Blockchain 2022

Last Updated May 08, 2022

Netherlands

Law and Practice

Authors



Greenberg Traurig, LLP is an international law firm with approximately 2,400 attorneys serving clients from 43 offices in the United States, Latin America, Europe, Asia and the Middle East. The firm's global blockchain and digital assets group comprises more than 80 attorneys across multiple legal disciplines in key financial hubs around the world, providing a centralised approach to blockchain and digital asset matters. It leverages its diverse experience to advise clients on matters such as token structuring, fund formation, investment strategies, financial regulation and registration, international tax planning and structuring, stablecoins and asset-backed digital assets, tokenised property interests, infrastructure applications, technology licensing and development, securities compliance, cryptocurrency exchanges and trading, and blockchain-as-a-service.

The Netherlands has a well-developed ecosystem for blockchain technologies, and is home to exchanges, custodians, original blockchain networks, crypto investment funds, creators of distributed applications such as in gaming and finance, tokenisation service providers and research platforms for the application of blockchain technology across industries, including transportation, health, energy, agri, finance and the public sector. Both national and local governments are supportive of blockchain technologies and have established various initiatives to support them.

Most of the projects and companies in the Netherlands are still somewhere between the proof of concept and initial commercialisation stages. Investing in crypto-assets, the tokenisation of legal rights (shares, bills of lading, etc), GameFi and non-fungible tokens (NFTs) are the most mature applications of blockchain technologies in the Netherlands.

From a civil and criminal law perspective, the judiciary is shifting towards the acceptance of crypto-assets as stores of value, and to some extent as property that can be seized or protected. The underlying laws are arguably not fully suited to this but are being bent to fit judges’ sense of fairness and economic reality. This will strengthen the usefulness and use of crypto-assets. The tax authority has fully accepted crypto-assets as assets with a particular daily value, and they are taxed at their value in euros at the time of ownership (for personal income taxes or as part of a company’s balance sheet) or receipt (where profits, salaries or VAT are concerned).

The regulatory environment in the Netherlands is similar to most EU jurisdictions – ie, it is relatively permissive at this time. Beyond the implementation of a licence requirement for fiat-to-crypto exchanges and providers of custodial wallets under the EU’s Anti-Money Laundering Directive V (AMLD V), there are no national laws or regulations specifically applicable to crypto-assets or blockchain technologies. However, crypto-assets that are structured so as to qualify as a debt or equity instrument will be regulated as such, and certain financial services or products using crypto as an underlying or subject asset (eg, funds) would also be regulated (see 4. Exchanges, Markets and Wallet Providers and 5. Capital Markets and Fundraising).

There are currently no plans to implement any national laws or regulations specifically for crypto-assets prior to the EU Markets in Crypto-Assets Regulation (MiCA) becoming effective. This is mainly because the position of the Dutch Authority for Financial Markets (AFM) and the Dutch Central Bank (DNB) is that the regulation of crypto-assets must be done at an international level in order to be effective. Substantively, the AFM and DNB believe crypto-assets and blockchain technologies can provide a valuable addition to the financial system, in particular through the tokenisation of assets and facilitating simpler and cheaper ways to raise capital. The AFM and DNB have, however, taken active steps (mostly through public communications) to discourage consumers from investing in crypto-assets, citing high volatility and the high percentage of sham projects.

No developments of particular note are expected over the next twelve months (ie, up to Q2 2023). It looks like, overall, the Dutch government, the judiciary and the regulators are giving crypto-assets and blockchain technologies room to grow and develop, while attempting to mitigate any negative effects.

The most mature applications, other than investment in crypto-assets, are the tokenisation of various legal rights (share ledgers, bills of lading, etc), GameFi and the sale of NFTs.

From a larger economy perspective, tokenisation currently appears to be the most promising area for the application of blockchain technologies in the near future, with promising projects underway to tokenise not only securities (NPEX and Dusk Network's collaboration; nx’change’s acquisition of Bondex) but also energy, produce and other products where certification of origin is of interest, bills of lading (e-BL and Cargoledger) and a variety of other legal contracts and rights (eg, Digital Notary).

In a sense, GameFi and NFT sales are more mature than tokenisation as their use is more widely spread, but the projects themselves are mostly still unsophisticated and the underlying business models remain unproven.

The Netherlands does not host major decentralised finance (DeFi) projects at this time. From a regulatory perspective, there are no specific guidelines on DeFi. The AFM indicated in a recent brief that it is monitoring the development of DeFi closely, but it has not yet made any clear pronouncement on who might be considered subject to regulation in a DeFi project, and on what grounds.

The Netherlands hosts a few organisations creating NFTs and a variety of artists doing the same. There are no Netherlands-based platforms or providers of infrastructure of note, and there are no ongoing efforts to regulate NFTs.

