Taiwan: Blockchain Comparative Guide

1 Legal and enforcement framework

1.1 What general regulatory regimes and issues should 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 tokens: The Financial Supervisory Commission (FSC) is of the view that tokens issued through initial coin offerings resemble regulated securities products. Under the Securities and Exchange Act, tokens 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 against cybersecurity risks according to the Civil Code.
• Privacy: Developers should 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 those 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 holder using the private blockchain ledger is, in principle, the person entitled to join the private blockchain, the user's identity 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 should 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 body 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 token 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 tokens 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 method, 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 bodies to discern the true identity of the offenders and trace the flow of illegal proceeds unless they can specifically identify the offenders.

1.4 Which administrative bodies 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 overseeing virtual asset platforms with financial investment or payment characteristics and securities token 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.
• On March 30, 2023, Taiwan's Executive Yuan appointed FSC as the regulatory authority for virtual asset platforms with financial investment or payment characteristics. The FSC will strengthen customer protection on these platforms through the following measures:
• 1. Establishing guiding principles: The FSC will formulate the "Guiding Principles for Managing Virtual Asset Service Providers (VASPs) and Trading Businesses" in accordance with the Anti-Money Laundering Act. These principles will promote self-discipline among industry participants and enhance information disclosure transparency. They will cover areas such as information disclosure by VASPs, product listing and review procedures, segregation of customer and platform assets, fairness and transparency in transactions, anti-money laundering measures, customer (consumer) rights protection, information security, operational systems, management of hot and cold wallets, and institutional audits. These guiding principles will provide a framework for VASPs to follow.
  2. Promoting self-regulation by VASP associations and organizations: After the establishment of the guiding principles mentioned above, VASP operators will be encouraged to promote industry self-discipline.
  3. Collaboration with other government departments: As virtual assets involve cross-departmental matters, close cooperation among relevant government departments is essential.
• Ministry of Justice: In response to the development of cryptocurrency, Taiwan includes virtual currency platform and trading businesses within the regulation of financial institutions 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 confiscate criminal proceeds or hand them over to other authorities.
• Executive Yuan: Many blockchain developers in Taiwan use blockchain technology in their products 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 authorities should be responsible for supervision based on their purpose. In this case, the Executive Yuan is used as a representative.

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 documents using blockchain when issuing certificates or proof-type documents. This allows the recipient and third parties to confirm that the contents of the document have not been tampered with since its creation, using the blockchain's number and hash value. This results in trustworthy documents, 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. Although 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 associations influential in the blockchain space?

The Taiwan Blockchain Alliance (TBA) is an influential industry organisation. 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 Digital 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 policyholders, 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 product quality;
  • logistics providers to provide shipment information;
  • banks to provide verification and execution information regarding payments; and
  • marketing advertising/data technology vendors to track and join the ecosystem through data authorisation, transactions and deployment records.
• Medical care: Through the application of blockchain, hospitals can access patient medical information instantly without using the national health insurance card and are not subject to space access restrictions. The public can also modify or terminate authorisation for specific medical institutions 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 potential new applications/protocols are most actively being explored?

b-JADE: In 2019, the Ministry of Justice Investigation Bureau launched the Digital 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 digital evidence obtained during court trials.

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

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

Financial institutions are also making material investments within the blockchain space, such as by establishing 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 institutions 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, digital music preservation and anti-money laundering – to closely link blockchain with daily life. In terms of international connections, the TBA not only has participated 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 token offerings (STOs) to be regulated under the Securities and Exchange Act of Taiwan. In addition, the FSC is also the regulatory authority for virtual asset platforms with financial investment or payment characteristics (see question 1.4).

The Ministry of Justice's Agency Against 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 holdings 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 institutions. While the Counter-Terrorism Financing Act does not refer specifically to virtual currencies, it authorises 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 fictitious accounts and must adopt a real-name system. This requirement conflicts with the decentralised nature of cryptocurrencies, but it remains to be seen how 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 digital 'virtual commodities'. Although 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 products approved by the responsible authorities. 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 identity of the seller.

For example, the sale or exchange of cryptocurrencies by a company should be taxed as business income; while individual domestic transactions should 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 honest 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 token 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 tokens issued by ICO have the characteristics of financial products or securities, they may be subject to the Securities Investment Trust and Consulting Act. If the tokens 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 principal or promised or paid bonuses that are disproportionate to the principal, the offering may violate the regulations against 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 without 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 library; or
• the creation of a contract program in the library 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 potential changes in the effectiveness of the contract but without 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 without 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 organisations 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 speeds up performance while avoiding human influence, leading to the timely and accurate execution of contracts. Thus, the government is currently investing funds in researching 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 potential 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 peer to peer.

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 matchings 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, how 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 likelihood 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 ownership 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 organisations 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 should 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, whose 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 should 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 library, 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, who 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 participate as a node. Public blockchains have a vast number of nodes and anyone can choose to participate 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 authorised individuals are eligible to participate 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 launching an unauthorised 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 authority (Article 21 of the PDPA). For example, data transferred through a blockchain may be received in a country without comprehensive protection under data protection laws. The question of how the competent authority 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:

• how to ensure the security of off-chain data storage;
• how to ensure data privacy; and
• how to maintain consistency with the data stored on the blockchain.

5.2 What potential 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 participate 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 gain until discovered by the developers.

6.2 What potential 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 digital data's hash value is calculated and recorded on the blockchain ledger through the transaction. Since the hash value changes with alterations to the digital data content, any difference between the hash value of the digital 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 digital file have not changed since they were recorded on the blockchain.

This phenomenon can be used to ensure the integrity of digital 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;
• establishing a written incident response plan or policy;
• conducting periodic cyber risk assessments, including for third-party vendors; and
• performing penetration tests or vulnerability assessments.

With regard to security token 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 institutions:

• 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 should 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 Choice 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 holder claims the work should be protected. In Taiwan, Article 42 of the Act Governing the Choice 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 should be protected under Taiwanese law, their IP rights should 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 piracy: Uploading digital copies of works to a non-fungible token (NFT) trading platform involves 'reproduction' 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 who 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 reproduction, 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 potential 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 ownership, licensing and source of items. Some brands, 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 speeds 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 space over the next two years? Are any pending changes currently being considered?

The Taiwanese government is currently focusing on how 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 how to establish a trustworthy oracle mechanism and blockchain interaction, as well as system maintenance and so on. Additionally, how 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 should 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 researching two major approaches – investor protection and asset 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 participating 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 authority and determine whether it is necessary to consider specialised laws for management. Although the Central Bank and the FSC have qualitatively classified 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 thought out may also affect the development and vitality of the industry. The regulatory authorities 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 potential applications of blockchain, many industries remain cautious about its adoption due to the lack of clarity in government regulations and supervision policies. Start-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 authorities 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 potential sticking points would you highlight?

Attitudes 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 without 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 token offerings, the issuance and trading of tokens must comply with the securities trading laws. To utilise blockchain technology in Taiwan, one should be aware of people's different attitudes and the applicable regulations. Additionally, because Taiwan mostly follows in the footsteps of the United States when it comes to financial regulation, attention should 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 should be sought about your specific circumstances.