Blockchain Comparative Guide

1 Legal and enforcement framework

1.1 What general regulatory regimes and issues should blockchain developers consider when building the governance framework for the operation of blockchain/distributed ledger technology protocols?

Where a native token is issued, the issuer must consider whether:

• the token constitutes:
• • a 'security' or a 'capital markets product' which gives rise to licensing and/or prospectus registration obligations under the Securities and Futures Act 2001 (SFA); or
  • a 'digital payment token' under the Payment Services Act 2019 (PSA) or a 'digital token' under the Financial Services and Markets Act 2022 (FSMA); and
• any activities involving the tokens constitute licensable activities under the foregoing legislation. In particular, if a token qualifies as a 'security' or a 'capital markets product', there are prospectus requirements for offering it to the public.

Where there is no native token but the blockchain developer deals with tokens, it will need to consider whether:

• the token is regulated under the SFA, the PSA and/or the FSMA; and
• its activities involving the tokens constitute licensable activities. For instance, the service of safeguarding tokens and the provision of a digital token exchange are licensable activities.

Further, blockchain developers should consider the general anti-money laundering and counter-terrorist financing laws and regulations, such as:

• the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act; and
• the Terrorism (Suppression of Financing) Act).

1.2 How do the foregoing considerations differ for public and private blockchains?

For private blockchains, it is unlikely that the token itself will be regulated because the regulatory regime is not meant to target a utility token used between private parties. However, care will need to be taken to define (in the contract between the private parties) the token's rights, to ensure that it is not caught under the regulatory regime – especially the definition of 'e-money' under the PSA.

1.3 What general regulatory issues should users of a blockchain application consider when using a particular blockchain/distributed ledger protocol?

A user must consider whether:

• the services provider is licensed; and
• the licence requires the safeguarding of customers' assets.

As of June 2024, not all licensed digital payment token providers are required to safeguard customers' assets, as the relevant regulations have not yet come into force; hence, a user should not assume that the provider is required to safeguard assets, even if the provider is licensed under the PSA.

Further, if the token is regulated as a security or digital payment token, it is possible that users' activities with the token will be regulated. For instance, a user that offers to exchange Bitcoin (a digital payment token under the PSA) for cash could be considered to be providing the regulated service of 'dealing in digital payment tokens'.

1.4 Which administrative bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

The Monetary Authority of Singapore (MAS) oversees the financial services sector and is responsible for enforcing the SFA, the PSA and the FSMA. It has the power to:

• impose regulations and guidelines;
• monitor compliance; and
• enforce against breaches under these acts.

With respect to anti-money laundering laws, the following bodies are responsible for enforcement, depending on the specific industry and legislation that is triggered:

• the MAS;
• the Commercial Affairs Department;
• the Ministry of Law; and
• the Central Narcotics Bureau and the Corrupt Practices Investigation Bureau.

1.5 What is the regulators' general approach to blockchain?

The MAS is supportive of the use case of the blockchain for tokenising assets to create digital assets, but it is critical of speculation in cryptocurrencies. The MAS views cryptocurrencies as just one part of the digital asset ecosystem and is more interested in the other technological applications of the blockchain.

The MAS has adopted a four-pronged approach to building a digital asset ecosystem:

• Explore the potential of distributed ledger technology in promising use cases;
• Support the tokenisation of financial and real economy assets;
• Enable digital currency connectivity; and
• Anchor players with strong value propositions and risk management.

Ever since the PSA was enacted in 2019, the MAS has been finetuning its regulations for the sector. For instance, in response to the historical failure of digital payment services providers to safeguard customers' assets, the MAS is in the process of introducing new legislation targeted at this problem.

The MAS is also innovative and is currently experimenting with introducing central bank digital currencies for international settlements between central banks under Project Ubin+.

1.6 Are any industry or trade associations influential in the blockchain space?

Prominent industry associations include:

• the Blockchain Association Singapore;
• the Singapore Cryptocurrency and Blockchain Industry Association; and
• the Enterprise Ethereum Alliance.

2 Blockchain market

2.1 Which blockchain applications and protocols have become most embedded in your jurisdiction?

For base-layer blockchains, Ethereum and Tezos are prominent players and have offices in Singapore.

Further, GovTech Singapore, together with the OpenCerts Consortium, has developed a public service named OpenCerts for verifying whether an educational certificate is valid. OpenCerts is built on the Ethereum blockchain.

RippleNet is also being used for settlement by InstaRem, a prominent Singapore fintech payment services provider.

For private blockchains, in the context of international settlements for central bank digital currencies, the Monetary Authority of Singapore (MAS) had participated in pilots built on permissioned versions of Ethereum (Hyperledger Besu) and the public Ethereum testnet (Sepolia).