From a civil and criminal law perspective, the judiciary is coming to terms with crypto-assets as a store of value that should be subject to some form of legal protection, which is relevant for the usefulness and acceptance of NFTs. Also note that, from a tax law perspective, NFTs should be disclosed as property at their market value.

The Netherlands has implemented AMLD V, regulating crypto service providers that exchange fiat for crypto or provide custodial wallets (ie, wallets over which the service provider has full management and access rights). The Dutch implementation is idiosyncratic: rather than only requiring these providers to register themselves, the Dutch government has implemented a licence requirement to facilitate review prior to registration, thereby arguably going beyond what was intended by the directive. Please refer to 4.3 KYC/AML for further information on the licence requirements.

Other than that, there are no specific regulations applicable to blockchain technology or crypto-assets. Please note, however, that crypto-assets that are structured so as to qualify as a security will be regulated as such, and that financial services or products using crypto as an underlying asset (eg, investment funds), or that use the blockchain to provide traditional financial services, may also be regulated (see 4. Exchanges, Markets and Wallet Providers and 5. Capital Markets and Fundraising).

For prediction markets that enable transactions that would qualify as gambling, a licence from the Dutch gambling authority would be required.

The Dutch authorities have taken the position that blockchain and crypto-assets must be regulated at an international level in order to be effective. Specifically, they have argued that the Financial Action Task Force (FATF) guidance should be fully implemented at the EU and national level in a harmonised fashion. As such, the Netherlands is following the EU legislative agenda and not moving ahead of its own accord.

Thus far, the Netherlands has implemented the AMLD V, which implements the FATF guidance on AML/CFT for crypto but otherwise has not implemented any additional legislation. The next major implementations of the FATF guidance will occur through the MiCA Regulation, the Anti-Money Laundering Regulation (AMLR) and Anti-Money Laundering Directive VI (AMLD VI), in respect of which the Netherlands is consistently pushing for consistency between the legislative proposals and the FATF guidance, in particular making the case to bring providers of stablecoins within the remit of the AMLR.

The DNB is currently responsible for licensing crypto service providers that provide fiat exchange services or custodial wallets. It performs prospective reviews of their internal processes to determine if they can effectively perform their obligations in respect of anti-money laundering and combating the financing of terrorism.

The AFM regulates the offering of financial instruments and services in the Netherlands. Where a crypto-asset qualifies as a financial instrument (effectively being similar to debt or equity in respect of the enforceable rights and obligations they grant or impose), or is the underlying asset for a financial service or product (including the underlying asset of an investment fund), the organisations providing such will be subject to AFM oversight. The AFM has registered five investment funds in the last 12 months that invest in blockchain-related assets through a fund-of-fund structure under the AIFMD regime as implemented in Dutch law.

The Dutch Gambling Authority may regulate blockchain-based prediction markets to the extent the predictions may qualify as online gambling (being similar to a game of chance).

There are no self-regulatory organisations or trade groups that provide regulatory or quasi-regulatory roles for crypto-assets or blockchain projects at this time.

There is a significant amount of litigation relating to crypto-assets, particularly bitcoin. Dutch courts have been inclined to treat crypto-assets as ordinary assets having value, but not as a currency. Courts have held that crypto-assets can be stolen, loaned, borrowed, seized and transferred, that they can be used to launder money and that they can be taxed in variety of ways. As such, as it stands, many claims relating to crypto-assets have a good chance of being upheld by Dutch courts.

Please note, however, that many of these decisions sidestep or ignore fundamental questions on the legal qualification of crypto-assets in the Dutch legal system. Please see 3.1 Ownership regarding the extent to which crypto-assets can actually be held in ownership under Dutch law, an issue which has yet to be settled. This may seriously impact the enforceability of any claims predicated on rights of ownership or security. As such, careful contracting is advisable in order to create enforceable claims regardless of whether crypto-assets can be held in ownership or not.

There has been limited enforcement in the Netherlands so far, with only the following two relevant cases.

  • On 20 September 2018, the AFM fined a Dutch company for its refusal to adequately comply with the AFM’s requests for information. The company seemed to be offering the opportunity to invest in a mining operation, which brought it within the remit of the AFM. The penalty amounted to EUR5,000 per diem, with a maximum of EUR50,000.
  • On 18 December 2020, the AFM fined another entity through its Dutch subsidiary for reportedly offering advice on contracts for difference without a licence, including in respect of cryptocurrencies (EUR60,000) and engaging in aggressive and misleading business practices (EUR80,000) regarding cryptocurrencies.

The DNB and AFM host an InnovationHub, which acts mainly as a Q&A forum for discussion between entrepreneurs developing innovative products and regulators. The DNB and AFM also host a generic regulatory sandbox that can also apply to blockchain technologies.

