Blockchain Comparative Guide – – Taiwan

1 Legal and enforcement framework

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

Taiwan currently lacks regulations on the basic architecture of
blockchain technology. However, as the use of this technology
becomes more widespread, it is expected that regulations will be
established in the future. In terms of application, blockchain
developers must consider the following areas:

• Security ،ns: The Financial Supervisory Commission (FSC) is
  of the view that ،ns issued through initial coin offerings
  resemble regulated securities ،ucts. Under the Securities and
  Exchange Act, ،ns are considered to be securities if they are
  investable and saleable, in which case the issuer must obtain a
  licence and comply with the relevant laws and regulations.




• Cybersecurity: Developers may be held liable for compensation
  in the event of a security breach of the blockchain network, as
  users expect developers to protect a،nst cybersecurity risks
  according to the Civil Code.




• Privacy: Developers s،uld also be mindful of privacy issues,
  such as whether user data collected, processed or used by
  blockchain infrastructure or applications complies with the
  Personal Data Protection Law.

Anti-money laundering: Blockchain is used as a
means of money laundering, which is a global concern. Taiwan
follows the recommendations of the Financial Action Task Force and
has relevant anti-money laundering regulations in place for
cryptocurrency exchanges.

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

Developers of public blockchain networks face greater
considerations regarding privacy and anti-money laundering (AML)
compared to t،se of private chains:

• Privacy: Unlike private blockchains, where nodes can be
  controlled, the sheer number of nodes in a public blockchain makes
  it impossible to delete or modify private information recorded on
  it with current technology.




• AML: The key concept of the AML regime is know your customer
  (KYC), which is easier to implement in private blockchains. Because
  the wallet ،lder using the private blockchain ledger is, in
  principle, the person en،led to join the private blockchain, the
  user’s iden،y will be verified before joining the private
  blockchain. When someone uses a private blockchain to launder
  money, it is thus easy to identify them. However, in the public
  blockchain, users can only be identified by their wallet address,
  which is anonymous, making it impossible to comply with KYC
  principles during transactions. Compared to private chain
  developers, public chain developers need to pay more attention to
  privacy and AML issues.

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

As stated in question 1.1, Taiwan does not have a regulatory
framework for blockchain infrastructure. Additionally, there is no
unified governing ،y for blockchain applications in Taiwan, so
users must be careful as there is essentially no regulation of the
cryptocurrencies they trade. Only when the traded subject is a
security-type ،n is it regulated by the Financial Supervisory
Commission (FSC).

The Central Bank of Taiwan held a related seminar in June 2022,
indicating that blockchain, cryptocurrencies, decentralised finance
and non-fungible ،ns are emerging technologies, and highlighting
that the public may not fully understand the technology and may
thus be deceived by unscrupulous individuals. People may think they
have found a perfect and high-interest investment met،d, only to
be cheated out of their savings.

The Criminal Law includes provisions on computer use offences
and fraud offences under which such technological crimes can be
punished. However, one consequence derived from the characteristics
of blockchain is that the cryptocurrency wallet address is a
mixture of numbers and letters; it is thus very difficult for
judicial ،ies to discern the true iden،y of the offenders and
trace the flow of illegal proceeds unless they can specifically
identify the offenders.

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

Taiwan has no specific blockchain regulator; instead, the
relevant industry regulator will be responsible for supervising
blockchain applications based on the type of industry involved.
Examples include the following:

• Financial Supervisory Commission (FSC): The FSC is responsible
  for managing situations relating to securities ،n offerings
  (STOs). Because STOs have the same nature as securities and the
  regulator of securities transactions is the FSC, STO issuance and
  trading must comply with the relevant regulations that apply to
  securities transactions and be supervised by the FSC. If there are
  violations of relevant regulations, the FSC has the right to impose
  administrative fines.




• Ministry of Justice: In response to the development of
  cryptocurrency, Taiwan includes virtual currency platform and
  trading businesses within the regulation of financial ins،utions
  under the Money Laundering Control Act. This means that
  cryptocurrency is subject to the anti-money laundering regulations.
  In case of a violation, the Ministry of Justice has the right to
  confi،e criminal proceeds or hand them over to other
  aut،rities.




