The blockchain sector in Sweden is developing rapidly. For a few years, the industry has been led by more traditional and well-established blockchain operations, such as cryptocurrency exchange. However, there has been increased interest of late in other innovative uses of blockchain-based technology in entirely different contexts – eg, as a means of collateral in lending arrangements – and in crossovers and combined service offerings of token-based payment transactions and traditional payment services. Consistent with Sweden’s history and reputation as a spearhead fintech market, Swedish companies continue to show interest in innovative uses of blockchain technology in ways that extend beyond more traditional practices.

EU Regulation

The main legal challenges expected in the blockchain sector stem from the legislative developments following the European Commission’s so-called digital finance package, proposed in September 2020 and comprising several legislative acts, such as:

• a proposed Regulation on Markets in Crypto-assets (MiCA);
• a proposed regulation on a pilot regime for market infrastructures based on distributed ledger technology; and
• amendments to the existing framework of securities and investment laws to explicitly include financial instruments based on distributed ledger technology.

Having been adopted in 2022 (see Regulation (EU) 2022/858), the proposed regulation on a pilot regime for market infrastructures based on distributed ledger technology has, in most parts, applied since 23 March 2023. On 2 June 2022, as a consequence of the pilot regime, the Swedish government launched an inquiry into account-based bookkeeping methods for financial instruments with the aim of exploring potential regulatory changes to facilitate the use of blockchain (see Government Directive 2022:59). Following developments in the EU legislative process during the first half of 2023 whereby the MiCA was endorsed by the European Parliament in April and finally adopted by the European Council in May, the entirely new comprehensive set of market rules for crypto-assets will begin to apply in 2024. This will follow a phased approach, where certain sets of rules (governing asset-referenced tokens and e-money tokens) will apply from mid-2024 and the remaining parts of the MiCA will become applicable six months thereafter. Supplementary delegated acts developed by the European Securities Markets Authority (ESMA) in co-operation with the European Banking Authority (EBA) will take effect later.

The “Crypto Winter”

During the last 12 months, the blockchain market has been impacted by the bankruptcies and collapses of FTX, Terra/Luna and other large-scale businesses in the cryptocurrency market and significant drops in market value of listed cryptocurrency companies such as Coinbase. These events, coupled with the clear downward trend in the market value of bitcoin during 2022, have been noted by the Swedish Financial Supervisory Authority (Finansinspektionen or the SFSA), which continues to hold a generally cautious and sceptical position towards cryptocurrency and, in particular, continues to repeat warnings to consumers against investing in cryptocurrencies.

The most predominant use of blockchain technology in Sweden, by sheer scale of operations, continues to be in the cryptocurrency exchange sector. There are two market-leading Swedish companies offering such services, and also a number of foreign exchanges whose services are accessible in Sweden.

In terms of more innovative uses of blockchain technology, there has been increased interest in developing financial instruments based on distributed ledger technology, with the intention of such instruments being traded on regulated markets. To date, there are no cases where this has been accomplished in Sweden, but foreign examples have sparked Swedish interest in evaluating and possibly developing similar models.

In April 2023, international banks SEB and Crédit Agricole announced their launch of so|bond, a sustainable and open platform for the issuance of digital bonds based on blockchain technology. This blockchain network uses a unique validation protocol that encourages its participants to minimise their environmental footprint. The aim of the platform is to improve the efficiency of the issuance process for bonds and, in the future, other types of financial instruments. The authors assisted SEB in the structuring of the platform.

There are also numerous other initiatives, with a general upward trend in Swedish companies and public bodies showing interest in utilising the unique characteristics and benefits of blockchain technology.

There is currently no specific regulatory regime or position on decentralised finance protocols in Sweden. The operations of automated market makers, wallet aggregators, decentralised synthetic investment platforms, decentralised prediction markets, decentralised stablecoins and decentralised lending platforms will need to be assessed against the regulatory frameworks for similar traditional financing activities in order to determine how they should be handled from a regulatory and licensing perspective.

As will be further elaborated in this article, the Swedish regulations are generally technology-neutral and the analysis to be performed favours a function-over-form approach. This means that the actual rights and obligations connected to digital assets and services provided in relation to them will determine which regulatory regime applies, rather than formal classifications and the underlying technology that is used.

The non-fungible token (NFT) movement is fairly undeveloped in Sweden but there is a steady increase in interest from the market, mainly on the buy side but with increasing interest from creators to market their creations through NFTs and the use of NFTs to represent digital ownership rights (noting that the legal status of such rights is still relatively unclear under Swedish law).

However, whilst there is increasing interest in NFTs in Sweden, the widespread and developed international infrastructure for creating and trading NFTs continues to be used rather than local infrastructure providers.

