Blockchain Comparative Guide – – Cayman Islands

1 Authorized and enforcement framework

1.1 What normal regulatory regimes and points ought to
blockchain builders contemplate when constructing the governance
framework for the operation of blockchain/distributed ledger
expertise protocols?

The first regulatory regime to think about within the Cayman Islands
is the Digital Belongings (Service Suppliers) Act (‘VASP Act’).
The VASP Act regulates sure blockchain-related actions and
subsequently 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 issues 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. Nevertheless, 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
may contain the issuance of a token which could possibly be captured beneath
the VASP Act and might also be thought-about a safety beneath SIBA.
Specialist recommendation is really useful.

1.3 What normal regulatory points ought to customers of a blockchain
utility contemplate when utilizing a selected blockchain/distributed
ledger protocol?

The consumer of a blockchain or protocol ought to contemplate:

• the safety of the blockchain or protocol; and




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

1.4 Which administrative our bodies are answerable for imposing
the relevant legal guidelines and laws? 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’ normal method to
blockchain?

CIMA has typically been pretty open and pleasant in its method
to blockchain, whereas on the identical time adopting a level of warning
to be able to keep 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 said objective is to “promote
all the pieces blockchain associated within the Cayman Islands”.

2 Blockchain market

2.1 Which blockchain purposes and protocols have develop into
most embedded in your jurisdiction?

The principal blockchain purposes which have develop into embedded
within the Cayman Islands relate to digital property 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 purposes/protocols are most actively
being explored?

Within the Cayman Islands, a variety of purposes 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
purposes by the availability of essential infrastructure and
assist. There are additionally particular anti-money laundering and
compliance providers for cryptocurrency-related initiatives.

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

Except for the Digital Belongings (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 Belongings (Service Suppliers) Act (‘VASP Act’)
governs any entity that points digital property or offers sure
digital asset providers.

The VASP Act’s implementation is going on over two phases
and started 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 further licensing necessities relevant to
custody providers and buying and selling platforms and can present for sandbox
licences.

The VASP Act defines ‘digital property’ 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
embody a digital illustration of fiat currencies”. On this
regard, the VASP Act distinguishes between digital property and
‘digital service tokens’, that are outlined as
“digital representations of worth which aren’t transferable
or exchangeable with a 3rd occasion at any time and consists of digital
tokens whose sole perform is to supply entry to an utility
or service or to supply a service or perform on to its
proprietor”.

The VASP Act requires all digital asset service suppliers
(VASPs) to register or get hold of a licence (as relevant). A
‘digital asset service’ is outlined because the issuance of
digital property 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 property and fiat currencies;




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




• switch of digital property;




• 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, fashioned, registered or based mostly 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 embody (however usually are not restricted to) the
following:

• appointing a managerial stage worker as an AML compliance
  officer (who have to be accepted 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 purchasers
  are correctly recognized, dangers assessed and requisite information
  maintained.

3.3 What shopper safety provisions apply to
cryptocurrencies?

Except for the necessities of the VASP Act, which offers a
stage of shopper safety, CIMA has previously made statements
regarding the operation of sure exchanges from the jurisdiction
the place these exchanges might 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, offered that she or he
is just not 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 subsequently might want to register as a ‘registered
particular person’ or get hold of 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 premise 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 property’ as set out in query 3.1,
the entity conducting the issuance can 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 the moment this could require the issuing entity to develop 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 might
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 might challenge such waiver if it determines that:

• the digital asset service doesn’t materially change the character
  of the exercise for which the prevailing 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
state of affairs and in that context, had been the entity already regulated by
SIBA, it may apply for a waiver from the VASP Act (or vice
versa).

4 Good contracts

4.1 Can a sensible contract fulfill the authorized necessities of a
authorized contract beneath the legal guidelines of your jurisdiction? What can be
thought-about when making this willpower?

Whereas there is no such thing as a Cayman Islands precedent addressing this
query, we see no motive why a sensible 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 pointers or
insurance policies inside your jurisdiction which offer steerage on
regulating/defining good contracts?

There are not any regulatory or governmental pointers concerning the
enforceability of good contracts. Nevertheless, the Digital
Transactions Act (2003 Revision) helpfully offers that that the
provide and acceptance of a contract could also be expressed by way of
digital document. On the face of it, this could recommend that good
contacts are enforceable beneath Cayman Islands regulation.

4.3 What elements of conventional contract would possibly good contracts be
capable of substitute?

Points of contracts which require third-party involvement might
be replaceable by good contract. Escrow preparations and
notification provisions are two apparent examples. Sure insurance coverage
contracts may also be improved upon by way of good contracts
the place set off occasions and pay-outs will be hardcoded.

