Over the past 12 months, the blockchain market in Slovenia has seen significant development, marked by a series of regulatory and infrastructural advancements. Slovenia hosted the European Blockchain Week 2023 conference, which highlighted its commitment to being at the forefront of blockchain innovation in Europe, embracing Web3, NFTs and the metaverse as a strong push towards digital innovation. The Slovenian government has also been proactive in fostering a supportive environment for blockchain innovation, primarily through the DIGITAL SLOVENIA 2030 – the overarching strategy for the digital transformation of Slovenia by 2030.

Accordingly, Slovenia has recently seen a significant increase in interest from crypto-asset companies as a potential EU home base – both due to the passportability regime of the Markets in Crypto-Assets Regulation (MiCAR), as well as Slovenia's long-standing crypto-friendliness.

Reglation-wise, the biggest change is the already partial applicability of MiCAR (Titles III and IV on asset-referenced and e-money tokens apply from 1 June 2024) and the forthcoming full applicability from 30 December 2024. Most notably, with MiCAR individual national authorisation regimes will no longer exist. Instead, MiCAR introduces one authorisation system to be used by all EU countries, providing a clearer legal framework for digital assets industry.

As we approach the key application deadlines in 2024, and as market players are, or definitely should be, gearing up for the new legal framework, this guide also includes relevant provisions of MiCAR that are not yet applicable, but which they should be aware of in order to fully understand its implications.

Looking towards the future, Slovenia’s blockchain market is definitely poised for further growth, driven by regulatory progress and government initiatives.

Slovenia, despite its modest size, has established itself as a notable hub for the exploration and utilisation of blockchain technology. It proudly holds the distinction of being the birthplace of the world’s longest-running cryptocurrency exchange and ranks among those countries with the highest number of ICOs launched per capita during the ICO frenzy of 2017–2018. In recent years, Slovenia has witnessed the emergence of diverse blockchain-related initiatives, start-ups and projects, with a strong emphasis on sectors such as finance, supply chain, energy and governance.

Most notably, the following use-cases have been already partially or fully implemented.

• Supply chain management: blockchain technology is being used for enhancing transparency and traceability in supply chains. It enables businesses to track the movement of goods, verify authenticity and reduce fraud; for example, Slovenian wine producers have been utilising blockchain to verify the origin and quality of their wines, ensuring transparency for consumers.
• Financial services: several banks and financial institutions have been exploring blockchain for cross-border payments and remittances, which can increase speed and reduce costs. Additionally, blockchain-based digital identity solutions are being developed to improve customer onboarding and identity verification processes.
• Real estate tokenisation: A Slovenian company specialising in real estate tokenisation and white-label marketplace platforms has tokenised approximately EUR100 million in economic rights from underlying real estate properties (ie, future cash flows).
• Energy sector: A Slovenian company in the (solar) energy sector has implemented a blockchain-based P2P energy trading platform, ensuring transparent and efficient energy transactions by facilitating the exchange of excess energy between producers and consumers. In March 2024, it also became the first company in the world’s energy sector to link NFTs to solar panels on the blockchain, offering a global energy service that enables a personal solar power plant. The owner of each NFT can trade it at will through the existing P2P marketplace, or receive inflows to their wallet based on the energy produced by the panel connected to their NFT. Slovenian electricity consumers can also directly use the energy produced through the energy marketplace for their self-sufficiency needs.
• Governance and public services: Slovenian authorities have explored blockchain for applications such as land registry, intellectual property rights and voting systems. However, no plans for pilot development or research grants currently exist.
• Tokenisation and asset management: Slovenia is home to a pioneering platform in the field of digital asset management, specialising in tokenisation and allowing users to invest in a diverse range of cryptocurrencies. This platform was founded in Slovenia and continues to operate from the country.

The knowledge and sentiment surrounding cryptocurrencies and decentralised finance (DeFi) among the general public in Slovenia also surpasses the average in the European Union (EU). Likewise, according to Google Trends analytics, crypto “buzzwords” are searched on average more in Slovenia than anywhere else in the EU. Consequently, it comes as no surprise that DeFi protocols – including automated market makers, wallet aggregators, decentralised synthetic investment platforms, decentralised prediction markets, decentralised stablecoins and decentralised lending platforms – have gained significant popularity among the more crypto-savvy users in Slovenia.