Swedish law does not contain any comprehensive regulation governing blockchain technology or cryptocurrencies as such. There is, to a limited extent, specific regulation regarding certain activities relating to virtual currencies, which subjects custodian wallet providers and virtual currency exchanges to regulatory registration requirements and requirements to comply with the Swedish Anti-Money Laundering Act (SFS 2017:630) (the AML Act), but operations relating to virtual currencies are otherwise largely unregulated under Swedish law. Depending on the characteristics of any particular virtual currency or other type of blockchain-based digital asset, it is also possible for them to be included under more general legal frameworks – eg, to the extent they constitute financial instruments.

The general regulatory regime for blockchain technology and cryptocurrencies will change significantly in the near future as the MiCA becomes applicable, thereby imposing, for example:

• authorisation requirements for crypto-asset service providers;
• requirements on issuers of crypto-assets to publish certain information in a so-called white paper and, in some cases, obtain authorisation; and
• a set of rules to ensure market integrity in publicly traded crypto-assets.

As the rules that will be introduced by the MiCA are based on a directly applicable EU regulation, they are harmonised within the EU and are not specific to Sweden.

The Swedish AML Act implements EU Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the AMLD), including as amended by EU Directive 2018/843, whereby some categories of virtual asset service providers were brought within the scope of rules governing anti-money laundering (AML) and countering the financing of terrorism (CFT).

Whereas the AMLD applies only to service providers in the blockchain sector that are engaged in exchange services between virtual currencies and fiat currencies, as well as custodian wallet providers, Swedish law extends the scope of AML/CFT requirements to a slightly wider set of service providers by also including providers of exchange services between virtual currencies.

However, Swedish law does not go as far as to completely align with the FATF standards, which also extend to persons conducting business activities of transferring virtual assets and participating in and providing financial services related to an issuer’s offer and/or sale of a virtual asset. In some cases, those activities may nevertheless be within the scope of Swedish regulatory registration requirements (as well as requirements to comply with AML legislation) if they comprise one or more regulated financial operations, such as providing financial advice or acting as underwriter.

The SFSA supervises the compliance of registered providers of virtual currency exchange services and/or custodian wallet providers with the Swedish AML Act and the requirements stipulated therein, such as carrying out a business-wide risk assessment, applying customer due diligence measures, monitoring transactions and reporting suspicious activities or transactions.

A recent legislative initiative has proposed an extension of the regulatory requirements applicable to registered providers of virtual currency exchange services and/or custodian wallet providers, as well as an extension of the SFSA’s supervisory powers in relation to such service providers. The proposal will, if the most recent draft version is adopted, inter alia, impose more rigorous suitability requirements on members of management as well as significant owners (any owner with a qualifying holding – ie, 10% or more of the shares or votes or a holding that otherwise enables exercise of significant influence) and empower the SFSA to issue sanction fines against a registered service provider upon failure to comply with any supervisory request for information. Under the proposal, the SFSA will also be empowered to issue fines for any offence of conducting activities without first obtaining registration, where such registration is required. These legislative amendments are proposed to apply from 1 January 2024, and the proposal is scheduled to be voted upon by the Swedish parliament in August 2023.

Currently there are no self-regulatory organisations or trade groups that perform regulatory or quasi-regulatory roles in relation to blockchain in Sweden.

Digital Negotiable Debt Instruments

In a judgment from 2017 (NJA 2017 p. 769), the Swedish Supreme Court assessed whether a negotiable debt instrument under Swedish law can be digital. A negotiable debt instrument is essentially an instrument that is itself representative of a legal debt, meaning that whoever holds the instrument is typically entitled to require payment from the obligor. The Swedish legislation on negotiable debt instruments is from 1936 and thus assumes that these instruments exist in physical paper form. However, the Supreme Court’s judgment held that the law does not strictly require a negotiable debt instrument to exist physically, and should be interpreted and applied in a technology-neutral manner, provided that doing so does not jeopardise the fundamental principles and interests that the law is intended to protect. According to the Supreme Court, this means that a digital negotiable debt instrument can be recognised legally, provided that it is designed in a manner that ensures an obligor is afforded technical means of verifiably fulfilling its payment obligation and extinguishing the debt, comparable to those afforded an obligor under a physical negotiable debt instrument (who is by law entitled to have the physical negotiable debt instrument returned to them upon making payment).

While the Supreme Court did not specify in its judgment how this could be achieved in practice, it has been theorised and discussed in the legal community that blockchain-based technology could possibly enable corresponding possibilities of verifying payment, due to its inherent limited capability of being manipulated.

Cryptocurrencies and Foundation Requirements

In a more recent judicial decision from January 2023, the Administrative Court of Appeal in Göteborg found that a Swedish foundation (stiftelse), where the assets under management were a type of cryptocurrency, satisfied the legal requirements for registration and recognition under Swedish law (eg, that the assets of the foundation can be managed indefinitely). The Court found that the volatile nature of cryptocurrencies did not preclude the assets having an economic value and it being possible to manage them indefinitely.