Generally speaking, it appears that both regulators see clear promise in blockchain-based technologies for improving the efficiency of the financial sector, in particular the inefficiencies in raising capital for SMEs.

In principle, the tax authority treats crypto-assets as property with a value based on their market value. It has issued the following specific guidance.

  • If crypto-assets (including NFTs) are held by an individual as a passive portfolio investment, the (deemed) income should qualify as income from savings and investments (box 3). If the crypto-assets are held by a Dutch tax resident company, the income is taxed for corporate income tax purposes. The crypto-assets must be disclosed at their market value.
  • Profits realised by an individual from active trading in crypto-assets would be taxed as income from an economic undertaking (against progressive rates in box 1) if the activities involved exceed normal asset management or if there is an organisation of capital and labour participating in economic transactions with a profit motive. If the trading in crypto-assets is done by a Dutch tax resident company, the income is taxed for corporate income tax purposes.
  • Profits realised by an individual from mining operations are taxed against progressive rates in box 1 of the Dutch personal income tax Act (either as income from labour, other activities, or profits from an economic undertaking) if the activities involved exceed normal asset management or if there is an organisation of capital and labour participating in economic transactions with a profit motive. Otherwise, the income should qualify as income from savings and investments (box 3). If the mining operations are done by a Dutch tax resident company, the income is taxed for corporate income tax purposes.
  • Any receipts of salary or revenue in crypto-assets are viewed as payment in kind, and are taxed at the relevant value of the crypto-assets in euros at the time of receipt, including for the purposes of VAT.
  • Crypto-assets occasionally held by an economic undertaking must be included on the tax balance sheet at the lower of historic cost price or fair market value. Losses or profits made in exchanging crypto-assets for fiat must be booked to the P&L. If the activity of the company specifically consists, amongst other things, of buying and selling cryptocurrency (eg, a trading platform), the crypto-assets owned by such a company must be booked under the category of inventories. The profit on these crypto-assets does not have to be booked until the moment of realisation (ie, the moment of sale). A loss on inventory may be booked as soon as it is foreseeable, even if the crypto-assets have not yet been sold.

The Dutch government is involved in a public-private partnership with the Dutch Blockchain Coalition, which investigates blockchain technology and its use cases. In general, Dutch national and local governments have been proactive in investigating the application of blockchain technologies in a variety of proof of concepts.

The Dutch system of private law acknowledges rights of ownership over tangible property (real and movable) and the benefit of holding (personal) claims and other rights. However, it does not make any provisions for the ownership of or the benefit of holding digital assets, because they are not tangible property and do not themselves qualify as a (personal) claim (as they do not consist of a right with a corresponding obligation for some other party). As such, digital assets currently do not clearly fit within the Dutch system of property rights, although there is case law that has (implicitly) assumed that crypto-assets are assets with value which can be seized, for instance, without actually tackling the qualification question.

The legal profession is nonetheless experimenting with a variety of approaches to bring digital assets into the ambit of the Dutch civil code. As it stands, the interpretation of Dutch law that has seen some success in court is that the public key address to which a digital token can be transferred may be viewed as a form of bill of exchange. The reasons this may work are complicated and go beyond the scope of this questionnaire.

If this theory is upheld, it is the ownership of or the benefit of holding this public key that may be transferable (and thus can be seized, used as collateral, etc), not the value ascribed to it, nor the tokens transferred to it.

Assignment and transfer of the "bill of exchange" would be achieved by providing the relevant private key to the transferee, which equates to ceding the control of a bill of exchange by providing it to another party.

From a practical standpoint, however, in most cases it will be more effective and safer to transfer the value itself to another wallet (as a duplicate of the private key may exist).

Please note that this current analysis is still in the preliminary stages, and that no judgment by the Dutch Supreme Court has yet been issued on any of these questions.

From a criminal law perspective, ownership is less problematic as criminal law has long held that intangible goods can be stolen.

Finally, please be aware that there is no legal theory on when transfers of digital assets on a digital blockchain are considered final.

There is no formally approved categorisation in the Netherlands. From a legal perspective, the only clear qualification is whether a digital asset qualifies as a security, in which case organisations performing activities with respect to these will be regulated by the AFM and DNB. Beyond that, organisations in the Netherlands commonly distinguish between utility tokens, cryptocurrencies, tokenised assets, NFTs and investment tokens, but the legal consequences of those categorisations are not clearly defined and often depend on the exact circumstances of their issuance or use.

