wishing to function within the crypto area
within the Cayman Islands. One change which may be useful can be to
streamline processes in order that an applicant can have some degree of
certainty as to how lengthy it could take for an software to be
authorized.

8.3 What’s the largest obstacle inside your jurisdiction to
the adoption of blockchain know-how?

Blockchain is sophisticated and comes with difficult technical
ideas and far jargon. It will possibly due to this fact be troublesome for individuals
which are fully unfamiliar with these to enter the area. That
is prone to sluggish the adoption total as service suppliers come up
to hurry.

9 Suggestions and traps

9.1 What are your high ideas for efficient use of blockchain
applied sciences in your jurisdiction and what potential sticking
factors would you spotlight?

An important issue when contemplating providing blockchain
know-how to the general public from the Cayman Islands is to grasp
the potential impression of the Digital Property (Service Suppliers) Act.
We might all the time suggest acquiring product-specific recommendation as a
first step to grasp the regulatory implications of the product
earlier than enterprise any blockchain-related actions.

The content material of this text is meant to offer a basic
information to the subject material. Specialist recommendation needs to be sought
about your particular circumstances.