Prior to MiCAR, the only two legal acts that offered a definition of digital assets (as a virtual currency) were the Slovenian Prevention of Money Laundering and Terrorist Financing Act, and the Slovenian Criminal Code. Ownership of digital assets has also been addressed in numerous criminal court rulings, as well as administrative court rulings related to taxation. While the criminal law is clear in defining digital assets as movable property, there is no direct definition of digital assets within Slovenian civil law. Consequently, there is some ambiguity as to which rules of Slovenian law regarding ownership rights and transfer of ownership should apply.

However, the general consensus within legal theory and jurisprudence is that the ownership and transfer of digital assets using blockchain technology is governed by the general principles of property law and the specifics of blockchain technology itself. Ownership of a digital asset on a blockchain is therefore typically associated with possession of the private cryptographic key which enables the owner to control the asset and issue transactions. The disposition is thus effectively in the form of the use of a public key and a private key, while the transfer is considered final when the transaction is actually received in the counterparty’s wallet (public key) by way of registration on the blockchain. While the private key is essential for control, proof of ownership may also require demonstrating that the digital asset was acquired legally and in accordance with relevant contracts or agreements. This could involve presenting transaction records, purchase agreements, or other documentation.

Similarly, the finality of transfers of digital assets via a blockchain network is determined by the underlying technological principles as it is generally tied to the consensus mechanism of the blockchain network. For instance, in proof-of-work systems like Bitcoin, a transaction is considered final after a certain number of blocks have been added to the blockchain following the transaction. In proof-of-stake systems, finality might be achieved through different mechanisms, such as checkpoints or epochs.

In Slovenia, the issue of characterising and regulating digital assets, including “security tokens”, “utility tokens”, “exchange tokens” and stablecoins, will soon be resolved with the entry into force of MiCAR. While the distinctions between these different types of digital assets and their classification have not always been straightforward, MiCAR now provides much needed clarity by distinguishing between three different types of crypto-assets:

• Asset-referenced tokens (ARTs) are crypto-assets that purports to maintain a stable value by referring to another value or right or a combination thereof, including one or more fiat currencies, and are not electronic money tokens (paragraph 6, no.1 of Article 3 of MiCAR);
• Electronic money tokens (EMTs) are crypto-assets whose primary purpose is to serve as a means of exchange and which purport to maintain a stable value by referring to the value of a fiat currency (paragraph 7, no.1 of Article 3 of MiCAR);
• Utility tokens are crypto-assets whose sole purpose is to provide access to a good or service provided by their issuer (paragraph 9, no.1 of Article 3 of MiCAR).

Security tokens – ie, tokens that would considered financial instruments under the Slovenian implementation of the Markets in Financial Instruments Directive (MiFID II) in the Financial Instruments Market Act (ZTFI) – are explicitly excluded from the scope of MiCAR (paragraph 4, point (a) of article 2 of MiCAR). Due to differences in the implementation of the MiFID II definition of “financial instrument” among EU Member States, there is no uniform application across the region. Consequently, MiCAR has mandated ESMA to issue guidelines by 30 December 2024 setting out the conditions and criteria for the classification of crypto-assets as financial instruments, in order to provide national competent authorities and market participants with clear guidance on this classification.

In January 2024, ESMA released a Consultation paper on the proposed Guidelines, suggesting a case-by-case “substance over form” methodology for classification, considering the unique characteristics, design, and rights of each crypto-asset. The Slovenian Securities Market Agency is anticipated to adopt these guidelines in their final form, with necessary adjustments for local implementation of the MiFID II definition of a financial instrument.

The legal and regulatory framework for tokenised securities – traditional securities with a digital wrapper – is defined by the comprehensive EU framework under Regulation (EU) 2022/858 on Distributed Ledger Technology Market Infrastructures (“the DLT Pilot Regime”). Effective from March 2023, this regime offers a structured regulatory sandbox for experimenting with DLT in financial markets, aiming to integrate innovative technologies while ensuring regulatory compliance.

The regime permits temporary exemptions from certain provisions of MiFID II and the Central Securities Depositories Regulation. This facilitates the use of DLT in trading and post-trading processes without being constrained by regulations not originally designed for DLT.

In essence, the DLTR establishes a temporary pilot regime for the regulation of DLT financial instruments. It is expected that the experience gained from applying the DLTR pilot regime will help identify practical proposals for a suitable and more permanent regulatory framework that will succeed the DLTR in the issuance, safekeeping and asset servicing, and trading and settlement of DLT financial instruments.

The Securities Markets Agency and the Bank of Slovenia are the competent authorities for granting specific authorisations for the operation of DLT market infrastructures.