  • Securities: the test to determine if a token is a security is a strict test. A token will only be treated as an equity instrument and thus qualify as a security if it is truly structured as an equity instrument – ie, provides the holder a right to profits or some form of control over an undertaking. Similarly, a crypto-asset will only be considered a debt instrument and thus qualify as a security if it is structured as a debt instrument – ie, if the holder has a right to repayment of a sum loaned.
  • Utility tokens: if a token allows the holder to access some service using the token, it will be considered a utility token (such as a token that would provide access to file storage services).
  • Cryptocurrency: if a token does not provide access to any particular service and is simply used as a means to store and exchange value, it will generally be considered a cryptocurrency.
  • Tokenised assets: if a token represents some other asset, it will be considered a tokenised asset, and the use of that token may be interpreted as representing a variety of legal actions (eg, transferring an asset), if the parties so agree.
  • NFTs: as per the common definition, NFTs are simply tokens that can be uniquely identified. They are often linked to some type of artwork, or some distinct asset or right that is suited to tokenising.
  • Investment tokens: tokens that are acquired as an investment but do not have the necessary characteristics to qualify as a debt or an equity instrument are classed as investment tokens. For example, some tokens are issued to raise capital but provide no rights to the holders thereof; they are acquired simply because they may themselves appreciate in value. Similarly, there are tokens whose value is pegged to an asset or a basket of assets, but do not represent any particular asset as would be the case for a tokenised asset (eg, stablecoins).

Note that these categories are not mutually exclusive. There is an argument to be made that a tokenised asset is just a utility token providing access to a platform to represent legal relationships. Similarly, a utility token may often also be held as an investment. Arguably, Ether (ETH) is a utility token providing access to a variety of decentralised applications, but it is also an investment token and may also be used as a cryptocurrency.

Other than for securities, the legal characterisation of any token and the rights, obligations or other consequences attached to holding the token must be determined on a case-by-case basis. As explained in 3.1 Ownership, in general Dutch law may not facilitate the ownership of, or legal and beneficial entitlement to, digital assets from a civil law perspective.

Stablecoins are not currently regulated in any specific way in the Netherlands; as such, they are not treated in a separate manner from other crypto-assets. They will be regulated when the MiCA Regulation takes effect. The Dutch government is also a proponent of specifically regulating stablecoins as part of the AMLR, and is expected to push the legislation in that direction.

There is no particular prohibition on making payments in cryptocurrencies, but these transactions would be viewed as payments in kind rather than payments in cash. Where payment in actual legal tender is required (such as for taxes), cryptocurrencies cannot be used. Furthermore, no person can be obliged to accept payment in cryptocurrencies as they are not legal tender.

In addition, there are some restrictions on receiving payments in cryptocurrency, and some frictions in using them to acquire real property. Gatekeeping professions (civil law notaries and lawyers in particular) are barred from or otherwise restricted or discouraged from accepting payments in cryptocurrency. More generally, both lawyers and civil law notaries are obliged to make a notification of unusual transactions. Payments in cryptocurrencies may qualify as such more readily, as a result of which these service providers may be less inclined to assist in supporting such transactions due to increased regulatory oversight.

NFTs are not regulated in any specific manner in the Netherlands. The matter of legal ownership of, or entitlement to, NFTs is not settled in the Netherlands, as explained in 3.1 Ownership.

All markets that are globally accessible are generally also accessible in the Netherlands, provided they have complied with the licensing obligations under the Dutch AML/CFT law (please see 4.3 KYC/AML).

The Netherlands is home to a variety of fiat-to-cryptocurrency exchanges, with the DNB’s register currently listing approximately 30 such organisations. Note that some of these are subsidiaries of foreign exchanges.

In addition, a variety of service providers are working on markets for tokenised securities. Notably, NPEX and the Netherlands-based Dusk Network blockchain are collaborating on creating a large-scale trading platform for tokenised securities under NPEX’s multilateral trading facility licence.

Though not a market per se, Bondex is also worth mentioning. The company was recently acquired by nx’change and builds blockchain-based company-specific platforms on which SME companies can issue tokenised and tradeable share certificates and debt instruments.

Persons acquire crypto-assets through common global exchanges or service providers that specialise in selling crypto for fiat.

Fiat-to-crypto exchanges are regulated under the Dutch AML/CFT law, as set out in 4.3 KYC/AML. Crypto-to-crypto exchanges are not currently regulated.

Fiat-to-crypto exchanges and providers of custodial wallets must obtain a licence demonstrating they can meet their AML/CFT obligations, which revolve around performing KYC due diligence and monitoring and flagging unusual transactions. To be able to obtain a licence, these service providers must demonstrate that their operations are sound, that they can perform adequate KYC due diligence and that they have the ability to identify and report unusual transactions. Furthermore, their directors, supervisory board members and major shareholders (>10%) will be subject to review for integrity and competence.

Gatekeepers in the financial system more generally, including lawyers and civil law notaries, must also report unusual transactions. Transactions paid with or concerning digital assets that are supported by lawyers or civil law notaries (which will include any acquisition of most real property as well as limited liability corporations) are likely to be considered sufficiently unusual to report.