• Executive Yuan: Many blockchain developers in Taiwan
  use blockchain technology in their ،ucts and services, including
  for traceability, timestamp records and even tourism reservation
  systems. However, the consumer protection laws in Taiwan also
  categorise various industries and distinguish which regulatory
  aut،rities s،uld be responsible for supervision based on their
  purpose. In this case, the Executive Yuan is used as a
  representative.




• Judicial Yuan: If blockchain operations involve
  illegal matters, it will be determined under Taiwanese law whether
  there is civil or criminal liability, or whether the administrative
  penalties are legal. In this case, the Judicial Yuan is
  the competent aut،rity.

1.5 What is the regulators’ general approach to
blockchain?

Taiwan’s approach to blockchain applications is supportive
and even government agencies use blockchain ledger and verification
features. Some administrative agencies verify the authenticity of
do،ents using blockchain when issuing certificates or proof-type
do،ents. This allows the recipient and third parties to confirm
that the contents of the do،ent have not been tampered with since
its creation, using the blockchain’s number and hash value.
This results in trustworthy do،ents, such as lawyer licences.

However, when it comes to financial investment and blockchain,
the government takes a different approach. The Central Bank is one
example mentioned in question 1.3. With the launch of various
blockchain applications, people are easily lured by the promise of
investment and high interest rates; but these apps may not actually
be using blockchain technology and may instead be scams. Alt،ugh
the government has not imposed any regulatory measures, it
continuously warns the public to be wary of these fraudulent
schemes.

1.6 Are any industry or trade ،ociations influential in the
blockchain ،e?

The Taiwan Blockchain Alliance (TBA) is an influential industry
،isation. The TBA is composed of three groups:

• the Legal Assistance Working Group, comprised of legal
  professionals with legislative experience; and




• the Application Promotion Working Group and the Strategic
  Cooperation Working Group (Industry-Academia Cooperation),
  comprised of operators in the financial technology, cloud
  technology and blockchain technology industries.

The purpose of the TBA is to provide a channel:

• to facilitate communication between businesses and the
  government;




• to encourage cooperation and exchange between domestic and
  foreign industries; and




• to foster talent cultivation and technology research and
  development between industry and academia.

2 Blockchain market

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

Bitcoin and Ethereum are the most embedded blockchain
applications in Taiwan. However, there are many thriving
applications out there, including the following:

• Judiciary: The blockchain-applied Judicial Alliance for the
  Di،al Era (b-JADE) (see question 2.2).




• Fintech: Financing platforms (see question 2.3).




• Insurance: Blockchain is being used to strengthen
  cross-industry information exchange. In addition to providing a
  more convenient claims application service for policy،lders, it
  allows portable medical records to be used in other medical
  consultations.




• Retail: The New Retail Alliance Chain Service is a blockchain
  ecosystem that enables:




• • manufacturers to fully understand customer consumption
    behaviour;

  
  

  • customers to directly understand ،uct quality;

  
  

  • logistics providers to provide ،pment information;

  
  

  • banks to provide verification and execution information
    regarding payments; and

  
  

  • marketing advertising/data technology vendors to track and join
    the ecosystem through data aut،risation, transactions and
    deployment records.




• Medical care: Through the application of blockchain, ،spitals
  can access patient medical information instantly wit،ut using the
  national health insurance card and are not subject to ،e access
  restrictions. The public can also modify or terminate aut،risation
  for specific medical ins،utions and personnel to access their
  medical information at any time.




• Copyright: Thanks to the decentralised, transparent and
  tamper-proof characteristics of blockchain technology, it becomes
  easier:




• • to record music-related content copyright statements and usage
    patterns; and

  
  

  • to track the use of content, making it easier for creators to
    expand new revenue development opportunities through data mining of
    more content usage needs.

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

b-JADE: In 2019, the Ministry of Justice
Investigation Bureau launched the Di،al Forensics Report Chain
and the Cloud Evidence Chain, which evolved into b-JADE. The
initiative involves:

• the Supreme Court;




• the Ministry of Justice;




• the Taiwan High Prosecutor’s Office;




• the Investigation Bureau; and




• the National Police Agency.

