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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
developing their business in different
7 INVESTMENT FUNDS 57
If transactions are made based on trust areas. 8 SUCCESSION LAW 65
between parties and intermediaries, no
We hope that this guide will serve to
9 REAL ESTATE 71
technology in the digital world can better
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.
healthcare, insurance, and real estate.
16 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
technology was discussed in the article
from the chain of intermediaries who
could make negotiations costlier and
used on a large scale?
“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
enable more efficient commercialization. Public Policies in R&D: they are purchasing comes from via a QR
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.
ESTADOS UNIDOS
Infrastructure: raised more than US$4 million in capital.
They are currently working to increase
The Crypto Property Tax Exemption Bill establishes that virtual currency is not subject to
(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
even allows the enforcement of clauses
Fintechs:
Since 2016, Japan has included two extremely relevant rules on virtual currencies
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
access to the platform where their votes
to examine possible Blockchain BRAZILIAN to good use.
are imported into the distributed ledger
applications within government services.
CONTEXT:
and encrypted in immutable registration
In Brazil, Blockchain can open up
blocks, guaranteeing the security
of information. This application of Regulation of opportunities for entities interested in
using this technology, as well as for those
Regulatory sandboxes are
Blockchain technology has already been
used in Europe, North America and Asia,
exchanges: intending to offer it to the market as a
environments created by
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
Environment: institutions. This includes identifying
actors in transactions and developing
of smart contracts, which provide
regulatory supervision.
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
access to the platform where their votes
exchanges: 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
of central banks, and the amount in
another of its notable characteristics
is transparency. Every detail of
transactions carried out through
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
around the world. News reports from
Once cryptocurrency is issued, it is the
structure.
countries that have started to regulate
Initial Coin Offering -
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
to note who is behind the ICO and
distribution, (iii) transaction speed,
and (iv) algorithms used. The creation
SMART 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
Cryptocurrency developments of this technology.
a set of rules for which each party
must process data in relation to a
Options: • Set of promises: They may have
smart contract. It is the mechanism
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 21allows 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
coding and may contain defects and/
INSURANCE MARKET:
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 25TOKENIZATION
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
with each other, so as to not distribute
the Blockchain architecture.
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 27and each of these individuals will hold
a percentage of the ownership of the
• Despite these advantages (as
well as those derived from other
TOKENIZATION AND
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
with a large purchasing power have
TOKENIZATION OF REAL ESTATE
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 29ENVIRONMENTAL 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
technological research and development, CAN WE
legal advice on the transactions
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 33COMPLIANCE
AND CORPORATE
ETHICS
34 Blockchain Guide Blockchain Guide 35Blockchain’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 37not replace integrity standards. Instead,
it facilitates the measurement and
HOW
implementation of monitoring controls CAN WE
for those standards. In this sense, it is
essential that companies adopt integrity
HELP?
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 39ANTITRUST 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
(Administrative Council for Economic
collusive behavior among the
competitors in question, but also
CAN WE
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 43LITIGATION 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;
• Little or no interpretation by the or regulation of the topic, the litigation is
OF TECHNOLOGICAL
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;
consumers and users;
JUDICIARY AND POSSIBLE
• 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 47How have the courts HOW
PRECEDENT OF • In the case of fraud in a digital ruled in Brazil? CAN WE
THE STATE OF SÃO account leading to the loss of
bitcoins, the Brazilian Consumer
Brazilian precedents on smart HELP?
contracts and cryptocurrencies are
PAULO COURT OF Protection Code was applied to the
relationship between the broker
scarce and limited to matters that have
As there is no specific legislation and
little to do with technological innovation
APPEAL and the contracting party15.
itself.
there are only few decisions, sensitivity
and legal precision are required in the
use and creation of these tools. Mattos
After having an online purchase
frustrated twice, the marketplace Smart contracts Filho’s Litigation and Arbitration practice
platform blocked the plaintiff’s PRECEDENTS OF As this technology is not widespread in
area works on the most complex
national and international cases with
account because it understood there Brazil and lacks specific regulation, the
were signs of fraud12. According to the THE SUPERIOR courts have interpreted smart contracts
clients in the technology sector. Our
professionals remain up to date with the
court, despite being a smart purchase using basic contractual concepts
and sales contract, the “fundamental COURT OF JUSTICE provided for in the Brazilian Civil Code:
most current debates in the sector and
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
• In the case of fraud in a digital
that the purchase and sale of Cryptocurrencies
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.
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