There are no specific regulations for markets in digital assets per se. A market in a digital asset would only be regulated to the extent said digital asset would qualify as a financial instrument. However, that regulation would be wholly in line with that for markets in traditional equities, debts or other financial instruments.

Creating a market in those instruments or offering them to the public will generally be subject to a licence requirement and prudential oversight.

As far as is known, there has not yet been any enforcement of these rules against digital asset marketplaces in the Netherlands.

At this time, there are no specific regulations on the obligations of digital asset exchanges beyond the AML/CFT obligations for fiat-to-crypto exchanges and custodial wallet service providers, as set out in 4.3 KYC/AML.

Custodial wallet providers must apply for a licence from the DNB, as set out in 4.3 KYC/AML.

Whether issuing tokens for the purpose of fundraising is regulated as securities activity depends on the tokens themselves.

If they are fundamentally equity or debt-like in their characteristics (ie, providing rights to share in profits or control of an undertaking, or providing a right to repayment), then they will be treated wholly in the same manner as debt or equity, and the issuance will thus be regulated under the EU Prospectus Regulation and require a prospectus (with some exceptions for issuance to small groups, qualified investors, low raises (up to EUR5 million) or high buy-ins (above EUR100,000). The issuing entity will become subject to various transparency obligations.

If the tokens are not regulated as securities, no other regulations apply – ie, the token sale will be viewed as a commercial transaction. Obviously, false advertising and misleading statements may still result in liability, as would be the case for other commercial transactions.

Regulations will only apply if the tokens qualify as financial instruments, in the same manner as set out in 5.1 Initial Coin Offerings. Note also that an exchange that offers financial instruments would require a licence or an exemption from the licence requirement from the AFM as a trading or crowdfunding platform.

Airdrops or similar forms of free distribution of tokens may be regulated in the Netherlands, depending on the prevailing terms and conditions. There are no token launch or distribution models being used in the Netherlands that are unique to the Netherlands.

There are no special fund regulations in the Netherlands, other than the AIFMD. The regulations for forming investment funds will apply for a fund investing in digital assets. Such investment funds will be subject to either a licence requirement or a registration requirement. A light regime registration is available for managing assets under management of open end or leveraged funds below EUR100 million assets under management of closed end funds below EUR500 million, provided participation is offered to qualified investors only or to fewer than 150 persons, or that investments are of at least EUR100,000.

In all other cases, a full AIFMD licence will be required by the manager, under which restrictions and requirements will apply for fund liquidity, the valuation of assets and its custody set-up, among other things. In both registration requirements and licence requirements, the fund will be subject to the Dutch AML/CFT laws and as such will need to perform adequate KYC due diligence and monitor suspect transactions.

Broker-dealers that facilitate the exchange of fiat for currency are regulated under Dutch AML/CFT laws and must obtain a licence, as set out in 4.3 KYC/AML.

There are no laws, regulations or binding precedents on the legal enforceability of contracts made in whole or in part through smart contracts.

The Netherlands’ legal system has full party autonomy in contracting for most transactions – ie, it is possible to create enforceable contracts orally, in writing and through computer code. However, Dutch law as it stands holds that the contents of an agreement are determined by the respective parties’ reasonable expectations of those contents at the time of contracting, considering all relevant circumstances. As such, whatever occurs when a smart contract self-executes may not be the final say in the matter from a legal perspective ;if there is reason to assume that the parties’ agreement should be interpreted differently than executed, that will take precedence over whatever the computer code determines.

Furthermore, to the extent a party misunderstood the contents of the contract despite their reasonable efforts to understand it, the contract may be annulled by that party. Considering the opacity of smart contract code to most persons, some form of accurate explanation of the contents thereof in natural language will likely be necessary to avoid these types of challenges to the enforceability of the contract.

In any case, there is no way to create a smart contract that cannot be challenged in a Dutch court.

No theory on whether developers would be considered fiduciaries has yet been espoused in the Netherlands, and there is no case law or statutory law to that effect. Product liability laws in the Netherlands do not cover software as it stands. As such, generally speaking, at most a developer might be liable based on tort theory.

Hypothetically, there may be an argument that, in certain cases, developers collaborating on a project might be viewed as partners in an undertaking without legal personhood, where their code would constitute the equivalent of the actions of that partnership. Depending on the promises or representations made by that project, the developers might incur liability as partners in the undertaking; however, as far as is known, no such claim has yet been tested.

There are no specific regulations on DeFi lending platforms in the Netherlands. However, any crypto-asset that fundamentally amounts to a debt obligation would be considered a financial instrument, and platforms facilitating the matching of borrowers and investors for debts will be subject to regulation by the AFM as crowdfunding platforms under the European crowdfunding service providers for business regulation. These platforms will require a licence and be subject to prudential oversight.

There is a lack of clarity on whether digital assets qualify as property under Dutch law. As such, it is unclear to what extent it is possible to establish any security interest. The legal profession is experimenting with a variety of approaches to bring digital assets within the ambit of the Dutch civil code.