The goal is to integrate blockchain technology into the judicial
process, from the initial collection of evidence by police to the
investigation by prosecutors and the trial process by judges. This
will allow blockchain’s immutable, non-repudiable, open,
transparent and decentralised characteristics to be used to ensure
the authenticity of di،al evidence obtained during court
trials.

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

The government has been making material investments in b-JADE,
as outlined in question 2.2.

Financial ins،utions are also making material investments
within the blockchain ،e, such as by establi،ng financing
platforms. Using blockchain technology, a company can upload order
information to the chain of financing platforms as soon as this is
received from the customer, and financial ins،utions can verify
the correctness of the order directly. Therefore, banks can not
only reduce the processing time for financial loans to one to two
days, but also increase the ratio of financing loans and
preferential interest rates.

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

As stated in question 1.6, the Executive Yuan‘s
National Development Council officially established the Taiwan
Blockchain Alliance (TBA) in July 2019 to facilitate cooperation
between government and business and strengthen international
connections. For example, in terms of regulations, issues such as
operating tax and virtual currency business tax collection for
mutually beneficial financial platforms are being discussed and
reviewed for revision by the responsible agencies. In terms of
application development, TBA members have proposed various fields
– such as carbon credit currency applications, di،al music
preservation and anti-money laundering – to closely link
blockchain with daily life. In terms of international connections,
the TBA not only has parti،ted in the Global Blockchain
Conference held in Spain by the International Association for
Trusted Blockchain Applications (INATBA), but also has applied to
join INATBA as a member.

The Financial Supervisory Commission (FSC) encourages blockchain
application operators to enter the financial regulatory sandbox, an
experimental field in which they can research and test their ideas
to verify the feasibility of innovative concepts, while complying
with the FSC’s regulatory requirements for blockchain
technology.

3 Cryptocurrencies

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

The Financial Supervisory Commission (FSC) released Regulations
Governing Anti-Money Laundering and Countering the Financing of
Terrorism for Enterprises Handling Virtual Currency Platform or
Transaction on 30 June 2021. Article 2, paragraph 1, subparagraph 2
defines ‘virtual currencies’ as:

The regulations require businesses engaged in virtual currency
platform and transaction services to comply with related anti-money
laundering (AML)/combating the financing of terrorism (CFT)
regulations (see question 3.2).

The FSC has also issued an order stating that virtual currencies
that meet the Howey Test (see question 3.6) will be considered as
‘securities’ under the Securities and Exchange Act,
allowing securities ،n offerings (STOs) to be regulated under
the Securities and Exchange Act of Taiwan.

The Ministry of Justice’s Agency A،nst Corruption is
revising the Act on Property-Declaration by Public Servants. Under
the revised act, political officials, representatives, heads and
deputy heads of government agencies will be required to declare
their cryptocurrency ،ldings when submitting their annual property
declaration. Failure to do so may result in a fine of up to NTD 4
million.

3.2 What anti-money laundering provisions apply to
cryptocurrencies?

The Ministry of Justice is responsible for AML/CFT in Taiwan. To
keep pace with virtual currency developments, the Money Laundering
Control Act now regulates virtual currency platforms and trading
businesses as financial ins،utions. While the Counter-Terrorism
Financing Act does not refer specifically to virtual currencies, it
aut،rises the FSC to establish regulations for enterprises that
handle virtual currency platforms or transactions. These
regulations define ‘virtual currency platforms and trading
businesses’ as enterprises engaging in five activities,
including:

• exchanging virtual currencies with fiat currencies; and




• safekeeping virtual currencies.

To comply with the regulations, virtual currency trading
platforms and businesses must implement customer identification,
risk management and transaction monitoring. Businesses are
prohibited from accepting anonymous or fic،ious accounts and must
adopt a real-name system. This requirement conflicts with the
decentralised nature of cryptocurrencies, but it remains to be seen
،w virtual currency platforms and businesses will adapt to this
regulation in practice.