2.2 What potential new applications/protocols are most actively being explored?

The new applications currently of interest are:

• tokenisation of real-world assets and security tokens;
• central bank digital currencies; and
• stablecoin issuance under a licensed framework with asset protection measures.

2.3 Which industries within your jurisdiction are making material investments within the blockchain space?

Prominent industries include:

• digital asset exchanges (with ADDX, DBS Digital Exchange being prominent players);
• game finance (with Ethlas being a prominent player); and
• digital asset financial institutions (with Sygnum being a prominent player).

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

The MAS started the Singapore Blockchain Innovation Programme in December 2020 to help build a vibrant and strong blockchain ecosystem in Singapore. It aims to encourage companies to:

• conceptualise blockchain-based solutions;
• grow the blockchain community; and
• conduct research on next-generation blockchain efforts.

3 Cryptocurrencies

3.1 How are cryptocurrencies and/or virtual currencies defined and regulated in your jurisdiction?

Cryptocurrencies and virtual currencies could fall under the following definitions, which in turn attract regulation:

• 'Capital markets product': Defined under the Securities and Futures Act (SFA) as:
• • securities;
  • units in a collective investment scheme;
  • derivatives contracts;
  • spot foreign exchange contracts for the purposes of leveraged foreign exchange trading; and
  • other products prescribed by the Monetary Authority of Singapore (MAS).
• 'E-money': Defined under the Payment Services Act 2019 (PSA) as any electronically stored monetary value that:
• • is denominated in any currency or pegged by its issuer to any currency;
  • has been paid for in advance to enable the making of payment transactions through the use of a payment account;
  • is accepted by a person other than its issuer; and
  • represents a claim on its issuer.
• 'Digital payment token': Defined under the PSA as any digital representation of value that:
• • is expressed as a unit;
  • is not denominated in any currency and is not pegged by its issuer to any currency;
  • is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt;
  • can be transferred, stored or traded electronically; and
  • satisfies such other characteristics as the MAS may prescribe.
• "Digital token': Defined under the Financial Services and Markets Act (FSMA), which sets out a substantially similar definition to that of a 'digital payment token' under the PSA. This is due to the FSMA targeting companies with operations in Singapore but which do not offer services to entities resident in Singapore.
• 'Single-currency stablecoins': These are covered if they are pegged to the Singapore dollar or the national currencies of a G10 country, under legislation yet to be finalised.

Depending on which definition applies, different regulations will apply. For instance:

• classification as a 'capital markets product' would attract prospectus requirements under the SFA for issuance; and
• classification as a 'digital payment token' under the PSA would mean that services involving the tokens could be regulated.

3.2 What anti-money laundering provisions apply to cryptocurrencies?

The following will apply:

• the general anti-money laundering (AML)/counter-terrorist financing obligations under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act;
• the Terrorism (Suppression of Financing) Act, Chapter 325 of Singapore; and
• notices by the various agencies in Singapore (eg, Singapore Customs, the MAS and Ministry of Law).

Further, if licensing obligations apply under the SFA, the PSA and/or the FSMA, the specific AML frameworks issued by MAS for licensees will apply.

3.3 What consumer protection provisions apply to cryptocurrencies?

The MAS generally discourages speculation in cryptocurrencies and has stated multiple times that it does not believe that cryptocurrencies have any intrinsic value. Further, it has prohibited the advertising of digital payment token services (including cryptocurrency exchanges) to the public in Singapore.

The MAS has also announced new investor protection measures which will require licensed digital payment token services providers (including cryptocurrency exchanges) to safeguard user assets, which are slated to come into force.

The MAS is also expected to introduce consumer safeguard measures which would prevent:

• retail customers from using local credit cards to buy cryptocurrencies; and
• the offer of incentives such as free tokens to court retail users.

3.4 How are cryptocurrencies treated from a tax perspective?

Initial coin offerings (ICOs): The taxability of ICO proceeds in the hands of the token issuer will depend on the rights and functions attached to the tokens issued to investors.

Generally speaking, the Inland Revenue Authority of Singapore (IRAS) has stated that the issuance of utility tokens will be regarded as deferred revenue and hence will be subject to income tax.

However, proceeds from the issuance of security tokens are akin to proceeds from the issuance of securities or other investment assets/instruments and are thus capital in nature and not subject to income tax. There is also no capital gains tax in Singapore. However, if a token is a security token, it will be regulated as a capital market product under the SFA.

Use of payment tokens for payment for goods and services: For income tax purpose, IRAS views transactions involving the use of payment tokens as payment for goods or services as barter trade. Consequently, where a business receives payment tokens for the goods or services it has provided, the business will be taxed on the value of the underlying goods provided/services performed. Conversely, where a business uses payment tokens to pay for goods and services, a deduction for the goods purchased or services received is allowable, subject to general deduction rules. The value of the deduction will be based on the value of the underlying goods purchased/services received.