Payment in Kind Using Bitcoin

Another notable recent judicial decision relating to blockchain technology is a decision from the District Administrative Court in Härnösand in November 2022 relating to whether a Swedish limited liability company could be incorporated by payment for company shares in kind using bitcoin. The court found that payment in kind using bitcoin could be considered to satisfy the requirements under Swedish law that the assets contributed as payment, inter alia:

• could be assumed to be of benefit to the company (observing, inter alia, that the company’s intended operations were to invest in blockchain-related projects);
• had been separated through measures recognised for purposes of rights in rem (by transfer of the bitcoin to an address in the company’s possession);
• have economic value; and

• can be treated as assets in the balance sheet of the company.

It should, however, be noted that under Swedish company law, a payment in kind is subject to review by an authorised auditor and that the conditions listed above that were assessed by the District Court were supported by a mandatory statement from the auditor. The decision has been appealed by the Swedish Companies Registration Office.

In 2013, the SFSA issued a decision against a person who was providing money remittance services comprised of taking receipt of fiat currency from customers in Sweden and using those funds to purchase bitcoin from an exchange service provider in Iran. The customers could subsequently instruct the Iranian exchange service provider how to settle the outstanding balance – eg, by exchanging the balance in bitcoin to local currency. In essence, this enabled the customers to transfer money from Sweden to Iran by way of exchanges to and from bitcoin. The SFSA intervened and ordered the Swedish service provider to cease its operations on the basis that they comprised licensable payment services for which the service provider did not hold the requisite licence as a payment institution. The decision was appealed but was upheld by the Stockholm Administrative Court in 2014.

This case provides some guidance as to the perimeter of permitted and prohibited blockchain activities, by clarifying that, although virtual currencies themselves are not considered to constitute “funds” for purposes of the Swedish Payment Services Act (SFS 2010:751), a service provider taking receipt of funds (ie, fiat currency) from customers and transferring a corresponding amount by purchasing bitcoin for purposes of effectively remitting the customers’ funds is carrying out activity that is licensable as a payment service under the Payment Services Act.

There are currently no regulatory sandboxes for blockchain technology in Sweden. However, the SFSA has established an innovation hub that deals with fintech in general.

No particular tax rules have been introduced in relation to blockchain or cryptocurrencies, or operations relating to such technology. Consequently, many Swedish taxpayers have experienced more significant challenges in practically meeting the administrative tax filing burden according to the applicable rules, rather than in the form of legal uncertainties as such. This is because taxable income from transactions in virtual currencies needs to actually be calculated and reported, whereas many other forms of savings and investment products are possible to manage through a so-called investment savings account (investeringssparkonto) which is subject to standard tax based on the balance on the account as opposed to individually calculated capital gains or losses resulting from transactions.

The Swedish Central Bank (Riksbanken) is currently assessing the possibility of establishing and backing an e-currency: the e-krona.

Since February 2020, Riksbanken has been running a pilot project with a third-party technical service provider to develop a technical platform for a blockchain-based e-krona. The pilot project has undergone three phases of (mainly technical) analysis, testing and evaluation, and the results of the third phase were released in April 2023.

The solution is based on digital tokens that are portable, cannot be forged or copied (double-spent) and enable instantaneous peer-to-peer payments. The tokens would be guaranteed a fixed value corresponding to the Swedish krona, so that the value of the user’s funds would always be identical regardless of whether they are held in the form of cash, a bank account balance or e-currency. The technical solution for the e-krona currently being considered is based on the e-krona being issued and redeemed exclusively by Riksbanken, while the e-krona would be distributed via participants in a private e-krona network administered by Riksbanken (eg, banks).

In March 2023, the Swedish government published a report in which the current need for an e-currency was questioned. During 2023, Riksbanken will continue to work on the design and legal aspects of an e-currency, evaluate the need for and the potential effects of an e-currency on the Swedish economy and analyse the need for legislative amendments to enable and facilitate implementation of an e-currency.

There are two perspectives on the ownership and valid transfer of blockchain-based digital assets:

• the finalisation of a transfer as between the parties to such transfer; and
• the finalisation and validity of transfer of ownership for purposes of rights in rem.

As between the parties to a transfer of blockchain-based assets (as well as the respective service providers involved in such a trade), general contract law principles apply, meaning that the parties are generally at liberty to agree and determine at what point during the transactions various rights and obligations associated with the ownership of the assets shall be transferred from one party to the other, as well as the involved parties’ respective liabilities to one another during the course of completing the transaction (as well as thereafter). In that regard, Swedish law does not prescribe any particular rules specific to blockchain-based assets.

However, the validity of ownership transfer from the perspective of obtaining rights in rem is a more complex issue, and in the absence of precedents it is a question that is yet to be definitively settled. One fundamental aspect of rights in rem under Swedish law is how and when transfer of ownership to certain property confers protection to the transferee (purchaser) from claims by the creditors of the transferor (seller).