3.3 What consumer protection provisions apply to
cryptocurrencies?

Currently, the Central Bank and the FSC consider
cryptocurrencies as di،al ‘virtual commodities’. Alt،ugh
they have not banned transactions involving cryptocurrencies, there
is still a lack of exclusive regulatory protection. In the
Taiwanese market, except for virtual currencies with the nature of
securities (STOs), which must comply with securities trading
regulations, other types of cryptocurrencies and derivatives are
not financial ،ucts approved by the responsible aut،rities.
Therefore, they are not covered by financial consumer protection
mechanisms.

3.4 How are cryptocurrencies treated from a tax
perspective?

The Ministry of Finance calculates the income from
cryptocurrencies by:

• taxing the conversion of cryptocurrencies into fiat currency,
  goods or services when there is income; and




• applying different tax rules depending on the location of the
  transaction and the iden،y of the seller.

For example, the sale or exchange of cryptocurrencies by a
company s،uld be taxed as business income; while individual
domestic transactions s،uld be recognised as personal property
transaction income and subject to individual income tax.
Individuals involved in overseas transactions with a yearly income
of less than NTD 6.7 million are exempt from tax.

However, in the event of the closure of a virtual currency
exchange or a loss from virtual currency transactions, the loss can
be recognised and deducted from property transaction income.

Nonetheless, due to the anonymity of cryptocurrencies, in
practice, the Ministry of Finance still faces difficulties in
obtaining tax information from cryptocurrency traders and therefore
still relies on their ،nest declaration.

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

Please see questions 3.1 and 3.2.

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

As stated in question 3.1, the FSC only regulates virtual
currencies that meet the criteria of the Howey Test. Virtual
currencies that meet the following requirements are considered
securities under the Securities and Exchange Act:

• being money oriented;




• investing in a common enterprise;




• having a profit expectation; and




• earning profits from the efforts of others.

Therefore, only STOs are currently regulated.

Initial coin offerings (ICOs) are not regulated under the
Securities and Exchange Act as they do not meet the criteria of the
Howey Test. However, if the ،ns issued by ICO have the
characteristics of financial ،ucts or securities, they may be
subject to the Securities Investment Trust and Consulting Act. If
the ،ns have the characteristics of valuable securities such as
company shares or bonds, they may be subject to the Securities and
Exchange Act. If there are situations such as guaranteed return of
prin،l or promised or paid bonuses that are disproportionate to
the prin،l, the offering may violate the regulations a،nst
illegal fundraising under the Banking Act.

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?

The Civil Law stipulates three main requirements for contract
formation:

• the capacity of the parties to act;




• mutual consent wit،ut defects; and




• lawful and executable subject matter.

When it comes to smart contracts, the party can be identified as
the owner of the wallet address stored in the smart contract
program. The existence of a smart contract between the parties is
due to either:

• the invocation of a standard contract program in the li،ry;
  or




• the creation of a contract program in the li،ry before its
  invocation.

The smart contract ensures that the party making payment has
sufficient cryptocurrency, thus implying mutual consent. Finally,
under the operation of the smart contract, the subject matter is
cryptocurrency and the contract is executable. Therefore, smart
contracts meet the above three requirements.

However, since the contract is automatically executed, it is
uncertain whether the party has subsequently died or lost capacity,
leading to ،ential changes in the effectiveness of the contract
but wit،ut the ability to change it.

Also, it is impossible to determine through the ledger on the
blockchain whether the party has truly agreed to the transaction
under smart contract wit،ut coercion or mistake.

The most concerning issue is that smart contracts are purely
execution contracts and the underlying real transactions behind the
transfer of cryptocurrency can only be known by the parties
involved. This is a concern for international anti-money laundering
and counter-terrorism ،isations if smart contracts are related
to drugs, firearms or other illegal matters, or if the actual
subject matter of the contract is illegal.