4.4 What elements of conventional contracts would possibly good contracts
be unable to switch?

As a consequence of their self-executing nature, the doable outcomes of a
good contract are usually restricted to being binary. The dangers of
an unintended end result will be excessive if the good 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 good contracts.

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

No particular points have introduced themselves earlier than the courts
within the Cayman Islands. Nevertheless, points which may come up are possible
to centre on the best way through which a sensible contract could be undone or
amended.

4.6 What are some sensible issues that events ought to
contemplate when drafting a sensible contract?

On condition that good contracts are immutable, this can be very
essential to think about intimately all elements of the contract earlier than
executing it. Such issues embody:

• 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 issues differ when good
contracts are operating on a personal versus public blockchain?

Presumably a personal blockchain can be extra amenable to vary
and alteration, and subsequently points which may come up could also be extra
simply resolved for a personal blockchain in contrast with a public
blockchain (which is able to possible require the consensus of a a lot
bigger group).

5 Information and privateness

5.1 What particular challenges or issues does blockchain
current from an information safety/privateness perspective?

The Cayman Islands has applied knowledge safety laws
largely based mostly on the UK/EU requirements of the Normal Information Safety
Regulation (GDPR).

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

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

• the shortage of centralised management and storage;




• the immutability of the blockchain; and




• the storage of knowledge without end.

The next principal points come up:

• It’s typically troublesome (if not not possible) to determine inside a
  blockchain utility who the ‘knowledge controllers’ and
  ‘knowledge processors’ really are for the needs of
  compliance with knowledge safety laws.




• Stakeholders within the blockchain area might have a unique
  perspective to anonymity and pseudonymity, which has an influence on how
  knowledge safety and privateness legal guidelines can (or ought to) apply.




• The worldwide participation in blockchain purposes (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 knowledge to a different jurisdiction; or

  
  

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




• It should additional be thought-about whether or not, in a blockchain
  utility, the usage of private knowledge is for authentic
  functions.




• A person’s ‘proper to be forgotten’ is
  troublesome to reconcile with the blockchain’s immutable nature
  – an information topic may discover his or her private knowledge encased
  onto a blockchain without end.

5.2 What potential benefits can blockchain provide within the knowledge
safety/privateness context?

The world of knowledge safety/privateness on which blockchain might
possible have the most important optimistic influence is the recording and
retention of anonymised knowledge. The power to repeatedly replace
and document essential information and statistics (eg, medical journals,
authorities statistics) may provide the flexibility to make sure that such
data is public, simply accessible, auditable and on the identical
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
occasion to supply secure protecting 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 consumer passwords, can’t be
restored. If a consumer loses the non-public key, all knowledge encrypted with
it’s going to most definitely be not possible to get well. This may be mitigated
by way of third-party custody providers; albeit that in actuality,
this passes the accountability of making certain safekeeping to the third
occasion.

Hacking: Like all expertise, blockchain
purposes are vulnerable to hacking or being compromised. This threat
will 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 tough 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 provide within the
cybersecurity context?

Blockchain purposes provide the next main benefits in
the cybersecurity context:

• Safe knowledge storage and processing: Blockchain information are
  immutable and any change recorded on the blockchain is clear
  and non-removable. Due to this fact, knowledge 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
  good 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 members can hint
  transaction historical past and observe accounts at a cut-off date.




• Consumer confidentiality: The confidentiality of blockchain community
  members 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
  entire.

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 subsequently 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. Lots of the current
decentralised finance hacks and exploits may 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 completely different
protocols can contain mental property in numerous methods, from
code to branding. For decentralised initiatives, it’s not all the time
clear the place the possession of the related mental property
sits.

7.2 What kind of IP safety can blockchain builders
get hold of?

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
automated copyright safety for code. Nevertheless, anybody trying to
register any sort of mental property within the Cayman Islands
ought to contemplate the potential influence of the Worldwide Tax
Co-operation (Financial Substance) Act.

7.3 What are one of the best open-source platforms that could possibly be used
to guard builders’ improvements?

Not relevant.

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

It’s predicted that blockchain expertise will remodel the
method through which IP rights are recorded or evidenced.

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

8 Developments and predictions

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

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

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

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

8.3 What’s the largest obstacle inside your jurisdiction to
the adoption of blockchain expertise?

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

9 Ideas 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
expertise to the general public from the Cayman Islands is to grasp
the potential influence of the Digital Belongings (Service Suppliers) Act.
We’d all the time advocate 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 supply a normal
information to the subject material. Specialist recommendation needs to be sought
about your particular circumstances.