The general rule under Swedish law is that a transfer of ownership must have been manifested through some observable action in order to entail rights in rem for purposes of protection from creditors for the purchaser. For typical physical movable property such as ordinary goods, the change in ownership is manifested through the act of transferring possession of the goods to the purchaser, pursuant to the so-called principle of tradition. However, due to practical impossibilities this principle cannot be applied the same way in relation to immovable property or dematerialised assets. In those cases, the legislator has instead enacted specific legislation that ties the validity of rights in rem association with ownership to registration. For example, this applies to dematerialised stocks and bonds, other types of financial instruments and emission allowances.

For blockchain-based assets however, there are no similar rules under Swedish law which ascribe validity to rights in rem based on registration. It is therefore uncertain whether and how rights in rem could be obtained for transfers of blockchain-based assets.

The situation could possibly be resolved through the analogous application of principles that apply to other types of property that share some common characteristics with blockchain-based assets. One conceivable such solution could be to make comparisons with a simple claim, for which rights in rem are obtained by a transferee giving notice to the debtor of the change in creditors from the transferor. The same applies to transfers of bank account balances, wherein the bank is given notice of the transfer of ownership. However, it also conceivable that blockchain-based assets could be treated the same way as various intellectual property rights, in relation to which the Swedish Supreme Court has held that a purchaser obtains rights in rem through the purchase agreement alone (see NJA 2010 p. 617).

Another possibility is that rights in rem would be conferred upon the transferee being severed from exercising rights of disposal over the property by way of technical and practical restrictions, making it impossible for the transferee to execute any disposition over the assets. Finally, it is not entirely impossible that, for some types of blockchain-based assets, Swedish law simply may not recognise any practically feasible means of ensuring rights in rem when transferring ownership.

It is possible – and quite probable – that not all blockchain-based assets would be treated the same in this regard, but rather that there could be different solutions and views applied to various types of blockchain-based assets based on their individual characteristics. For example, for security tokens or other blockchain-based assets that represent a claim on the issuer or sponsor, it might make sense to analogously apply the same principles as for transfer of ownership to simple claims and bank accounts – ie, by providing notice to the issuer or sponsor. However, that would not work well – and might therefore be a less relevant analogy – for other types of blockchain-based assets, such as bitcoin or other cryptocurrencies used as means of payment.

In a judicial decision from November 2022 by a Swedish District Administrative Court (see 2.5 Judicial Decisions and Litigation) the Court found that a legally valid transfer of ownership of bitcoin had occurred based on the recording of the transfer on the blockchain, confirmation of the transfer in the bitcoin network and the transferee’s possession and control over the private key to the recipient address of the transaction. However, because the Court did not specify which particular action resulted in a valid transfer, or at what specific phase of the transaction ownership was transferred, there continues to be some uncertainty as to whether and how one can transfer ownership to blockchain-based property for purposes of rights in rem in relation to protection from the transferor’s creditors. It should be noted that a District Court decision is not binding as a source of law in Sweden, and that the decision has been appealed. These factors are also reason to consider the matter of ownership of blockchain-based assets to be far from definitively settled under Swedish law.

As Swedish law does not include any national bespoke categorisation system for digital assets, their legal classification needs to be analysed on a case-by-case basis against general legal concepts and definitions. Historically, this has resulted in a focus on determining whether digital assets may be deemed to be financial instruments under Swedish law. If a digital asset is deemed to be a financial instrument, the provision of investment services relating to that digital asset is subject to securities and investment laws and regulations, most notably Directive 2014/65/EU (MiFID II) and the Prospectus regulation.

The MiCA will, from the time it becomes applicable, introduce a new regime for categorisation of digital assets which distinctly regulates three classes of crypto-assets: asset-referenced tokens, e-money tokens and utility tokens.

Stablecoins are currently not explicitly regulated in Sweden and there is limited guidance on how they should be interpreted under Swedish law. No distinction is made between stablecoins backed by deposits of fiat currency and algorithmic stablecoins. An analysis will have to be performed in each individual case regarding the rights of the holder and the obligations of the issuer of the stablecoin.

To the extent that the holder of the stablecoin receives rights vis-à-vis the issuer (eg, the right of conversion to the underlying currency or asset), the legal relationship may either directly or by analogy fall under the rules applicable to negotiable debt instruments (see 2.5 Judicial Decisions and Litigation). If the condition of negotiability (ie, that the rights pertain to the holder of the stablecoin rather than it being treated as a debt of the issuer in relation to a specific person) is not met, the rules applicable to non-negotiable debt instruments may be applied instead. These rules under Swedish law are applied by analogy law to claims in general.

Among the categories of digital assets that will become subject to significant regulation under the MiCA are so-called asset-referenced tokens and e-money tokens, which can both be considered to be stablecoins. An e-money token is defined as a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency. Meanwhile, an asset-referenced token is defined as means a type of crypto-asset that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies.