For additional scenarios, please refer to the IRAS e-Tax Guide Income Tax Treatment of Digital Tokens ( www.iras.gov.sg/media/docs/default-source/e-tax/etaxguide_cit_income-tax-treatment-of-digital-tokens_091020.pdf).

3.5 What regulatory requirements apply to a cryptocurrency trader/exchange?

There are no regulatory requirements for persons trading in their personal capacity, but they must not offer to trade on behalf of others.

An exchange for securities tokens or tokenised assets will be regulated under the SFA as either an approved exchange or a recognised market operator with a capital markets services licence.

An exchange for digital payment tokens will be regulated:

• under the PSA as a digital payment services provider (for providing a digital payment token exchange); or
• under the FSMA as a digital token services provider (for providing a digital token exchange).

3.6 How are initial coin offerings and securities token offerings defined and regulated in your jurisdiction?

A security token offering will be regulated under the SFA and prospectus requirements will apply unless an exemption is available. The relevant definition will be whether the token is a 'capital markets product' (see question 3.1).

For an initial coin offering not to be considered (and regulated) as a security token offering, the tokens will need to be in another category, such as a utility token or in some cases a governance token. There is no definition of a 'utility token' or a 'governance token' under Singapore law; the key is that they lack rights similar to those of a 'capital markets product'. However, the MAS has a broad understanding that a utility token gives rights to goods and/or services, which could include computation time on a blockchain.

4 Smart contracts

4.1 Can a smart contract satisfy the legal requirements of a legal contract under the laws of your jurisdiction? What will be considered when making this determination?

There are four factors to consider:

• whether the publication of the smart contract on the blockchain constitutes an offer;
• whether transacting with the smart contract constitutes acceptance of the offer;
• whether there is consideration (ie, 'something of value' that is given in exchange for the counterparty's promise or performance); and
• whether there is an intention to create legal relations (in practice, the courts have found a lack of such intention only in familial or social contexts, such as where a joke is made or a promise is made between loved ones).

We believe that generally in the smart contract context, where the participants are aware of the effects of the smart contract, the four elements could be made out by the following:

• The posting of the terms of the offer to participants on the blockchain may be characterised as a unilateral offer to the world at large which may be accepted by other participants;
• Transacting with the smart contract, such as sending cryptocurrency to its specified address, constitutes acceptance via conduct;
• Consideration will normally be provided as the participant will expect the smart contract to perform its promised effects; and
• There will normally be an intention to create legal relations, given that parties on a blockchain usually lack any familial or social relationship with each other and are dealing on a commercial or business basis.

4.2 Are there any regulatory or governmental guidelines or policies within your jurisdiction which provide guidance on regulating/defining smart contracts?

There are none currently, but the Singapore Academy of Law's Law Reform Committee is working on a report on this topic.

With respect to the issue of whether a cryptographic hash may be considered as an electronic signature (which is evidence of acceptance via consent), the Infocomm Media Development Authority (IMDA) stated in a consultation paper on the Review of the Electronic Transactions Act (ETA) that:

• the ETA does not prevent the use and formation of smart contracts; and
• a contract formed is unlikely to be denied validity or enforceability by sole virtue of its automatic formation.

Further, the IMDA has stated that 'it may be possible for the cryptographic hash to be considered as an electronic signature', depending on the specific technical implementation, in which case it may thus be used to demonstrate the intention of a party to accept the contract. However, the IMDA also noted the issue that the hash would not be capable of identifying an anonymous participant. It is thus likely that if acceptance of a contract is recognised in the future, it will be acceptance by conduct (ie, by actually transacting through the smart contract).

4.3 What parts of traditional contract might smart contracts be able to replace?

Where a contract is purely deterministic and the conditions of the contract can be verified on-chain (or via data oracles which parties deem to be correct), smart contracts can replace traditional contracts. The best use cases would be settlement contracts or trades in an exchange.

4.4 What parts of traditional contracts might smart contracts be unable to replace?

Most real-world contracts (other than settlements and trades in an exchange) are conditioned on facts or standards that cannot be determined on-chain (or which parties would be unwilling to defer to a data oracle) and hence are unlikely to be replaced. For example, a contract that specifies goods of a 'reasonable quality' or services in accordance with 'industry standards' could not be replaced by a smart contract.

4.5 What issues might present themselves in your jurisdiction with regard to judicial enforcement of smart contracts?

As smart contracts are automatically settled, they are likely to be litigated on only where a party disputes the automated outcome.

Depending on the context, the party may dispute the outcome based on the following potential grounds:

• There is a mistake that invalidates the contract (eg, a software bug means that the automated result was unintended);
• There is fraudulent misrepresentation (eg, the developer fraudulently misrepresented the effects of the smart contract); or
• The contract was made under duress (eg, in a ransomware attack, someone was forced to transfer cryptocurrency to a smart contract).