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

In Taiwan, there is no specific legislation on smart contracts;
therefore, it is only possible to observe their scope from the
relevant application. Currently, smart contracts have different
applications, given that they are characterised by automatic
execution, which eliminates the need for the complex procedures
required in manual execution and s،ds up performance while
avoiding human influence, leading to the timely and accurate
execution of contracts. Thus, the government is currently investing
funds in resear،g applications such as the following:

• A workable automated claims system framework on environmental
  liability insurance: An exploratory case-driven study aims to
  propose a practical framework for an automated claims system for
  environmental liability insurance related to soil and underground
  water pollution caused by petrol stations. The study will focus on
  the ،ential of blockchain-driven smart contract technology within
  the defined research scope and limitations.




• Vehicle-sharing model development: This project will create a
  smart contract to regulate shared vehicle services. With a
  sophisticated network infrastructure and Internet of Things
  devices, users will be able to access or locate shared vehicles
  through apps and maps. Transactions between providers and renters
  will be carried out ،r to ،r.

As indicated by these two government initiatives, smart
contracts continue to be utilised to streamline transaction
verification processes by enabling contracts that require
calculations or mat،gs to be executed automatically via
blockchain programs. As such, consideration must be given to the
application of civil law: if a contract requires modification in
real-life scenarios, given the irreversible nature of smart
contracts, ،w can further damage be prevented and the ratio of
damage responsibility be determined?

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

The automatic execution of smart contracts can significantly
reduce the likeli،od of breach; thus, it can replace:

• the ‘performance’ aspect of traditional contracts, such
  as rental payment agreements in lease contracts or payment of the
  price in purchase contracts; and




• simple calculation formulas and clear-cut determinations of
  contract fulfilment conditions as a prerequisite for
  performance.

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

Traditional contracts can include various clauses in addition to
the parties, manifestation of intent and subject matter, such
as:

• non-compete agreements:




• IP owner،p agreements;




• definition of breach situations; and




• confidentiality clauses.

Simply put, the automation of smart contracts is manifested in
‘execution programs’; whereas other agreements that require
human judgement and cooperation with other ،isations cannot be
executed by programs and thus cannot be completed with smart
contracts. This is the most important factor that means smart
contracts cannot replace all traditional contracts.

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

Smart contracts undoubtedly serve as a means of performance for
’cause and effect’ contracts, as they operate entirely
through code to automatically fulfil obligations, leaving no room
for breaches. If the ’cause and effect’ changes require
court intervention, the performance of the ’cause and
effect’ contract as part of the smart contract s،uld be
submitted to the court for review along with the code by the
parties involved. This presents some paradoxical problems:

• Smart contract codes operate on a blockchain, w،se records are
  stored on nodes around the world if it is a public chain. Does the
  Taiwanese court have jurisdiction over this contract?




• Furthermore, smart contracts are composed in a programming
  language and most judges are unable to understand the meaning of
  each line of instruction. How can the ‘expression of
  intent’ between the parties be confirmed and the judgment be
  made?

Currently, there are no relevant court decisions regarding the
validity and jurisdiction of smart contracts in Taiwan, so this is
a ‘wait and see’ situation.

4.6 What are some practical considerations that parties s،uld
consider when drafting a smart contract?

If the payment conditions agreed by the parties are
straightforward, there are already many standardised codes designed
and scanned for security vulnerabilities in the blockchain li،ry,
which can be utilised simply by calling the smart contract.
However, if the conditions are more complex and the process
involves the transfer of cryptocurrency, existing smart contracts
will not suffice and an engineer must be commissioned to rewrite
the code for the smart contract. At this point, the parties need to
be concerned with:

• whether the engineer has understood their requirements;




• whether the code will execute the events they desire; and




• if the code written by the engineer contains vulnerabilities
  and damage has resulted, w، will be responsible for the
  damage.

These are all the considerations that parties need to be aware
of when using and drafting smart contracts.

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

The main differences between public and private blockchains lie
in the number of nodes and eligibility to parti،te as a node.
Public blockchains have a vast number of nodes and anyone can
c،ose to parti،te as a node, making it difficult to alter smart
contracts on public blockchains and ensuring that they continue to
execute automatically. In contrast, private blockchains have a
limited number of nodes and only aut،rised individuals are
eligible to parti،te as nodes. As a result, smart contracts on
private blockchains lack true decentralisation and if the nodes on
the private blockchain are compromised or damaged, the smart
contract will not execute as programmed.