The interpretation of Dutch law that is most prevalent and has seen some success in court to date is that the public key address to which a digital token can be transferred may be viewed as a form of bill of exchange with a value equal to that of the tokens currently held by that address. As such, formally it is the ownership of this public key that may be transferable (and thus can be seized, used as collateral, etc). Transfer of the public key/bill of exchange would be achieved by providing the relevant private key to the transferee.

Formally, transfer of the public key would also be the method to create security over the public key and the funds associated with it, so that these can be used as collateral. However, as the private key could be duplicated, this is not a practical approach to the use of digital assets as reliable collateral, because the funds could be transferred to another public key using this duplicate private key. From a practical perspective therefore, it would be preferable to transfer whatever amount is to be provided as collateral to a custodial wallet held for the account of the person providing the collateral, with a clear restriction on transfers from that wallet by the custodian (potentially implemented through a smart contract). Subsequently, a security interest can then be vested in respect of the custodial wallet through a notarial deed.

This is an area of law that is very much in development, and there is a very real chance that the aforementioned legal theory equating public keys to bills of exchange may not hold up.

As such, the blockchain itself may provide the best manner to safeguard collateral – eg, by employing an escrow account that requires additional signatures to hold certain amounts and entering into a clear agreement stating under what conditions the escrow can be released to the person seeking security. This would not create a security right per se under Dutch law, but for all intents and purposes the effects would be similar.

There are no specific requirements for professional investors to transfer digital assets to custodians, unless they are holding digital assets as the underlying asset for a fund (please see 5.4 Investment Funds).

Providers of custodial wallets must obtain a licence from the DNB, as further detailed in 4.3 KYC/AML.

The General Data Protection Regulation has direct effect in the Netherlands and applies without restriction to blockchain-based products and services. As such, the right to be forgotten and the right to amendment are fully applicable.

Practically speaking, this could mean that when designing products that utilise some form of an immutable public ledger, serious consideration will need to be given to whether, considering the data that is accessible on that ledger, the anonymity of any natural persons utilising that technology can be guaranteed, or if a close approximation of anonymity can be achieved. In that case, the right to be forgotten (or the right to amendment of data) can be circumvented.

Where that is not the case, organisations must determine whether, given that fact, using an immutable public ledger as the technological foundation for their product is appropriate, and in some cases may need to conclude that this is not the case.

From a data protection perspective, personal data processing performed on a public blockchain is no different than data processing in a closed centralised system. The General Data Protection Regulation will apply in full and any person or organisation utilising blockchain-based technology to process personal data will be required to meet the same bar as an organisation using a centralised closed database, allowing at most for some discrepancies in the expectation of privacy that users might have and the implications that could have for determining the valid scope of further processing, for example.

There are no regulations applicable to mining crypto-assets through a proof of work-based consensus mechanism at this time.

There are no regulations applicable to mining crypto-assets through a proof of stake-based consensus mechanism at this time, nor are there any regulations in respect of staking as service business models. As far as is known, no major staking as a service provider is based in the Netherlands.

As far as is known, there are no major Netherlands-based DAO projects, and there are no specific regulations for DAOs in the Netherlands.

There are no major Netherlands-based DAO projects.

There are no major Netherlands-based DAO projects.

In the Netherlands, utilising a legal entity structure as the executive of a DAO would have the advantage of simplifying questions of the ownership of assets and shielding DAO participants from liability. However, there will also be complications in utilising a legal entity as these were not designed to be operated by a DAO.

For a DAO with a non-profit mandate, a foundation would most likely be the best set-up, as the articles could specify the manner in which the DAO would appoint directors to the foundation, and the articles could ensure the significant loyalty of those directors to the DAO.

For-profit DAOs would be more complicated, as foundations cannot be used in that case; as such, a co-operation or limited liability company would need to be incorporated. As these would require either shareholders or members, this will complicate the ability of persons to join or leave a DAO quickly with limited friction. Incorporating a foundation bound by its articles to execute the orders of the DAO as the shareholder or member could resolve this problem. A further complication in this set-up would be that any appointed directors would have a responsibility toward the legal entity, its creditors, its employees and other stakeholders that is separate from their responsibility to shareholders or members. There is no guarantee that a DAO would be able to control directors fully and effectively in all cases.

