With this article, we provide a booklet on important legal topics around blockchain technology for the jurisdiction of Germany. In particular, the booklet addresses legal issues in the context of industrial use cases of blockchain technology. In this vein, it is designed as a handbook for industrial and financial companies that intend to start — or have already started — blockchain-related projects seeking legal input. The booklet covers a wide array of legal questions around blockchain technology, such as: Can a smart contract replace a physical contract? Can an entry on a blockchain be used as evidence in court? How are proper audits ensured? Who is liable in case of a hack? Which important aspects does a company need to consider around blockchain-based identities, data privacy law, and license requirements? If you seek answers to these questions, we highly recommend reading this booklet. — Markus Kaulartz, Jonas Gross, Constantin Lichti, Philipp Sandner
As both blockchain technology and legal aspects are not always clear and complex, the KOSMoS Legal Booklet seeks to provide clarity around important legal questions in the context of the KOSMoS research project, funded by the German Federal Ministry of Education and Research (BMF). The booklet covers a wide array of legal topics and questions around blockchain technology, such as:
- Blockchain as Evidence in Court: This chapter addresses the question of how a blockchain transaction must be structured so that it can be used as evidence in court. Based on the following types of formal evidence — namely (1) expert opinion, (2) documents/deeds, (3) inspection or visual evidence, and (4) witnesses and party hearings — we analyze the evidence assessment of a blockchain transaction in detail. The chapter analyzes the laws and rules of the jurisdiction of Germany.
- Does a Smart Contract Replace a Physical Contract: In this chapter, we analyze whether a smart contract can replace a physical contract set up between various business parties from a legal perspective. We differentiate in our legal assessment between 1) the smart contract itself being the text of the contract, and 2) the smart contract only being used to execute a contract concluded elsewhere. Furthermore, we offer suggestions for practical implementation. The chapter focuses exclusively on German laws.
- License Requirements for Leasing, Factoring, and Sales Financing: In this chapter, we analyze under which circumstances companies providing specific financial services require regulatory approval from a legal perspective. We differentiate in our legal assessment between (i) finance leasing, (ii) factoring services, and (iii) sales financing. Furthermore, we offer suggestions for the practical implementation. The chapter assumes the application of German laws.
- Audits: In this chapter, we analyze whether information systems such as computers or IT infrastructure technologies such as blockchain technology are subject to a legal obligation for audits or some other form of functional verification prior to their use. In addition to general audit requirements, we examine in particular the direct obligation and the indirect obligation for the execution of audits. Also, we address further aspects such as privacy and data protection consequences, the role of certificates, warranty rights, and claims based on tort. The chapter assumes the application of German laws.
- Data Protection Law: In this chapter, we analyze how the topic of data protection, in particular the General Data Protection Regulation (GDPR), plays out specifically in the context of blockchain-based databases from a legal perspective. In our assessment, we distinguish between 1) personal data and 2) machine data. In addition, aspects such as the different legal frameworks and levels of data protection in different countries are addressed. Also, the question of handling company and trade secrets will be discussed. In each scenario, special attention is drawn to the issue of liability. The chapter assumes the application of German laws.
- Governance: This chapter addresses the question in which manner a consortium using a collaborative blockchain can be organized legally. In this chapter, we distinguish between the (1) “contract solution” and the (2) “legal person solution”. Not only national but also cross-border collaborations can essentially be organized in these ways. Furthermore, we illustrate the advantages and disadvantages of bilateral and multilateral contractual governance in detail. This will be done against the background of the laws of Germany.
- Liability: Which influences do new technologies have on the existing liability regime, which is already complicated without the use of distributed systems? This chapter sheds light on contractual and product liability in general before addressing the liability question of smart contracts. A legal claim of one contractual party against another might arise due to 1) contractual breach of duty or through 2) producer and 3) product liability. The chapter analyzes the laws of Germany.
- Identities: Considering that information is seen as the oil of the digital age, data protection is a powerful tool that does not spare blockchain-based data. This chapter outlines the lawful obligation for anonymization of different data that can be stored on a blockchain. These different data types comprise 1) personal data, which refers to data of natural persons and 2) machine data which refers to machines and objects. We analyze the requirements for such sensitive data to be conformably stored on a blockchain in detail. The chapter analyzes the laws and rules of the General Data Protection Regulation (GDPR).
