March 2, 2024

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Decentralized Networks – Current Legal Problems in Blockchain

Decentralized Networks – Current Legal Problems in Blockchain

Decentralized networks, especially blockchain technology, have become increasingly important in recent years and are used in various industries. The technology offers many advantages including security, transparency and decentralization. However, there are also legal issues related to decentralized networks and blockchain technology that businesses and users need to consider.

  1. Data protection and data integrity

Data protection is one of the most important legal challenges related to decentralized networks. Blockchain technology can contain personal data stored by companies and users, which can lead to privacy issues. Businesses using blockchain technology must ensure that they comply with legal data protection requirements and protect personal data.

In addition, decentralized networks must also be protected from data attacks. Since blockchain technology has a decentralized nature, it can be difficult to restrict access to the network and prevent attacks. Businesses that use blockchain technology need to ensure that their networks are secure and protected from attacks.

  1. Organizing token sales

Another legal issue related to decentralized networks is the regulation of token sales. Companies can sell tokens to get investment in their projects. However, the sale of tokens may be subject to securities laws, which means that the company must comply with legal requirements in order to make the sale.

So companies looking to sell tokens need to ensure that they comply with legal requirements and have clear documentation for the token sale. Investors should also carefully consider whether a token sale is in compliance with legal requirements before investing.

  1. contracts on the blockchain

Another legal issue related to decentralized networks is the validity of contracts made on the blockchain. Because blockchain technology has a decentralized nature, contracts made on the blockchain can be more difficult to track and enforce than traditional contracts.

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Companies that want to enter into contracts on the blockchain must ensure that the contracts are valid and comply with legal requirements. Users must also ensure that they understand the terms of the contract before signing it on the blockchain.

  1. Taxes and accounting

Another legal issue related to decentralized networks is taxation and accounting. Blockchain technology allows transactions and assets

Record what may affect accounting and tax returns. Businesses need to ensure that they are properly documenting and accounting for blockchain transactions and assets.

In addition, businesses and users must also consider the tax implications of cryptocurrencies, which are often traded on decentralized networks. Cryptocurrencies are treated as assets for tax purposes in Germany, which means that gains from cryptocurrencies can be taxed.

In this ruling, the BFH determined that trading in Bitcoin and other cryptocurrencies should be considered a private sales transaction within the meaning of Section 23(1) Sentence 1 No. 2 of the Income Tax Act (EStG). This means that sales transactions of cryptocurrency are subject to income tax within one year of acquiring the cryptocurrency.

In addition, the BFH explained that cryptocurrencies such as Bitcoin should be taxed on the basis of acquisition costs, i.e. the costs of acquiring cryptocurrencies and the associated fees should be taken into account.

The BFH ruling made it clear that cryptocurrency trading profits are subject to income tax within one year and that taxes should be based on acquisition costs. This affects the tax treatment of bitcoin transactions in Germany and poses another legal challenge to the use of cryptocurrencies.

  1. Liability issues
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Another legal issue associated with decentralized networks is liability. Since blockchain technology is inherently decentralized, it can be difficult to determine who is responsible for any loss or damage. Businesses using blockchain technology need to ensure that they clearly define their liability and comply with legal requirements.

Users should also ensure that they are aware of who is responsible for any loss or damage before using decentralized networks. Companies and users should consider carefully who is responsible for any damage or loss and whether there are legal steps they can take to hold those responsible to account.

tactical approach

To avoid legal issues related to decentralized networks and blockchain technology, companies and users must adopt a tactical approach. Here are some tips for businesses and users to keep in mind:

  1. Compliance: Companies must ensure that they comply with legal requirements and that their transactions and assets in the blockchain are properly documented.

  2. Privacy and data security: Companies must ensure that personal data is protected and that their networks are protected from data attacks.

  3. Regulating token sales: Companies must ensure that they comply with legal requirements if they wish to sell tokens, and investors should carefully consider whether token sales comply with legal requirements before investing.

  4. Validity of Contracts: Businesses must ensure that contracts entered into on the blockchain are valid and comply with legal requirements.

  5. Taxes and Accounting: Businesses and users must ensure that they understand the tax implications of cryptocurrencies and that they properly document blockchain transactions and assets.

  6. Liability issues: Companies must clearly define their liability and ensure they comply with legal requirements. Users should consider carefully who is responsible for any damage or loss and whether there are legal steps they can take to bring those responsible to justice.

    Conclusion

    Decentralized networks and blockchain technology offer many advantages, but also bring legal challenges. Businesses and users should be aware of the legal issues associated with the use of decentralized networks and how to address these issues.

    Compliance, privacy, data security, regulation of token sales, contract validity, taxation, accounting, and liability issues are just some of the legal issues companies and users have to consider regarding decentralized networks. A tactical approach, tailored to a company or user’s specific requirements and needs, can help avoid legal issues.

    It is important for businesses and users to educate themselves about the legal challenges associated with the use of decentralized networks and blockchain technology and ensure that they comply with legal requirements. By taking a tactical approach and being aware of the legal issues that may arise, businesses and users can benefit from decentralized networks and blockchain technology without exposing themselves to legal risks.

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Attorney d. Stefan Schmelzer, IT Law Specialist, Employment Law Specialist, http://www.dr-Schmelzer.com, Ostberg 3, 59229 Ahlen, Tel.: 02382.6646.

All publications are composed with the best knowledge. However, no responsibility can be assumed for their content.