The stablecoin ecosystem has evolved far beyond its infancy in 2014, when stablecoins were first introduced. Their offerings are now much more diverse, as are the strategies they employ to maintain their value. For example, the largest stablecoins by market capitalisation, USD Coin and Tether, aim to maintain their value at a roughly one-to-one ratio to the US dollar. They do this primarily by holding reserves of traditional financial assets (such as cash, treasury bills, fiduciary deposits and commercial paper) in trust with regulated financial institutions. In recent years, another strain of stablecoins has emerged, often referred to as algorithmic stablecoins, which use digital assets as collateral and employ algorithms to liquidate this collateral when necessary to mitigate price volatility.

As already outlined in 2.2 Categorisation, the classification and regulation of stablecoins, which may also depend on their backing and operational mechanism, will soon to be resolved by MiCAR’s entry into force. Stablecoins backed by fiat currency will generally be treated as EMTs, while those backed by other assets or a combination thereof, including one or more fiat currencies, will fall under ARTs.

Both types of stablecoins require authorisation under MiCAR and their issuer to be established in the EU. Most importantly, both have a reserve requirement, which means that the issuer must hold in reserve the same asset as its reference and in an amount equal to the total amount of crypto-assets issued.

Although algorithmic stablecoins have been the subject of much debate and criticism in recent years, MICAR does not explicitly categorise or regulate them. Due to their operating mechanism of algorithmically increasing or decreasing supply in response to changes in demand, they are unlikely to meet the relevant criteria of ARTs or EMTs and are therefore prohibited within the EU.

Another type of crypto-asset that is not directly addressed by MiCAR (or any local regulation) are non-fungible tokens (NFTs). This is due to their main characteristic – ie, they are unique and not fungible with other crypto-assets – two characteristics which (in accordance with paragraph 1, no.3 of Article 2) place them outside the scope of MiCAR.

However, there are cases where certain NFTs could fall within the scope of MiCAR. If an NFT has characteristics that make it similar to an ART, EMT or utility token, especially if it is issued in a large enough series or collection to be considered fungible. Another example would be the fractionalisation of an NFT, which effectively makes its individual fractions fungible.

Similarly, if an NFT embodies rights similar to those of a financial instrument, it could fall within the MiFID II regime.

Cryptocurrencies are not legal tender in the Republic of Slovenia, but it is still legal to pay with them, as they are considered as a medium of exchange in such transactions rather than a means of payment. Consequently, the use of cryptocurrencies in payments is allowed and relatively widespread in Slovenia, with more than 1,500 businesses accepting them (according to publicly available information) and one of the leading global crypto and card payment infrastructure providers originating from the country. Notably, the largest shopping centre in Slovenia has been using their solutions since 2018, with more than 130 stores accepting cryptocurrencies as payment.

Because crypto-assets are a digital representation of value or a right that can be transferred or stored electronically using distributed ledger technology or similar technology, and as such have the characteristics needed for repayment on their basis, there is generally no obstacle to their use in collateral arrangements.

However, Slovenian law currently lacks specific provisions for the transfer and enforcement of digital asset collateral. Broadly speaking, if a digital asset can be characterised as a type of asset under existing regulation (eg, security, deposit, e-money, other type of property or regulated financial instrument), then security (eg, pledge on movable property or property right, assignment of claims as security) could be established under Slovenian law, but only if all the steps for establishing relevant security under Slovenian law can be implemented. Note that establishing security on digital assets has not been court-tested yet.

There are no specific laws, regulations or binding precedents governing the legal enforceability of contracts made in whole or in part through smart contracts. Therefore, the general rules of civil law apply.

The general view of the Slovenian legal community is that there are two types of smart contracts: those that are completely smart and those that are concluded orally or in writing, where only some contractual provisions regulating the automatic act of performance are subsequently converted into computer code. In the latter case, only certain contractual provisions would be considered to constitute a smart contract. From a legal perspective, the parallel contract (oral or written) would be considered a valid contract.

In the absence of a parallel contract and where all contractual provisions would be converted into computer code, such a smart contract would have to meet all the requirements for a valid conclusion of a contractual relationship:

• the contracting parties must have legal capacity and the capacity to perform;
• the object of the contract must be permissible;
• there must be concurrence of wills for the conclusion of the contract (without mistake or duress); and
• the contract must be concluded in an appropriate form.

Slovenian law does not require any formality for a contract to be valid, unless otherwise provided by law. In cases where the law demands a written form or even the form of a notarial deed or notarial certification of signatures, the smart contract would not be considered as an appropriate form and would therefore not be considered a valid contract. However, in cases where the law does not require particular form and where the smart contract (computer code with programmed contractual content) meets all the legal requirements for a valid contract, such an agreement would be considered valid and legally binding.