4.6 What are some practical considerations that parties should consider when drafting a smart contract?

To minimise disputes – particularly on each party's understanding of the effects of the smart contract – parties should consider writing a traditional contract (which takes precedence over the effects of the smart contract) to clearly document:

• the intentions of the parties; and
• the intended effects of the smart contract.

This will be useful particularly if there are errors in the source code that lead to unintended effects and/or exploits.

4.7 How will the foregoing considerations differ when smart contracts are running on a private versus public blockchain?

For private blockchains, there is a clear need for a traditional contract as there are additional matters to be negotiated, such as:

• various governance rights; and
• the allocation of validator nodes.

5 Data and privacy

5.1 What specific challenges or concerns does blockchain present from a data protection/privacy perspective?

Due to the visibility of each transaction on the blockchain, care must be taken to ensure that any information committed to the blockchain is truly anonymised. It is well documented that supposedly 'anonymised' datasets (eg, the identities of movie reviewers) can be reverse-engineered by cross-referencing with other data sets.

5.2 What potential advantages can blockchain offer in the data protection/privacy context?

Currently, email addresses are the main method by which a person obtains an online identity. Under most laws, an email address itself constitutes personal data.

If a blockchain address (eg, a Ethereum address) becomes the main method of obtaining an online identity, that will provide anonymity.

6 Cybersecurity

6.1 What specific challenges or concerns does blockchain present from a cybersecurity perspective?

The key risks are:

• vulnerable smart contracts with cryptocurrencies that can be extracted via exploits;
• a lack understanding among users on what permissions (including the power of transfer) are being granted to smart contracts; and
• the immutability of the blockchain itself, which allows for transfers of illicitly obtained funds through scams or exploits.

6.2 What potential advantages can blockchain offer in the cybersecurity context?

The main advantage that we see is the anonymity that the blockchain affords, which provides security through obscurity, especially where privacy coins are used.

6.3 What tools and measures could be implemented to mitigate cybersecurity risk?

For developers, we would recommend audits to ensure that smart contracts function as intended.

For consumers, we would recommend staying updated on developments on phishing and how mistakes in granting permissions may occur.

7 Intellectual property

7.1 What specific challenges or concerns does blockchain present from an IP perspective?

In the case of non-fungible tokens (NFTs), there is a mismatch between the common expectation of "I own this NFT" and the actual IP rights granted. This may be resolved in the future where a progressive issuer of NFTs introduces more IP rights over the underlying artwork or asset to the holders of the NFTs.

For developers, the source code of projects must be published as nodes of a blockchain need to tun the smart contract or of the protocol. The visible nature of the development means that they must select an appropriate licence.

Although most blockchain projects were historically open source, some projects are now prohibiting commercial use – in part to avoid vampire attacks and in part to develop a proprietary moat. As projects will have to refer to each other in order to ensure compatibility and adhere to a developing industry standard, there is potential for IP infringement.

7.2 What type of IP protection can blockchain developers obtain?

The main form of IP protection is copyright over the source code. An appropriate licence should be chosen.

Blockchain developers can also consider patenting, but this might hinder adoption as it would be unusual by community standards.

7.3 What are the best open-source platforms that could be used to protect developers' innovations?

N.A.

7.4 What potential advantages can blockchain offer in the IP context?

There is no global registry or global market for copyrighted works. Blockchain may potentially offer a standard for the registration and trading of intellectual property. The open and immutable properties of blockchain may be employed to:

• prove registration, provenance and creatorship; and
• track ownership.

8 Trends and predictions

8.1 How do you think the regulatory landscape in your jurisdiction will evolve in the blockchain space over the next two years? Are any pending changes currently being considered?

We envisage that user protection will be the predominant theme over the next two years.

Broadly speaking, the Monetary Authority of Singapore has announced the following upcoming changes:

• user asset protection for licensed digital payment services requirements;
• increased consumer protection measures to discourage speculation in cryptocurrencies; and
• a framework for regulating privately issued stablecoins.

8.2 What regulatory changes would you like your jurisdiction to implement to further advance the blockchain industry?

We would like to see a simplified listing and prospectus regime for digital assets, rather than subjecting them to the same framework for securities.

8.3 What is the largest impediment within your jurisdiction to the adoption of blockchain technology?

Currently, the main impediment is the stringent application process for digital payment token services licences under the Payment Services Act. The process may take up to a few years.

9 Tips and traps

9.1 What are your top tips for effective use of blockchain technologies in your jurisdiction and what potential sticking points would you highlight?

We would recommend looking at the use cases in which the Monetary Authority of Singapore is interested and hence more likely to approve licences for – in particular, the tokenisation of real-world assets. Navigating a changing landscape is difficult and seasoned experts with practical experience in the space will be helpful.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.