Swedish law does not prohibit the use of cryptocurrencies as means of payment, but does not recognise cryptocurrencies as legal tender that any person is legally required to accept as means of payment. In case law from November 2022, payment in kind using bitcoin has been recognised as legally valid for purposes of incorporating a Swedish limited liability company (see 2.5 Judicial Decisions and Litigation).

Swedish law recognises only banknotes and coins as legal tender that households and companies must be able to use to make payments. However, this general rule is not without exceptions. Firstly, there is the possibility of waiving the obligation to accept cash by agreement, both in private enterprise and in such public sector operations that can be equated with private enterprise (eg, municipal car parks). Secondly, there are exemptions from the obligation to accept cash as payment in a number of legal acts, such as tax legislation, which means it is not possible to pay tax in cash.

Due to these observations and the limitations of cash as legal tender, the Swedish Central Bank is currently assessing the possibility of establishing and backing an e-currency that would, per the current working assumption, constitute legal tender under Swedish law (see 2.9 Other Government Initiatives). This project is currently at a relatively early stage so it is uncertain whether and how it will be realised.

There are currently no specific regulations under Swedish law in relation to NFTs. Customary commercial and consumer protection law applicable to marketing and sales in general will also be applicable to NFTs, assuming they are not deemed to be financial instruments (see 3.2 Categorisation and 5. Capital Markets and Fundraising).

The VAT-related consequences of NFTs are determined by the VAT status of the asset linked to that particular NFT. If the underlying asset is subject to VAT, the NFT is subject to VAT.

The availability of markets for digital assets is relatively broad in Sweden, especially in proportion to the size of the country. There are a handful of Swedish companies operating markets for cryptocurrencies, most of which are non-custodial, but also some which include custody services.

However, there are no widely established active Swedish-operated markets for digital asset securities, nor for NFTs. Consequently, in Sweden the distinction is quite clear between markets for cryptocurrencies on the one hand and markets for other types of digital assets on the other hand.

There are a number of service providers, both Swedish and foreign, offering exchange services relating to cryptocurrencies to Swedish customers. Under Swedish law, the regulation makes no distinction between exchange service providers of fiat-to-crypto exchanges (or vice versa) and crypto-to-crypto exchanges; both types of operations are subject to registration requirements and requirements to comply with the Swedish AML Act.

The Swedish AML Act imposes requirements on obliged entities to risk assess their operations, assess the risk of each customer, apply customer due diligence measures to obtain “know your customer” information, monitor transactions and report any suspicious activities or transactions to the Swedish Police Authority. These requirements apply to quite a wide range of activities involving digital assets but not categorically to all operations that involve digital assets. Activities that are within the scope of these requirements are services for fiat-to-crypto exchange (or vice versa), crypto-to-crypto exchange services and custodian wallet providers, while operations that are not subject to AML requirements (provided that they relate to digital assets that do not qualify as financial instruments) include the issuing of a digital asset, brokering trades in digital assets, acting as placement agent for an issuer or sponsor of a digital asset, and dealing in digital assets for own account. Moreover, the AML Act applies to financial operations such as banking activities, investment services, payment services, etc, that can be – but are not necessarily – applicable in operations relating to digital assets.

The international sanctions regimes that apply in Sweden are decided by the EU or the UN, and there are no additional government sanctions adopted by Sweden individually. The interpretation and application of international sanction regimes to digital assets is ultimately a supranational matter rather than a Swedish-law matter per se. Whether and how digital assets are in scope of international sanction regimes may also vary, depending on the specific provisions of any particular sanction regime. For example, under EU sanctions against Russia, all prohibited transactions are also prohibited if carried out in crypto-assets, and all permitted transactions remain permitted if carried out in crypto-assets (see Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine).

Markets for digital assets are generally unregulated, as current Swedish market abuse regulations are applicable only to financial instruments and thus do not comprehensively apply to digital assets. Consequently, many blockchain-based assets such as the most common cryptocurrencies fall outside the scope of market abuse regulations.

As the MiCA introduces rules governing market integrity and market abuse for crypto-assets that are admitted to trading on a trading platform operated by an authorised crypto-asset service provider, those asset classes will (from the time that the MiCA’s rules become applicable), be in scope of requirements relating to the disclosure of inside information and prohibitions on insider dealing, unlawful disclosure of inside information and market manipulation.

A digital asset exchange service provider whose services do not relate to financial instruments is subject only to a limited range of regulatory compliance obligations, which primarily relate to AML procedures. Consequently, there are no requirements for such providers to hold customers’ digital assets in any particular manner, nor any firm restrictions on the possibility of re-hypothecating such assets. Instead, this would be for the service provider and its customers to govern in their service agreements.