Download the KOSMoS Legal Booklet
If you seek answers to the questions of these topics, we highly recommend reading the KOSMoS Legal Booklet. The report contains 38 pages and can be downloaded here with the direct link to the PDF file. Access the KOSMoS Legal Booklet here (deeplink to PDF document).
This publication is a joint publication by the Frankfurt School Blockchain Center (FSBC) and CMS Hasche Sigle, and is part of the KOSMoS project, a research project funded by the German Federal Ministry of Education and Research (BMBF) under the funding code 02P17D020. The Frankfurt School Blockchain Center gGmbH part of the “KOSMoS” consortium. Together with partners from the industry (Schwäbische Werkzeugmaschinen GmbH, Alfred H. Schütte GmbH & Co. KG, ASYS Automatisierungssysteme GmbH), academia (Universität Stuttgart, Hochschule Furtwangen), and software development (Datarella GmbH, inovex GmbH, Ondics GmbH), they created a blockchain-based solution allowing manufacturing companies to establish a DLT-based framework for producing machines in order to a) execute dynamic leasing contracts, b) provide transparent maintenance documentation, and c) ensure high-quality documentation of manufactured products.
More information about the KOSMoS projects can be found on the website. If you like this article, we would be happy if you forward it to your colleagues or share it on social networks. If you are an expert in the field and want to criticize or endorse the article or some of its parts, feel free to leave a private note here or contextually and we will respond or address.
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- Blockchain knowledge: We wrote a Medium article on how to acquire the necessary blockchain knowledge within a workload of 10 working days.
- Our two blockchain books: We have edited two books on how blockchain will change our society (Amazon link) in general and everything related to finance (Amazon link) in particular. Both books are available in print and for Kindle — currently in German and soon in English. The authors have been more than 20 well-known blockchain experts in startups, corporations and the government from Germany, Austria, Switzerland and Liechtenstein — all contributing their expertise to these two books.
Dr. Markus Kaulartz is a lawyer at CMS Hasche Sigle. The focus of his work is on contract negotiations, the structure of token-based business models, Decentralized Autonomous Organizations (DAOs), token sales, Decentralized Finance (DeFi), crypto exchanges (including DEXes), the metaverse, and legal audits of smart contracts. Besides, he focuses on challenges arising from the increasing digitalization (FinTech, Blockchain, IoT, Smart Contracts, AI, Tokens, SaaS, etc.). He has gained a lot of experience in advising on legal issues regarding future technologies and new business models. As a former software engineer and now lawyer, Markus has particular tech expertise and insights that contribute to his legal advisory practice. His input is often sought where issues emerge at the interface of technology and law. Markus is co-editor of the legal handbook on smart contracts and the legal handbook on artificial intelligence and machine learning.
Jonas Gross is a project manager and research assistant at the Frankfurt School Blockchain Center (FSBC) and also works for the KOSMoS research project. Further, Jonas is Chairman of the Digital Euro Association (DEA), co-host of the German podcast “Bitcoin, Fiat, & Rock’n’ Roll”, and member of the expert panel of the European Blockchain Observatory and Forum. His main research focuses are central bank digital currencies, stablecoins, and cryptocurrencies. You can contact him via email (email@example.com), LinkedIn (https://www.linkedin.com/in/jonasgross94/), and via Twitter (@Jonas__Gross).
Constantin Lichti is a research associate and project manager at the Frankfurt School Blockchain Center and also works for the KOSMoS research project. As a doctoral candidate (PhD) at the Johannes Gutenberg University Mainz, his research interests include Bitcoin and public blockchain adoption, as well as how the discourse on blockchain technology is reflected in (social) media. He graduated from the Technical University of Munich with a master’s degree in industrial engineering and management. You can contact him via email (firstname.lastname@example.org) and LinkedIn (https://www.linkedin.com/in/constantin-lichti-5644b9109/).
Prof. Dr. Philipp Sandner has founded the Frankfurt School Blockchain Center (FSBC). From 2018 to 2021, he was ranked among the “top 30” economists by the Frankfurter Allgemeine Zeitung (FAZ), a major newspaper in Germany. He has been a member of the FinTech Council and the Digital Finance Forum of the Federal Ministry of Finance in Germany. He is also on the Board of Directors of FiveT Fintech Fund and Blockchain Founders Group — companies active in the field of blockchain startups. The expertise of Prof. Sandner includes crypto assets such as Bitcoin and Ethereum, decentralized finance (DeFi), the digital euro, tokenization of assets, and digital identity. You can contact him via mail (email@example.com) via LinkedIn or follow him on Twitter (@philippsandner).