Greenberg Traurig, LLP

Beethovenstraat 545
1083 HK Amsterdam
The Netherlands

+31 20 301 7346

+31 20 301 7350

Herald.Jongen@gtlaw.com www.gtlaw.com
Author Business Card

Trends and Developments


Authors



Greenberg Traurig, LLP is an international law firm with approximately 2,400 attorneys serving clients from 43 offices in the United States, Latin America, Europe, Asia and the Middle East. The firm's global blockchain and digital assets group comprises more than 80 attorneys across multiple legal disciplines in key financial hubs around the world, providing a centralised approach to blockchain and digital asset matters. It leverages its diverse experience to advise clients on matters such as token structuring, fund formation, investment strategies, financial regulation and registration, international tax planning and structuring, stablecoins and asset-backed digital assets, tokenised property interests, infrastructure applications, technology licensing and development, securities compliance, cryptocurrency exchanges and trading, and blockchain-as-a-service.

Blockchain Technologies and Crypto-Assets in the Netherlands

Social-political climate

Declining hype

The Netherlands is governed by a centrist but overall progressive and generally pro-business coalition. There has been a sustained strong government push to expedite digitalisation to maintain the Netherlands’s competitive position through public-private partnerships, sector-specific subsidies and policy, government backed investment funds, tech immigration policies, and so forth.

Blockchain and distributed ledger technologies have been enthusiastically included in this government push. As a result, there are ongoing research projects sponsored or initiated by the government for applications across industries, including transportation, health, energy, agriculture, finance and the public sector, at both the national and local government levels.

However, some of these projects and initiatives were largely based on a limited understanding of the technology. Similarly, in the private sector, many consultants established blockchain projects that proved unworkable either technically or with respect to the use case. As a consequence, actual results have been limited, with many blockchain projects being unable to proceed beyond the proof of concept stage. Owing to this, much of the initial hype surrounding the sector has cooled. This can be viewed as a positive development that is expected to assist those projects with a viable strategy obtaining funding.

Increasing scrutiny of tech companies

There has been increased scrutiny from civil society, the judiciary, regulators and parliament in respect of digital technologies in the Netherlands, with significant pushback against global technology companies becoming more common.

So far, cryptocurrencies and blockchain technologies have not faced significant adverse attention. Most of the criticism has related to high energy requirements (regularly remarked on in parliament) and the regulatory risks involved in speculative investments by less sophisticated consumers, which are actively monitored and communicated on by the Dutch Authority for Financial Markets (AFM) and the Dutch Central bank (DNB). Although the pushback has been limited to date, regulatory scrutiny is expected to increase as blockchain technologies gain greater market adoption, particularly in respect of energy-intensive protocols.

Key applications in the near future: tokenisation, GameFi, investments/DeFi and NFTs

The most important near-term projects for blockchain and digital assets could be focused on the tokenisation of a variety of legal rights and claims, and possibly disintermediation as a result. The barriers here are the lowest as there is no need to interact with the physical world, and the digitisation of these rights has been under way for a while.

There is also potential for GameFi, DeFi and investments, and NFTs. Although the Markets in Crypto Assets (MiCA) Regulation is expected to restrict some DeFi and investment projects that will be unable to meet the relevant standards imposed, it is also expected to simultaneously increase the perceived legitimacy and safety of those projects that can comply, providing them with access to a larger pool of potential customers.

NFTs are expected to represent a considerable part of the application of blockchain technologies in the near future, with multiple companies issuing, acquiring or utilising NFTs in some shape or form. The market is moving to more serious applications being created through NFTs (eg, transferable memberships).

In the somewhat longer term, decentralised applications based on web3 tenets could become a key application for blockchain technologies in the Netherlands in fields currently dominated fully by centralised players (file hosting, social media, etc), provided current limitations are overcome. One limiting factor here is the lack of skilled professionals due to the novelty of the technologies. Considering the Netherlands has historically had a relatively strong base of IT workers and a tech-forward and savvy population and business sector in general, the base of skilled professionals is expected to grow rapidly.

Other than the lack of skilled professionals, the key blocking issue here is the fact that blockchain technologies themselves are not yet sufficiently mature in respect of scale, security and ease of use. Whether or not this can be resolved remains to be seen.

Legal embedding

Judiciary seeking practical solutions

In recent years, there has been a significant increase in the use of crypto-assets, mainly cryptocurrencies, by consumers and businesses in the Netherlands. Mostly, the assets are held as investments, but occasionally they are also used for payments (often between companies in the blockchain or crypto space), among other things.

This has resulted in a concomitant rise in legal cases involving crypto-assets. Generally, the Dutch judiciary has tried to handle crypto-assets in a manner that accords with their current value as property. Claims to seize, transfer or pay crypto-assets have been upheld, although the legal grounds are often questionable.

Dutch legal theorists have also been working hard to fit crypto-assets into the current legal system. Overall, it can be suggested that the Dutch property law system in its current state is not suitable for crypto-assets, but this can be facilitated with relatively minor changes to the existing legislation.

Considering that there is a general willingness in the legal profession and judiciary to treat crypto-assets in line with their economic value as property, it is likely that the required changes will be forthcoming. The key reason for the current delay is that the Dutch government is awaiting the outcome of various international projects that are attempting to harmonise the approach to crypto-assets before taking specific legislative action.