However, it is worth noting that the service provider would be required to adhere to certain rules in relation to how it holds customers’ assets if its customers are to be afforded protection of their digital assets from the creditors of the service provider in an insolvency event. The Swedish Escrow Funds Act (SFS 1944:181) enables so-called separation rights to apply to fungible property that is held in escrow by a trustee on behalf of a principal. Separation rights are rights for the principal to separate its assets from the bankruptcy estate of the trustee, thus protecting the assets from the (other) creditors of the trustee.

While there is no precedent under Swedish law regarding the possibilities of applying the principles of the Escrow Funds Act to fungible cryptocurrencies specifically, the act has been applied analogously to other types of fungible property than ordinary funds. Consequently, there is reason to believe that the same principles should apply to fungible cryptocurrencies such as bitcoin, ether and other similar cryptocurrencies that are interchangeable in their function as means of payment.

Drawing upon case law relating to other types of fungible property and applying it analogously to fungible cryptocurrencies, it is likely that a number of requirements would need to be fulfilled in order for separation rights to be recognised under Swedish law:

• the service provider must be bound by terms and conditions that require it to account for the principal’s cryptocurrency and hold it in trust, and prohibit it from intermingling the principal’s cryptocurrency with the service provider’s own assets;
• the service provider must hold its customers’ cryptocurrency in technically separate account-like structures (wallets or similar constructions) that have the characteristics of a rational and natural manner of handling property held in trust;
• the service provider may not at any time hold its own cryptocurrency or other assets on the accounts where customers’ cryptocurrencies are held; and
• from the time that the service provider takes receipt of customers’ cryptocurrencies, they must be transferred to the technically separate customer accounts without delay (any more than two days is likely to constitute delay).

Custodian wallet providers are subject to regulatory registration requirements (with the SFSA) and requirements to comply with the Swedish AML Act.

Activities involving tokens that are classified as transferable securities (and thereby financial instruments) are subject to securities and investment laws. These are harmonised throughout the EU to a significant extent, most notably through MiFID II and the Prospectus regulation (Regulation (EU) 2017/1129). In relation to so-called utility tokens that do not qualify as financial instruments, general commercial law, consumer protection law and regulations specific to any underlying good or service will be applicable.

The current state of regulation of initial coin offerings will soon change as the MiCA becomes applicable and imposes requirements on issuers to publish informational white papers, in some cases obtain authorisation from competent authorities, maintain governance arrangements and comply with conduct of business rules.

The use of an exchange in the offering of tokens does not generally affect the regulations applicable to an initial coin offering. However, the exchange itself may be subject to regulatory requirements, particularly if the tokens offered are deemed to be financial instruments under MiFID II.

As far as is known, no token launch mechanisms other than the ones mentioned in 5.1 Initial Coin Offerings and 5.2 Initial Exchange Offerings are being used in Sweden.

Swedish laws regulating investment funds and collective investments schemes generally implement the EU UCITS Directive (Directive 2009/65/EC) and the AIFM Directive (Directive 2011/61/EU); while there are certain particularities in these Swedish laws, they do not specifically relate to investment funds or collective investment schemes that invest in digital assets.

There is currently no bespoke regime that applies to operations specifically relating to blockchain-based assets or other digital assets per se.

The current state of regulation of broker-dealers and other financial intermediaries will soon change as the MiCA becomes applicable and will impose requirements on crypto-asset service providers whose services correspond to traditional investment services (eg, execution of orders, financial advice or portfolio management) but in relation to crypto-assets. The requirements that will become applicable to such service providers under the MiCA are generally similar to corresponding requirements imposed on investment firms under MiFID II.

There are no specific laws or judicial decisions addressing the legal enforceability of smart contracts. The Swedish law on the formation of contracts is technology-neutral and as such does not preclude smart contracts from constituting valid agreements between the parties that use them. Two cases may be distinguished.

In the first case, parties agree “off-chain” to use a particular smart contract as a mode of delivery when executing an obligation that has been agreed off-chain (eg, an interest payment) on a particular date that is automatically calculated and executed by the smart contract where the underlying right to such a payment is documented in a loan agreement off-chain. The validity of such performance of an obligation is within the freedom of contract of the parties and would generally be legally binding.

In the second case, the parties do not have a pre-existing relationship that has been agreed off-chain but rather use the smart contract as their only mode of communicating and exchanging performances. Under Swedish law, a contract may be entered into between parties through action, with the textbook example being a car parker being bound to the terms of the parking garage by parking in the garage (as long as the terms are available to the car parker). It is likely that the same reasoning can be applied to a contract being entered into through the use of a smart contract.

It should be noted that it is not the smart contract itself that constitutes the agreement. An agreement between two parties is a legal concept of an abstract nature that in turn can be manifested and documented (eg, through a written contract or computer code in a smart contract), but where the manifestation does not necessarily reflect the binding abstract agreement between the parties (although it is often difficult to prove that the content of an agreement differs from its physical manifestation).