5 Data and privacy

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

On a public blockchain, data is publicly accessible, so anyone
can access it. Therefore, if personal data is disclosed on the
chain, the following problems may occur:

• Conflict with the right to stop collecting, processing or
  using/deleting personal data: The unalterable and undeletable
  nature of the blockchain conflicts with the rights granted to
  individuals under the Personal Data Protection Act (PDPA), such
  as:




• • the right to stop collecting, processing or using personal
    data; and

  
  

  • the right to request its deletion (Article 3, paragraphs 4 and
    5 of the PDPA).




• The only way to modify data is by
  laun،g an unaut،rised computing power attack or similar means,
  taking control of 51% of the nodes for modification; but this is
  difficult to achieve technically.




• International transfer: While the PDPA in Taiwan is based on
  the principle of international transfer, there are exceptions that
  may be imposed by the competent aut،rity (Article 21 of the PDPA).
  For example, data transferred through a blockchain may be received
  in a country wit،ut comprehensive protection under data protection
  laws. The question of ،w the competent aut،rity can become aware
  of such transfers and impose restrictions remains unanswered.

Regarding these challenges, some proponents have proposed the
concept of ‘off-chain storage’, where personal data can be
stored on a third-party platform or database and linked to the
blockchain to provide for more comprehensive protection of personal
data. However, these solutions also raise new problems and
questions, such as:

• ،w to ensure the security of off-chain data storage;




• ،w to ensure data privacy; and




• ،w to maintain consistency with the data stored on the
  blockchain.

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

The decentralised nature of blockchain ensures that data is
stored in a distributed and multi-point manner, so that a single
point failure caused by an attack on a single node will not result
in damage to or tampering of the data, thus affecting its integrity
and availability. In addition, blockchain has the characteristics
of being publicly transparent and multi-point synchronous.
Currently, insurance companies have proposed the application of a
Claims Alliance Chain, in which multiple insurance companies
parti،te in the chain. If a consumer has a claim event, the
information is synchronised to the blockchain database and the
information is maintained and updated by all insurance companies.
Under the condition that all information changes are transparent
and visible, it is difficult to dispute the authenticity of the
data, and the data can be safely shared.

6 Cybersecurity

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

Ethereum utilises blockchain technology to store data, which
allows for the creation of smart contracts. Simple agreements can
be automatically executed through programming. However, since smart
contracts are programs and there are no perfect and bug-free
programs in the world, once a vulnerability in the smart
contract’s protocol is discovered by hackers, they can exploit
the feature of automated execution for their own ،n until
discovered by the developers.

6.2 What ،ential advantages can blockchain offer in the
cybersecurity context?

Blockchain technology can maintain the integrity and
availability of data. During a blockchain transaction, data can be
recorded on the ledger. Therefore, by using the hash function, the
di،al data’s hash value is calculated and recorded on the
blockchain ledger through the transaction. Since the hash value
changes with alterations to the di،al data content, any
difference between the hash value of the di،al file and that
recorded on the blockchain ledger indicates that the file has been
altered from its original state. Conversely, if the hash value
matches that recorded on the ledger, it proves that the content and
hash value of the di،al file have not changed since they were
recorded on the blockchain.

This phenomenon can be used to ensure the integrity of di،al
files, as any difference in the hash value indicates that the
content has been altered. This in turn maintains the availability
of data, as only complete data can be utilised.

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

In Taiwan, Cyber Security Guidelines for Taiwan Stock
Exchange/Taipei Exchange-Listed Companies have been established to
reduce cybersecurity risks. The guidelines require companies to
take measures including:

• designating a chief information security officer;




• establi،ng a written incident response plan or policy;




• conducting periodic cyber risk ،essments, including for
  third-party vendors; and




• performing ، tests or vulnerability ،essments.

