The blockchain and its standardization

Blockchain technology promises a number of improvements - from computer to computer, from intermediary to user and vice versa. Individual regions, such as the proclaimed Crypto Valley 1) in Zug, have already attracted hundreds of start-up companies. Possibly because the Zug government equates values such as "collaboration", integrity, security and transparency with the Blockchain. Values that should also specifically serve companies in the digital future. Increasingly, however, ominous programmers are also using cryptocurrencies. The cryptographically secured chaining of individual blocks of information therefore holds not only promising cooperative opportunities, but also risky effects.

The first regulations for the digital chaining of individual blocks have been circulating for a while. The concept of the blockchain as a distributed database management system was first proposed in 2008 under the pseudonym Satoshi

Nakamoto described in the Bitcoin white paper. The following year, he implemented the first Bitcoin software and thus launched the first public blockchain.

In the meantime, there have been ups and downs in the blockchain scene, including in Crypto Val-ley on Lake Zug. It is therefore becoming increasingly important to control and ultimately regulate blockchain processes and transactions. However, organisations such as the Swiss standards committee INB/NK 208 ("Blockchain and Distributed Ledger Technologies") are also concerned in this country with the standardisation of blockchains that were previously distributed peripherally.

Swiss Standards Committee
The inaugural meeting of ISO/TC 307 Blockchain and Distributed Ledger Technologies (DLT), held recently in Sydney, Australia, brought together international experts from over 30 countries to set the course for future standardization in this area. In the process, five study groups have been formed to date for standard development in the following areas:

• SG1 "Reference architecture, taxonomy and on-tology"
• SG2 "Use cases
• SG3 "Security and privacy
• SG4 "Identity"
• SG5 "Smart contracts

Craig Dunn, chair of ISO/TC 307, the secretariat of Standards Australia, said blockchain could have immense impact in business and government: "Blockchain technologies allow reliability and security to be ensured in exchanges without the need for an external overseer. Equally, they are a useful building block for other initiatives such as in the areas of anti-corruption or fraud prevention."

Not only did the International Organization for Standardization (ISO) define important points regarding blockchain in 2016, but Switzerland is also working on standardization. Thomas Puschmann, for example, is dealing with important points regarding "Blockchain and Distributed Ledger Technologies" in a committee for "Blockchain".

Puschmann, a researcher at the Swiss Fin-Tech Innovation Lab at the University of Zurich, is chairman of the INB/NK 208 standards committee, which is responsible for future standardisation work. In order to be able to standardise the blockchain, however, it must first be understood: "Decentrally organised systems such as the blockchain do not in principle require any intermediaries to process transactions, as authentication and transaction processing take place via the blockchain," the expert explains to Management & Quality. By stringing all blocks together, it is possible to trace and verify every past transaction back to the first block, the so-called "genesis block".

One example of this is a securities issue. Just over a year ago, so-called ICOs attracted a lot of attention. In contrast to an IPO (Initial Public Offering), in which a company issues securities on a stock exchange, an ICO (Initial Coin Offering) is a purely digital transaction. The blockchain expert explains: "The process, which takes place without intermediaries, and the type of 'securities', which are typically distributed in the form of so-called digital 'tokens', are also different".

Implemented contracts
The blockchain enables so-called smart contracts. These are electronically mapped contracts "that can be compared to insurance or service contracts". Like paper-based contracts, they also contain economically and legally binding rules. "They are comparable to automatable building blocks". In principle, every smart contract can be implemented on a blockchain or DLT and thus "obey" the same basic principles as transaction-oriented cryptocurrencies.

Puschmann makes a comparison using an example: "If a vehicle owner has not paid his insurance on time, a driving ban could automatically be issued at the responsible road traffic office"; according to the standards expert, lacking or unfair blockchain transactions could thus be "blocked" by network blocks. Another advantage of smart contracts is the parallel digitalization of legal and economic rules.

Thomas Puschmann says: "This technology fills a gap that has existed up to now by including the area of values in addition to the standardization of information access (HTML, codes, etc.) and actual service access (SOAP, etc.). In addition, this technology enables the secure electronic transfer of values (money, securities, etc.) of any form for the first time.

Risks and open points
The consequences of blockchain technologies for Swiss sectors are and remain uncertain. The Swiss Financial Market Supervisory Authority FINMA has recently published initial guidelines for ICOs (Initial Coin Offering). Its classification approach is based on three different types of token, which are geared to the purpose of a "value" (keywords: use, payment, investment). Usage tokens, for example, grant access to a specific service, payment tokens are equated with cryptocurrencies (e.g. Bitcoin), and with an investment token an investor receives an asset.

FINMA is thus primarily addressing the issues of money laundering and trading in investments. For the time being, providers who produce virtual currencies or act as payment service providers are subject to the usual FINMA regulations.

A cryptocurrency also does not yet have an official consumption value. There is no right to the delivery of a good or the provision of a service when ordering a Bitcoin. Thus, there is also no repayment obligation or an actual right to a share of the profits should the Bitcoin price "shoot through the roof". From a tax perspective, a cryptocurrency is considered a type of digital money. The tax authorities therefore also record a blockchain value like a foreign currency - they communicate the year-end rate for crypto transactions (currently).

Demian Stauber, a member of the new Swiss standards committee "Blockchain INB/NK 208" and an attorney for intellectual property law, information technology law and contract law, points out:

"The blockchain issues that FINMA has put on the agenda mark just the beginning of a wider discussion. Some classification approaches are still needed to typify the new technology. So it's not just about the technical issues (e.g. reference architecture, protocols, security), but also, for example, legal issues along the lifecycle of a token such as creation (sale, brokerage, distribution, etc.)."

Such issues (see box opposite) lead to broader regulatory and legal questions that are only just becoming the subject of discussion.