Furthermore, the Swedish law on the formation of contracts allows for the altering of contracts on the grounds of them being unconscionable (especially in relation to consumers vis-à-vis businesses) or because the formation of the contract was invalid due to fraud, usury or duress, for example. The obligations manifested through and any performance of a smart contract can therefore potentially be challenged in court on the grounds of the agreement being unfair or invalid.

Under Swedish law, developers of blockchain-based networks would not be held responsible in relation to users of said networks due to the developers being considered as fiduciaries.

Swedish law regulates both consumer and corporate lending, and the differences between the two sets of regulatory frameworks are quite significant. Consumer lending and consumer loan brokerage are subject to licensing requirements under a bespoke national regime, while corporate lending is generally subject only to a less onerous registration requirement in the same way as a number of other financial operations (including services for the exchange of virtual currencies or custodian wallet services). However, if lending (whether to corporate or consumer borrowers) is combined with deposit-taking from the public, the lender is subject to licensing requirements as a credit institution.

Swedish law is ambiguous as to whether the lending of digital assets comes within the scope of Swedish laws that relate to lending activities: while Swedish law states that a number of types of lending are within the scope of these rules, such as consumer credit, credit agreements relating to immovable property, factoring, with or without recourse and the financing of commercial transactions including forfeiting, all of these examples relate to lending of funds (ie, fiat currency) and not to lending of other types of property.

However, the preparatory works to this legislation establish that the meaning of lending is broad and includes many different types of financing, and that the term should be given an interpretation that is functional in nature and includes activities that are functionally similar to the granting of credit in a more traditional sense. The assessment of whether lending of any particular type of digital asset qualifies as licensable under Swedish law therefore needs to be made on a case-by-case basis, taking into account whether the transaction is functionally similar to traditional lending. There may be a distinction between, for example, the lending of digital assets that are readily available to be used as means of payment (which would be more likely to fall within the scope of Swedish legislation on lending activities) and the lending of digital assets that do not inhabit such characteristics, such as utility tokens.

Ultimately, given the absence of case law or other clear guidance, it remains to be determined whether and how the Swedish legislation on lending activities can be applied to lending activities that relate to digital assets.

Pursuant to Swedish law, the action necessary to perfect a pledge in order to create a security interest is generally the same as the action to be taken in order for a purchaser of an asset to receive rights in rem towards the creditors of the seller. As explained in 3.1 Ownership, the existing  case law of relevance (and which is subject to the risk of being overturned on appeal) is limited to transfers in bitcoin, and it is uncertain what action is necessary in relation to the perfection of a pledge over other types of digital assets.

A central element is that the pledging party (the “pledgor”) will need to be cut off from having access to the pledged asset. As this may be difficult to achieve with digital assets because it is difficult to know whether the pledgor has back-ups of its private key relating to the wallet where the digital asset is kept, the creation of an effective security interest would normally be achieved through an actual transfer of the asset to the actor benefitting from the pledge (the “pledgee”). Upon payment of the underlying debt, the pledgee would then transfer the pledge back to the pledgor. This is also the method generally used by Swedish law enforcement to temporarily seize digital assets.

There are no specific rules requiring professional investors to transfer digital assets in which they have invested to a custodian (provided that the digital asset does not constitute a financial instrument and that the investor is not required to keep financial instruments in custody), nor are there any specific rules applicable to operating as a custodian of digital assets (provided that the digital asset does not constitute a financial instrument), apart from the AML rules applicable to custodian wallet providers as discussed in 4.3 KYC/AML/Sanctions. In relation to the operations of a custodian and the assets of its clients, please see 4.5 Re-hypothecation of Assets regarding the need for the custodian to keep the clients’ assets separate in order for them to be protected against the creditors of the custodian.

At face value, the Swedish laws and regulations that apply to data privacy fundamentally apply to operations with blockchain-based products and services in the same way as other operations, without any specific derogations or distinctions to account for the particularities of blockchain-related operations.

As in other EU jurisdictions, the main source of data privacy-related rights and obligations in Sweden is the General Data Protection Regulation (Regulation (EU) 2016/679) (the GDPR), which governs matters such as individuals’ right to access their personal data that is being processed, the right to the rectification of incorrect information about them, and the right to the erasure of personal data that is no longer necessary to process for whichever purpose it was originally collected and processed.

Many of the rights and obligations in the GDPR are challenging to apply practically to blockchain-based operations, due to the inherent characteristics of blockchain technology, and particularly because services and products that are based on public blockchains do not require any special permissions to become a participating node (eg, the most common cryptocurrencies).