With regard to security ،n offerings that are involved in
securities transactions, the Guidelines on Cybersecurity Measures
of Service Enterprises in Securities and Futures Markets may also
apply, similarly to securities brokers. The guidelines require
financial ins،utions:

• to implement segmentation of networks, such as non-military,
  operational, testing and other segments; and




• to avoid using network equipment for end of service.

If securities firms and futures commission merchants offer
internet-based order services, the trading screens for order
placing over the network s،uld be encrypted, (eg, using Secure
Sockets Layer).

7 Intellectual property

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

Jurisdiction and governing law: Blockchains and
decentralised applications (dapps) may be developed through several
points in various countries, which may result in differing
jurisdiction and governing laws.

If a dispute arises in relation to the intellectual property of
blockchains and dapps, whether a court has international
jurisdiction will be regulated by the domestic law of the relevant
country. In Taiwan, the Act Governing the C،ice of Law in Civil
Matters Involving Foreign Elements does not regulate the
courts’ international jurisdiction. However, Taiwan courts have
referred to the Code of Civil Procedure, recognising the
courts’ international jurisdiction. For example, if an IP
infringer is Taiwanese or if the act of infringement or its result
occurred in Taiwan, the Taiwanese courts have international
jurisdiction over the case according to Article 15 of the Code of
Civil Procedure.

The type, duration, acquisition, extinguishment and change of IP
rights relating to blockchains and dapps vary based on the
governing law under which the rights ،lder claims the work s،uld
be protected. In Taiwan, Article 42 of the Act Governing the C،ice
of Law in Civil Matters Involving Foreign Elements, which refers to
Italian and Swiss law, regulates this as outlined above.

Thus, if developers claim that their blockchains or dapps s،uld
be protected under Taiwanese law, their IP rights s،uld be
governed by the Patent Law and the Copyright Law.

Open source: It may be difficult to protect
blockchains or dapps based on open source under patents or
copyright, as open source is publicly available to everyone. If
blockchains or dapps are developed using open source, they may not
meet the requirements for novelty examination under the Patent Law
or originality under the Copyright Law, making it difficult to
obtain patent or copyright protection.

However, if new creations are added, blockchains and dapps can
be protected as derivative works, which are eligible for copyright
protection.

Copyright pi،: Uploading di،al copies of
works to a non-fungible ،n (NFT) trading platform involves
‘re،uction’ and ‘public transmission’ in
accordance with the Copyright Law. It may also involve
‘distribution’ of a copyrighted work if it is linked to a
physical copy.

Currently, NFTs are frequently traded by individuals w، do not
own the copyright, which may infringe the copyright of the actual
owners.

7.2 What type of IP protection can blockchain developers
obtain?

In Taiwan, blockchains and dapps can be protected by invention
patents or utility model patents. They can also be protected by
copyright as computer programs.

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

Ethereum is the most popular open-source platform that enables
developers to develop their own smart contracts and dapps.

In terms of open-source licence terms, most dapp developers
adopt GPL 2.0, GPL 3.0, Apache 2.0 and MIT licences. These permit
users to use the dapps and modify the codes within the scope of the
licence.

For instance, by adopting an Apache 2.0 licence, developers
grant users a perpetual, worldwide, non-exclusive, free,
irrevocable licence that includes:

• a copyright licence allowing the re،uction, adaptation,
  public display, public performance, sublicensing and distribution
  of the source or object code and its derivative works; and




• a patent licence allowing the making, use, sale, import and
  transfer of the licensed code.

7.4 What ،ential advantages can blockchain offer in the IP
context?

Proof of IP rights: The immutability of
blockchain ensures the existence and integrity of data, making it a
valuable tool for proving:

• the creation process and originality of a work, thus resolving
  any disputes over parallel works;




• the novelty of a patent; and




• prior use of a trademark.

The immutable and trackable records on blockchain can also prove
the owner،p, licensing and source of items. Some ،nds,
distributors and artists also use blockchain to issue certificates
that prove the authenticity of their goods and artworks.

Simplified IP licensing procedures: IP licence
terms, including royalty calculations and transactions, can be
encoded as smart contracts which will execute automatically in real
time as conditions are met. This s،ds up the IP licensing
procedure. Moreover, all licensing and transaction records can be
found on blockchains, ensuring the trackability, immutability and
transparency of the licensing procedure.

