ANALYSIS OF THE LAW ON DIGITAL PROPERTY
The Law on Digital Property (hereinafter: the Law) was adopted by the National Assembly of the Republic of Serbia, entered into force on December 21, 2020 and began to apply on June 29, 2021.
This six-month deferral period aimed to provide sufficient time to create the conditions for its implementation, as well as the opportunity for all interested participants in the digital property market to become acquainted with the provisions of the Law. This deadline was, on the one hand, obviously left due to the drafting of bylaws and instructions, ie the preparation of both supervisory bodies and entities to which the Law will apply, and on the other hand due to the establishment of legal certainty in the market and taxation of such property.
This Law, for the first time, introduces the legal framework of digital property in the Republic of Serbia, which pulls it out of the gray zone, and thus regulates this market in our country. Also, the Law defines the process of issuing and exchanging digital property, which leads to greater legal security for investors and businessmen.
I) What exactly is digital property?
Namely, the Law clearly defined the term digital property, ie virtual property, which actually means a digital record of value, which can be digitally bought, sold, exchanged, or transferred and which can be used as a means of exchange, or for investment purposes, where digital property does not include digital currency records, which are legal tender, or other financial assets, which are regulated by other laws, except when otherwise regulated by this Law, which in conclusion means that cryptocurrencies do not have the legal status of money or currency, but only digital property.
The law provides for virtual currency and digital token under types of digital property, where virtual currency is a type of digital property, which is not issued and whose value is not guaranteed by the central bank or other public authority, which is not necessarily legal tender and has no legal status, money, or currency, but is accepted by natural or legal persons as a medium of exchange and can be bought, sold, exchanged, transferred and stored electronically, while a digital token represents a type of digital property and means any intangible property right, which in digital form represents one or more other property rights, which may include the right of the user of the digital token to be provided with certain services.
One of the most important things, which is provided by the provisions of Article 8 of the Law, is the principle of technological neutrality, which stipulates that the provisions of this law apply to all digital property regardless of the technology on which that digital property is based. The concept of technological neutrality conceived in this way is extremely important, because it provides legal certainty that this Law will not lose its significance due to technological advances, ie the emergence of digital property in the future.
II) Primary and secondary trading in digital assets
The primary and secondary market implies the issuance of digital property, its advertising and trading, where the issuance of digital property is allowed, ie not conditioned by the existence of the so-called “white paper“, while the advertising of digital property is conditioned by the existence of an approved “white paper“, and exceptionally without it, if it is in accordance with the act of the supervisory body, ie the National Bank of Serbia and the Securities Commission.
The purpose of issuing “white paper” is to protect investors, since it is a document, which is published when digital property is issued in accordance with this Law, which contains information on the issuer of digital property, digital property and risks associated with digital property, and in this way allows investors to make an informed investment decision.
On the other hand, when it comes to secondary trading with digital property, the new Law allows such trading, both for digital property issued in the Republic of Serbia and for the one issued abroad, if such digital property has a “white paper“, which is issued in accordance with this Law, and even in the case when there is no “white paper” for such digital property, which is issued in accordance with this Law.
However, depending on the existence of “white paper“, it depends on whether there is a right to advertise digital property (issued in RS, ie abroad). Namely, the provision of services related to digital property and inclusion in the market is allowed in both cases, ie when there is or is not a “white paper” for digital property, while advertising is conditioned by the existence of this paper, ie is allowed only in accordance with an act of the supervisory body.
Of course, there are exceptions in this case as well, and that is when a “white paper” is subsequently approved for that digital asset, then when a “white paper”, ie a document corresponding to a “white paper”, is approved for such digital asset in a Member State of the European Union, as well as when it comes to digital property, which is significantly traded on the global market through licensed or registered platforms in accordance with European Union regulations governing the prevention of money laundering and terrorist financing, or in accordance with other appropriate regulations governing the prevention of money laundering and terrorist financing.
Within the secondary market, trading is enabled through the OTC platform, which is a market for digital property trading where transactions are performed directly between the seller and buyer of digital property, without the obligatory participation of digital property providers and outside the digital property trading platform, as well as through the smart contracts, which are in fact a computer program, or protocol, based on distributed database technology, or similar technologies, which, in whole or in part, automatically executes, controls, or documents legally relevant events and actions in accordance with an already concluded contract, when that contract may be concluded electronically through that program, or protocol.
The new Law definitely represents a good start and a basis for further regulation of digital property and the market in our country, because as we mentioned at the very beginning, it draws it from the so-called “gray zone” and provides some legal certainty to investors. When it comes to the application of the Law itself, it remains for us in the coming period to determine whether the new Law will be able to keep pace with the development of the digital market in the world, ie in our country.
It cannot be avoided that many issues remain unresolved, which will be further explained in detail and supplemented by bylaws, which are expected to be adopted within 3 months of the entry into force of the Law, the effectiveness of which will actually depend on the degree and quality of applicability of this Law in practice, ie amendments to it.
Bearing in mind that the National Bank of Serbia and the Securities Commission have been designated as Supervisory Bodies for Law enforcement, each body will adopt appropriate bylaws within the scope defined by the Law, namely the National Bank of Serbia in the part related to virtual currencies, as types of digital property, and the Securities Commission in the part that refers to digital tokens, as types of digital property.