The GDPR is based on the assumption that there is a “data subject” whose personal data is being processed by a “controller”, who determines the purpose and means of data processing. The typical scenario is that a service provider is the controller of personal data that it processes about its customers. Consequently, the GDPR establishes rights for data subjects and corresponding obligations for controllers. However, this assumption is far from straightforward to apply to blockchain-based operations where there is not a single controller, but rather a vast number of independent parties storing synchronised copies of data on the blockchain. Thus, there is a fundamental challenge in applying the GDPR to these types of operations, since it is unclear who can be held accountable for fulfilling the obligations that the GDPR imposes on controllers. In the debate within the blockchain industry, it has been argued that the protocol developers of any particular blockchain often do not develop the technology with any particular use case in mind (but rather as a tool that can be put to use in a variety of manners), and that treating protocol developers as controllers could be likened to treating the inventors of the worldwide web as controllers for all personal data processing that is carried out via the internet.

Certain rights established in the GDPR are also difficult to apply in practice to blockchain-based technology. A notable example is the so-called right to be forgotten – ie, the right for a data subject to have their personal data be erased when there is no longer any lawful grounds for its processing. This right inherently conflicts with blockchain-technology that only permits data to be added to a blockchain, not removed from it.

These challenges are only a few examples in the area of seeking conformity between laws and regulations applicable to data privacy and blockchain-based operations. To date, there is no clearly guiding case law or guidance from the Swedish Authority for Privacy Protection that settles these matters, so it remains subject to debate and discussion within the industry whether and how data privacy rights and obligations can be applied to blockchain-based operations.

At face value, the Swedish laws and regulations that apply to data protection fundamentally apply to operations with blockchain-based products and services in the same way as other operations, without any specific derogations or distinctions to account for the particularities of blockchain-related operations.

When it comes to ensuring protection against unauthorised access of personal data, the GDPR establishes the concept of “data protection by design and default”, meaning that data protection measures should be implemented as integrated components of technical systems and services rather than as additional layers “on top”. Moreover, the GDPR requires controllers of personal data to implement appropriate security measures to ensure the ongoing confidentiality, integrity, availability and resilience of processing systems and services, and to restore personal data in the event of any unforeseen incident.

Where appropriate, security measures should also include measures for the encryption of data, which is particularly interesting in the context of blockchain technology. First of all, there is an important distinction between truly anonymised data and data that is only pseudonymised. Where an anonymisation process results in data that is impossible to link to any individual and that is also irreversible, the resulting anonymous data is entirely beyond the scope of the GDPR. Methods for removing identifying characteristics of data that do not meet this standard of true anonymisation are instead referred to as “pseudonymisation”, and the GDPR remains applicable to pseudonymised personal data. In a blockchain context, this means that data on the blockchain will often qualify as pseudonymised personal data, because although a public blockchain may not openly and explicitly contain identifying details, it is possible to indirectly link the visible public keys or addresses to an individual (eg, through pattern analysis).

This means that blockchain-based services and products cannot generally be considered as anonymous (although each blockchain is of course to be assessed on its particular circumstances), but are instead subject to requirements in the GDPR relating to, inter alia, the implementation of security measures as well as the concept of “data protection by design and default”.

Mining of cryptocurrencies is permitted in Sweden, and mining activities are not subject to any bespoke regulation.

However, in November 2021, the SFSA and the Swedish Environmental Protection Agency (Naturvårdsverket) published a joint opinion proposing that mining activities should become regulated due to the environmental impacts of the inherent high energy demand of the “Proof of Work” mining method. The opinion was partially a reaction to an observable significant increase in energy consumption for cryptocurrency mining in Sweden during the period from April to August 2021, which was likely a result of cryptocurrency miners looking to operate out of Sweden due to the low energy prices, attractive tax regulations and good supply of renewable energy sources.

Specifically, the authorities’ proposal was threefold:

• the EU should evaluate prohibiting the “proof of work” mining method on an EU level;
• Sweden should counteract widespread establishment of cryptocurrency mining operations using the “proof of work” method in the meantime; and
• companies that strive to operate in accordance with the Paris Climate Accords should not be able to designate their activities as sustainable if they trade or invest in cryptocurrencies that have been mined using the “proof of work” mining method.

The opinion has not yet resulted in any legislative action in Sweden, and on an EU level the most recent legislative developments indicate that the position may be against a ban on the “proof of work” mining method.

There are no specific rules applicable to staking in Sweden. As far as is known, no specific staking as a service business operates out of Sweden.

There is very limited activity with respect to DAOs in Sweden, so it is difficult to provide information on how they are used and organised. No specific regulations exist in relation to DAOs but general company law may be applicable, either by choice or due to the underlying circumstances deeming the DAO to be an unregistered partnership (enkelt bolag), for example; an unregistered partnership exists where two or more parties have agreed to operate a business together in a company.

Since there is very limited DAO activity in Sweden, it is difficult to say how DAOs are typically organised and governed in Sweden.

As far as is known, the use of legal entity structures to facilitate interaction with non-blockchain native entities is very limited in Sweden, and it is difficult to assess which legal entity structure form is most frequently used. A significant advantage of using a legal entity structure with a legal persona (ie, the possibility to assume rights and obligations), such as a limited liability company, is the legal clarity on who the contracting party is when the DAO interacts with other parties.