Other than the relevant requirements already outline above, there are no other specific requirements for regulated firms/funds with exposure to crypto-assets.

As early as 2019, Slovenia launched the SI-Chain, a national blockchain test infrastructure, which was the first of its kind in the EU. This initiative was part of Slovenia’s broader strategy to integrate blockchain technology into both public and private sectors. The SI-Chain facilitates the testing of blockchain applications, smart contracts, and other distributed ledger technologies.

Slovenian companies also have the opportunity to engage in the European Blockchain Regulatory Sandbox, an initiative by the European Commission which aims to foster dialogue between regulators and innovators for blockchain and distributed ledger technology projects across the EU. Launched in 2023, it supports up to 20 projects per year from both the private and public sectors. It aims to provide legal certainty and regulatory guidance, helping projects navigate the complex regulatory landscape by engaging directly with national and EU regulators in a secure environment. Projects are selected on the basis of criteria such as business case maturity, legal and regulatory relevance and alignment with EU policy priorities.

Slovenia has been proactive in implementing regulations and standards for the crypto-asset industry, closely following international guidelines set by bodies such as the Financial Action Task Force (FATF).

One such example is going beyond the scope of the EU's 5th Money Laundering Directive (“5MLD”) in regulating virtual currency services and their service providers. The Slovenian Act on the Prevention of Money Laundering and Terrorist Financing (ZPPDFT-2) also follows the latest FATF recommendation and, accordingly, the scope of the definition of virtual currency services is broader than that of the 5MLD.

The regulatory bodies most relevant for businesses or individuals using blockchain in Slovenia are the Office for the Prevention of Money Laundering, the Securities Market Agency (“ATVP”) and the Bank of Slovenia (BSI).

The Office for the Prevention of Money Laundering is responsible for the implementation and enforcement of AML and CTF legislation in Slovenia. It also maintains the Register of Virtual Currency Service Providers and supervises registered entities by performing tasks related to the prevention and detection of money laundering, predicate offences and terrorist financing, as well as other tasks provided for by law.

The BSI primarily deals with financial stability, monetary policy, and the overall supervision of banking institutions. For blockchain, the BSI is relevant in terms of payment systems and financial services implications. It has a role in supervising and regulating financial institutions, including those engaged in crypto-asset related activities, and supervises the implementation of the provisions of the Prevention of Money Laundering and Terrorist Financing Act for legal or natural persons when carrying out their business or professional activity of providing virtual currency services or other transactions involving such services.

In Slovenia, there are currently no self-regulatory organisations that directly perform a regulatory role with respect to companies or individuals using blockchain. However, there are non-profit associations such as the Blockchain Think Tank Slovenia and the Bitcoin Society of Slovenia. These groups act as collectors of ideas and proposals, and provide a communication channel between the blockchain community and relevant government and public sector representatives.

• Blockchain Think Tank Slovenia is a non-profit association open to all stakeholders interested in blockchain technology, which has issued guidelines and advised the relevant authorities on several open issues (eg, clarification of the 2016 Slovenian Accounting Standards, guidelines for raising funds through the primary issuance and sale of crypto tokens, etc).
• Blockchain meetups and communities (eg, ETH Slovenia meetups, those organised by the Bitcoin Society of Slovenia): various informal groups and meetups also contribute to self-regulation and community-driven development of blockchain standards and practices.

While these organisations and initiatives are not regulatory bodies per se, they play an important role in shaping the blockchain landscape in Slovenia by providing guidance, fostering innovation and ensuring compliance with broader EU regulations.

Slovenia has also established several governmental bodies and initiatives to explore blockchain technology’s benefits and challenges:

• In 2021, a dedicated ministry was created - the Ministry of Digital Transformation. One of its key ongoing projects is the establishment of a new generation information infrastructure (DRO Next), which covers various areas of ICT, including technology trends in the use of blockchain technology.
• The Slovenian government launched the SI-Chain, a national blockchain test infrastructure, enabling the testing of blockchain applications for both public and private sectors.
• Blockchain technology is also a key point of DIGITAL SLOVENIA 2030 – the overarching strategy for the digital transformation of Slovenia by 2030.
• A dedicated Blockchain working group operates within the framework of the Slovenian Digital Coalition. The Slovenian Digital Coalition – digitalna.si aims to coordinate the digital transformation of Slovenia according to the adopted strategic document Digital Slovenia 2030 in cooperation with stakeholders from the economy, the research and development sector, civil society and the public sector.