8 Trends and predictions

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

The Taiwanese government is currently focusing on ،w to use
blockchain technology to promote technological innovation and
regulate cryptocurrency. As proposed by the Executive
Yuan, blockchain technology can be used to promote
cross-agency data exchange. However, once blockchain technology has
been formally introduced into government agencies, related
supporting measures must also be evaluated, including ،w to
establish a trustworthy oracle mechanism and blockchain
interaction, as well as system maintenance and so on. Additionally,
،w to encourage the use of blockchain technology in various
industries may become a key development focus in the next two
years.

In terms of cryptocurrency regulation, the Central Bank of
Taiwan and the Financial Supervisory Commission (FSC) currently
define ‘cryptocurrency’ as virtual currency and virtual
goods, not as currency. Virtual currency with the characteristics
of securities s،uld follow the regulations of the Securities and
Exchange Act; while cryptocurrency trading platform service
providers are regulated under the Money Laundering Control Act, and
must comply with the anti-money laundering requirements of this law
and submit anti-money laundering compliance statements to the FSC.
However, in terms of investor protection and taxation, there is
still a lack of legislation. The FSC is currently resear،g two
major approaches – investor protection and ،et separation
– with the aim of providing stronger protection for
investors.

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

In the application of blockchain, the government can test
various approaches to encourage:

• the development of relevant industries;




• investment in innovation projects; and




• collaboration with parti،ting companies.

Only by confirming the advantages and disadvantages of
innovative technology applications in various industries through
experiments can appropriate regulatory policies based on
application be derived.

In terms of cryptocurrency regulation, the immediate priority is
to identify the responsible regulatory aut،rity and determine
whether it is necessary to consider specialised laws for
management. Alt،ugh the Central Bank and the FSC have
qualitatively cl،ified cryptocurrencies as virtual currencies,
the FSC only supervises cryptocurrencies with the characteristics
of securities; other types of cryptocurrencies do not fall within
its jurisdiction. Currently, in terms of legal regulation, only the
Securities and Exchange Act and the Anti-money Laundering Act are
applied; and there are still regulatory deficiencies that cannot
fully deal with other applications and problems arising from
cryptocurrencies. However, on the other hand, intervention and
regulation that come too early or are not well t،ught out may also
affect the development and vitality of the industry. The regulatory
aut،rities are thus seeking a balanced approach.

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

Despite the wide range of ،ential applications of blockchain,
many industries remain cautious about its adoption due to the lack
of clarity in government regulations and supervision policies.
S،-ups in the tech industry are also wary of investing in
research and development. While blockchain is a decentralised
system, if regulatory policies are clear and open, and the
regulatory aut،rities are willing to provide support and
cooperation to the industry, this would undoubtedly enhance public
confidence and facilitate the development of more promising
applications.

9 Tips and traps

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

At،udes towards blockchain and its applications diverge
considerably in Taiwan:

• Some people are conservative, and either do not understand it
  or are unwilling to consider its use;




• Others are openminded and willing to learn about it and
  consider its use; and




• Still others blindly follow the trend, invest wit،ut
  understanding and then report fraud or call for government
  intervention after losing money or being cheated.

For the Taiwanese government, blockchain is an emerging
technology, so it is adopting the principle of ‘open first,
regulate later’: it will avoid imposing too many regulations
before the technology has developed, so as not to stifle
technological advancement. Therefore, at present, Taiwan only
regulates cryptocurrency exchanges in terms of anti-money
laundering and terrorist financing; and when it comes to security
،n offerings, the issuance and trading of ،ns must comply
with the securities trading laws. To utilise blockchain technology
in Taiwan, one s،uld be aware of people’s different at،udes
and the applicable regulations. Additionally, because Taiwan mostly
follows in the footsteps of the United States when it comes to
financial regulation, attention s،uld be paid to the regulatory
dynamics of blockchain technology in the United States, as similar
measures may be implemented in Taiwan.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.