Data as crypto-assets | In Principle

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Data as crypto-assets

At first glance, it may not seem obvious to treat data as crypto-assets. But a closer look shows that the current and planned regulations for this new asset class could serve as a key legal framework for the future data economy.

The data economy and blockchain have a lot in common. Blockchain and data tokenisation are also a theme running through our data economy publications. Blockchain has revived the discussion of data tokenisation, i.e. turning data into an identifiable and tradable digital asset.

On the regulatory level, blockchain and data may also have a lot in common. One of the few regulatory areas currently providing for blockchain-specific legislation is anti-money laundering. Perhaps unintentionally, these are also some of the first regulations that can address the data economy.

In Poland, the Anti Money Laundering and Counter Terrorist Financing Act of 1 March 2018 contains a systemically important definition of “virtual currencies,” as a “digital representation of value” which is “exchangeable in commerce for legal means of payment and accepted as a means of exchange, and can be transferred, stored and traded electronically.” The definition also lists a number of instruments that have these features but do not constitute virtual currencies (e.g. legal means of payment issued by the National Bank of Poland, financial instruments, and bills of exchange). Data is not among the digital assets excluded from this definition. Consequently, data can also be considered “virtual currency” as long as it possesses the characteristics indicated in the definition.

The data economy makes us realise that data can have significant value. Thus, digitally stored data (e.g. stored as a token in a decentralised ledger) can constitute a “digital representation of value.” Undoubtedly, digital data can also be “transferred, stored and traded electronically.” The most doubtful condition is convertibility into legal means of payment and acceptance as a means of exchange. In an economic sense, data can be, and to a large extent already is, a means of exchange. The model for a great many digital services is precisely that the services are provided in exchange for data. This phenomenon has also been noted by EU lawmakers, for example in the Digital Content and Digital Services Directive ((EU) 2019/770). The directive states that it should also apply to services provided in exchange for data (recital 24). The phenomenon of data “exchangeability,” turning it into a new type of “currency,” will probably become more and more widespread with the growth of the data economy.

A similar approach is presented in the work on new European regulations on crypto-assets. Ultimately, these regulations are intended to create a comprehensive legal framework for the market in crypto-assets in the EU. A key definition of crypto-assets appears in the draft Regulation on Markets in Crypto-assets, as “a digital representation of value or rights which may be transferred and stored electronically using distributed ledger technology or similar technology.” In this case, a digital token representing data may also be considered a digital representation of value, and thus could constitute a crypto-asset.

Although they introduce a new category of assets into the legal system, these definitions do so primarily for the purposes of administrative and legal regulations. They do not resolve the status of data under the civil law, and do not create a new category of an absolute right to data. However, they may prove an important step towards a systemic definition of such a right.

That current and planned regulations on cryptocurrencies may also cover “tokenised” data has important practical consequences for entities involved in data management, in particular intermediating in the exchange of data (e.g. data trusts). These entities should already be analysing their activities through the lens of the AML regulation. First, they must determine whether they are institutions required to apply the AML rules. In the future, activities related to data may be subject to comprehensive regulations regarding crypto-assets. In practice, these regulations may end up establishing the legal framework for the future data economy.

Krzysztof Wojdyło, adwokat, New Technologies practice, Wardyński & Partners