In Slovenia, judgments of courts of first instance are not made public, so the only judgments that are publicly available are those of higher courts, the Supreme Court and the Constitutional Court. Between these courts, there are more than 20 public judgments dealing with crypto-assets from various perspectives (enforcement proceedings, joint marital property, appropriation of bitcoin in cybersecurity hacks, use of crypto-assets in illegal activities, tax inspection proceedings, confiscation of crypto-assets in criminal proceedings, etc).

Of particular interest is a judgment of a higher court in which the court denied international jurisdiction to authorise and execute an enforcement order requiring the transfer of crypto funds from the debtor’s account to the creditor’s account linked to the Republic of Slovenia, on the grounds that there was an insufficient factual or real connection between the proposed enforcement and the Republic of Slovenia as the enforcing state.

Although there are currently no prominent public litigations affecting the blockchain sector in Slovenia, the evolving regulatory landscape suggests that future legal challenges and interpretations will become increasingly common as the technology becomes more embedded in various industries.

Specific enforcement actions in Slovenia have been less publicised than in other jurisdictions. However, general EU-wide efforts to combat the misuse of blockchain for illicit activities are influencing the regulatory approach in Slovenia, including the monitoring of suspicious activities and compliance with international standards.

While not direct regulatory enforcement actions, the Bank of Slovenia and the Securities Market Agency have issued public warnings and positions regarding the risks associated with several aspects of crypto-assets, which help define the boundary between permitted and prohibited activities. In addition, the Financial Administration of the Republic of Slovenia has issued several guidelines on the taxation of cryptocurrencies.

Trading with cryptocurrencies results in the following tax implications:

• occasional traders (individuals) are not taxed on their cryptocurrency gains; and
• business traders (legal entities, entrepreneurs) recognise their cryptocurrency trades through their profit and loss accounts, in line with general accounting principles.

Cryptocurrencies can be used for purchasing goods and services, if the seller agrees to accept them as “means of payment”. The fair market value of cryptocurrency received for the supplied goods or services (translated into euros, which is a legal currency) represents a taxable income for the seller.

According to the tax authority’s opinion, crypto-mining cannot be considered as “occasional activity”. Instead, crypto-mining income is always treated as taxable income, namely as “other income” for individuals, or as “business income” for legal entities and entrepreneurs. However, crypto-mining is not taxable as VAT, as it is not considered as the supply of goods or services.

In practice, the main uncertainty still revolves around the definition of “business activity” – namely, when does an “occasional trader” become a “business trader”? The tax authority has given some guidelines on business activity qualifiers (eg, number of trades, volume of trades, portfolio value, etc); however, no hard lines or threshold have been listed. A case-by-case approach is used for determining the potential existence of “business activity”.

There is still no clear position of the tax authority on VAT treatment of NFTs, as NFTs can assume different roles in transactions (eg, NFTs can materialise as vouchers, proof of title, electronic service, etc).

Generally speaking, sales of NFTs can be taxed with VAT if they represent “business activity” of the seller, who acts as a “taxable person”. Consequently:

• frequent (re)sellers of NFTs should be treated as “taxable persons” for VAT purposes – they should register for VAT (and charge VAT on NFT sales), if their taxable turnover in the last 12 months exceeds EUR50,000; and
• occasional (re)sales are not considered as “business activity” and are therefore outside VAT scope.

There are no Slovenian-specific ESG/Sustainable Finance requirements that would exclusively target crypto-assets. However, the EU Sustainable Finance Disclosure Regulation could apply if crypto-assets were part of the financial product offerings of asset managers and other financial market participants that fall within its scope.

Currently, there is no local law or other regulation applicable to data privacy or protection with respect to the use of blockchain-based products or services. Thus, when a blockchain contains personal data, the General Data Protection Regulation (GDPR) and the Slovenian Personal Data Protection Act (ZVOP-2) apply. The Slovenian Information Commissioner has not yet issued any opinion or guidelines in this regard. The European Data Protection Supervisor issued its Opinion on the Proposal for a Regulation on Markets in Crypto-assets and amending Directive (EU)2019/1937 on 24 June 2021.

The use of the GDPR provisions is also envisaged in the DLT Pilot Regime Regulation and the MiCA Regulation. There are several articles in both Regulations referring to personal data and applicability of the GDPR. For example, Article 101 of the MiCAR stipulates that with regard to processing of personal data within the framework of MiCAR, the competent authorities shall carry out their tasks in accordance with the GDPR. Further, MiCAR imposes on issuers of asset-referenced tokens the obligation to have systems and procedures in place that are adequate to safeguard the availability, authenticity, integrity and confidentiality of data as required by the GDPR.