Italy Legally Defines Blockchain and Smart Contracts: What to Expect?
Legal Nodes Team
Following the adoption of blockchain regulation in the People`s Republic of China, another country, this time – Italy, joins currently still a small number of countries to regulate the distributed ledger technology.
Among others, the approved amendments define “DLT” and “smart contracts”:
Distributed register-based technologies are defined as information technologies and protocols that use a shared, distributed, replicable, concurrently accessible, architecturally decentralized registry on a cryptographic basis, allowing registration, validation, updating and data storage, protected by cryptography, verifiable by each participant, not alterable and not modifiable.
Smart contract is defined as a computer program that operates using distributed register-based technologies and execution of which automatically legally binds two or more parts based on predefined acts.
To get an in-depth opinion of a local attorney, Legal Nodes has spoken with Luca Cifelli, Attorney at Studio Legale Cifelli, Verona, Italy.
Under what legislation have blockchain businesses fallen previously? What legal challenges do blockchain-centric companies face in Italy?
Basically, there was no regulation before. During the past years, some regulations exclusively related to cryptoexchanges and ICOs have appeared; the Italian Tax Agency has also given some indications on how to behave when a person is holding a cryptowallet and how the gains should be taxed.
Nevertheless, these indications left a lot of free space to interpretations, that, in its turn, lead to the confusion among professionals and ordinary citizens.
This could also explain major difficulties that companies that work with blockchain had to face: the absence of regulation always left them hanging “on the edge”, whether what they were doing was legal or not. This, of course (together with the perception of “black market/crime-related/dirty money” that common people associated with the most famous blockchain, a.k.a the Bitcoin), discouraged (most of) investors, especially the small ones: uncertainty in the market is always perceived as a minus.
Do you think that the legal definition of the DLT and smart contracts will help the popularization of blockchain in Italy?
Yes, I think so. As I have said before, bringing out the blockchain technology from a “not-so-clear nerdy thing” into the sunlight can only bring positive results. The formal recognition of blockchain in Italy (as well as by other countries) as a useful and helpful technology, will surely have a beneficial effect on our (everyday) lives during the course of the next years.
You know, Italians, like many others, have always been a bit suspicious when forced to change their habits, especially when it involves technology. However, once the dam is open and the advantages are clearly seen by everyone (among others, because they are clearly regulated), nothing can stop the tide. Even now, I find myself smiling when I see an 80- or 90-years old lady sitting in the street chatting on Facebook or WhatsApp from her smartphone. 25 years ago, this would have been pure sci-fi. Now, it is just our everyday life. And I believe it will be the same with blockchain-related technologies if our lawmakers are smart enough to understand and predict their positive developments.
What are the advantages of the electronic time validation?
The electronic time validation makes it possible to certify the existence of an electronic document from a certain moment and guarantee its validity over time. The validation has to be done by one of the officially recognized certification bodies in Italy.
The electronic time validation is widely used in many fields: from legal industry, when you need a document to be enforceable against third parties or to certify the exact moment it was created or deposited, to the financial sector, when a company has to apply for funding, and to the down payments for goods supply or export, and many more, as the Land Registry.
Basically, it can be used (and be useful) in all those cases where you would need the help of a notary or of a public certification entity to have a legally valid timestamp. The advantages are clear: one can certify an electronic document directly from his office computer in just a few seconds, saving time, money and, last but not least, lots of paper.
In addition, the likelihood of possible mistakes is drastically reduced. Moreover, the digitally validated documents can be used in the whole EU, according to the EU Regulation 910/2014.
The Agenzia per l'Italia digitale is compelled to develop technical standards for blockchain businesses: what should we expect?
In my opinion, the first challenge the AgID will face is the creation of standards for the use of blockchain technology within the Public Administration offices and becoming the first source of trust.
Secondly, I believe it will have to define the criteria, which an external subject has to abide by in order to be considered trustworthy towards the Public Administration and the citizens. In my point of view, once that is done, it will be necessary to define specifically – descending from what stated in the Decree – which smart contracts can be used, in which fields, and how to make them part of the real life.
Italy was the first European Country to regulate the DLT and the smart contracts according to the EU Community legislation. Despite a certain “vagueness” of the Decree, this was undoubtedly a big step, as it expressly recognises the value of contracts or written documents to this kind of “software codes”. Now, defining the standards, they will have to concretely show how it can be possible to use all this technology and, above all, make it in a way that can be beneficial, easy and reliable for citizens.
In light of the Italian Ministry of Economic Development calling for a group of blockchain experts to address blockchain-related issues, what further developments in the blockchain regulation should we expect?
Based on the aforementioned, the intentions of the Italian Government are to drastically increase the use of blockchain and smart contracts during the course of the next years. From this perspective, it has been already proposed to use this technology (and, consequently, regulate it) in:
- - certification of private and public documents;
- - tax collection;
- - traceability of the funds;
- - traceability of the food production chain;
- - financial services;
- - digital ID and e-government services for citizens;
- - social security and labour law;
- - consumer’s contracts (utilities, sales, etc.)
- - copyright (music, books, art, etc.);
- - public notary services, etc.
I would also like to highlight that many private investors and companies that could gain an enormous advantage by an early adoption of this kind of technologies (e.g. banks, investments funds, insurance companies, etc.) have already made significant investments in the past years in order to be ready when the lawmakers officially approve and regulate the sector.
Therefore, it is easily predictable that once the AgID sets the standards, we shall witness a “boom” of this technology, starting from these early adopters.
Strangely, yet true, Italy is at the forefront of the EU as an early adopter of new technologies in public sectors. For example, the civil trials/lawsuits have already been entirely and mandatorily hosted on a telematic public platform for several years already. Lawyers can file their lawsuits, deposit documents, check the hearings, check court`s decisions and documents of the counterparts, digitally sign their judicial files simply from their office computers.
Italy is the only EU country that has a service of “Certified email”, mandatory for all companies, public entities, and professionals, which certifies the receipt of an email by the recipient and its validity in an irrefutable way. This service allows Public Administration, companies, lawyers and courts to simply send an official document in a digital way without the help of third parties as bailiffs, couriers, mail services, with enormous savings in term of time and costs.
This year, once again, first in the EU, Italy introduced the “Electronic Invoicing System” which allows all VAT holders to exchange their invoices (as .xml files) in a quick and reliable electronic system through public servers, having them certified by the Tax Agency in real time.
In light of the above, quick and wide adoption of the blockchain technologies on a large basis in Italy was quite easy to predict. Nevertheless, the main obstacle for the Government is to make the introduction of blockchain a great opportunity for all market players, which involves affordable costs for everyone to benefit from it, together with appreciable savings in terms of time and money - especially by citizens – and, last but not least, reliability.
Only all these factors converge, we can reasonably forecast the success of these technologies in the Boot. The adoption of the abovementioned systems, apart from the initial troubles and moods at the very beginning, has been a clear success. Let's hope for the best in this case as well.
Legal Nodes is beyond grateful to Luca for agreeing to do an interview with us, to help us further advance in our mission to spread most relevant regulatory information among our readers, thus building a true Legal Internet.
With three countries (China, Italy and Luxembourg) adopting blockchain regulation since the start of 2019, this year has the potential to truly shed light on the industry and help blockchain businesses stay compliant globally.
In one of our previous articles, we have talked about the legal nature of the EOS Constitution.
Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice.
Luca Cifelli, Attorney at Studio Legale Cifelli from Italy
Interviewed by Nik Kliapets, Legal Counsel at Legal Nodes