Tax authority actively tracing and taxing

The Dutch tax authority has issued clear guidance on its treatment of crypto-assets and has publicly stated its intention to start actively investigating and taxing assets held by private persons, based on data provided by crypto-asset exchanges.

Regulatory environment

Stasis while awaiting EU regulations and directives

The Dutch regulatory environment for crypto-assets is largely similar to that of other European Union countries, and is currently stable. As it stands, there is no specific regulation in respect of crypto-asset service providers, beyond KYC and AML requirements for service providers that offer fiat-to-crypto exchange or custodial wallet services.

The Dutch implementation is slightly stricter than other countries: where most countries require only registration of these service providers, in the Netherlands a licence is required. To obtain the licence, a review of the entity’s ability to meet its KYC and AML obligations is undertaken. Note also that traditional financial products and services that use crypto-assets as underlying assets (eg, an investment fund that holds crypto-assets) are fully regulated, as they would be with any other underlying assets.

There are currently no plans to adopt any national legislation. Both the Dutch government and regulators have taken the position that crypto-assets and related products and services must be regulated at least at the regional level, and have squarely aligned themselves with the recommendations of the Financial Action Task Force. Moreover, any national regulation would be superseded when the forthcoming MiCA Regulation, the Anti-Money Laundering Regulation and Anti-Money Laundering Directive 6 are implemented.

Attitudinally, the Dutch regulators (AFM and DNB) are cautiously optimistic about the potential for blockchain technologies to lower funding costs for smaller firms and increase the efficiency of financial processes more generally. They are more sceptical in respect of crypto-currencies, investments in crypto-assets and investment products based on crypto-assets. The AFM and DNB have actively discouraged investments in these types of products and services through proactive public communication on the risks.

Regulatory enforcement against crypto-asset service providers has been quite limited and the expectation is that this will generally continue if the low uptake of crypto-assets, and thus the low-risk exposure, persists. Under these circumstances, the need to intervene is expected to be limited.

Concerns about stablecoins

Where blockchain technology is viewed with cautious optimism and crypto-assets and investments with some scepticism, stablecoins have generally been viewed as a cause for serious concern by both the Dutch government and regulators. With some very recent collapses, these concerns have further increased. No clear statements have been issued by the Dutch government or regulators, but this area is likely to be closely monitored.

Summary: normalisation, legitimacy and shift towards decentralisation

Taking the overview of the trends in the Dutch market, the overall movement is towards the normalisation and legitimacy of blockchain technologies and crypto-assets. What remains to be seen, after the dust settles, is how much of a market will actually be left, and how many use cases will turn out to be feasible.

Regardless, however, of their particular success, the rise of blockchain technologies is creating a cohort of jurists, programmers, academics and politicians who envision a new technological underpinning for a digital economy that is less dependent on a few dominant, centralised companies. As a result, a corner may have been turned towards further decentralisation or devolution of control of data and technology platforms to consumers, which will complement political and regulatory developments that are moving in the same direction. Similarly, even if not built on blockchain technologies per se, there is now a clear impetus in local and national government to explore the way similar technologies can be used to underpin public services and democratic and legislative processes.

Greenberg Traurig, LLP

Beethovenstraat 545
1083 HK Amsterdam
The Netherlands

+31 20 301 7346

+31 20 301 7350

Herald.Jongen@gtlaw.com www.gtlaw.com
Author Business Card

Law and Practice

Authors



Greenberg Traurig, LLP is an international law firm with approximately 2,400 attorneys serving clients from 43 offices in the United States, Latin America, Europe, Asia and the Middle East. The firm's global blockchain and digital assets group comprises more than 80 attorneys across multiple legal disciplines in key financial hubs around the world, providing a centralised approach to blockchain and digital asset matters. It leverages its diverse experience to advise clients on matters such as token structuring, fund formation, investment strategies, financial regulation and registration, international tax planning and structuring, stablecoins and asset-backed digital assets, tokenised property interests, infrastructure applications, technology licensing and development, securities compliance, cryptocurrency exchanges and trading, and blockchain-as-a-service.

Trends and Development

Authors



Greenberg Traurig, LLP is an international law firm with approximately 2,400 attorneys serving clients from 43 offices in the United States, Latin America, Europe, Asia and the Middle East. The firm's global blockchain and digital assets group comprises more than 80 attorneys across multiple legal disciplines in key financial hubs around the world, providing a centralised approach to blockchain and digital asset matters. It leverages its diverse experience to advise clients on matters such as token structuring, fund formation, investment strategies, financial regulation and registration, international tax planning and structuring, stablecoins and asset-backed digital assets, tokenised property interests, infrastructure applications, technology licensing and development, securities compliance, cryptocurrency exchanges and trading, and blockchain-as-a-service.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.