Quick Guide Crypto Assets - How They Classify Within The Framework of Financial Market Law Springer Gabler Hannah Appel 2023

Hannah Appel
Quick Guide
Crypto Assets
How they Classify within the
Framework of Financial Market Law
Quick Guide Crypto Assets
Hannah Appel
Quick Guide Crypto

Assets
How they Classify within the
Framework of Financial Market Law
Hannah Appel
Frankfurt University of Applied Sciences
Frankfurt am Main, Germany
ISBN 978-3-658-40461-1 ISBN 978-3-658-40462-8 (eBook)

https://doi.org/10.1007/978-3-658-40462-8
© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Fachmedien
Wiesbaden GmbH, part of Springer Nature 2023
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Preface
EUR 1.52 trillion – This value currently (as of 21.03.2021) equates to

approximately 8,900 crypto assets.1 A comparison with the global stock
market volume of EUR 79.98 trillion2 (as of 31.12.2019) shows that the
global crypto market has not yet reached the scale of the stock market by
far. However, interest in crypto assets is growing rapidly, as a look at the
previous year’s data shows: On 29.03.2020, the total market capitalisa-
tion of circa 2,500 crypto assets was only EUR 152.19 billion.3 The mar-
ket volume has thus increased tenfold within one year. Moreover, since
Tesla’s billion-dollar investment in the cryptocurrency Bitcoin at the
beginning of 2021, the market’s interest in crypto assets is to be taken
seriously at the latest.4
Due to the momentous financial crisis of 2008, financial markets are
regulated worldwide. The increasing emergence of crypto assets raises the
question of to what extent the existing regulatory legal framework covers
them. Comparable to the real estate bubble in the United States of
America, which was the cause of the financial crisis, the market for crypto
1
CoinMarketCap, 2021.
2
Statista, 2019.
3
Gschnaidtner, 2020, § 2 (17).
4
Lange/Heiny, 2021.
v
vi Preface
assets continues to inflate.5 If the market’s interest in crypto assets keeps

growing, the bursting of such bubbles could compromise financial stabil-
ity if there is no or incomplete regulation of crypto assets. Ensuring
financial stability is the primary objective of regulatory law. Another
objective is the protection of consumers, which can only be achieved
through legal certainty. The regulatory classification of crypto assets is
thus of utmost relevance.
However, due to the numerous forms of crypto assets and their com-
plex technological background, a regulatory classification within the
existing legal framework is partly challenging. In addition, in financial
market law, there is the interplay of regulations on the national level and
the level of the European Union (EU). As the member states of the EU
sometimes have leeway in implementing EU directives, this can lead to a
divergence in the regulatory classification of crypto assets at the national
and EU level. As a result, Germany and Liechtenstein have already
adopted national rules regulating crypto assets, whereas the European
Commission has only proposed a regulation on markets in crypto assets so
far.6 At the EU level, thus, the legal provisions currently do not cover all
crypto assets.
Hence, this book deals with the regulatory classification of crypto assets
in financial market law to gain insights into a possible need for further
regulation. In particular, we will explore whether the existing national
(German) legal framework is sufficient to adequately regulate crypto
assets. In addition to establishing a basic understanding of how crypto
assets work, the aim is to construct a comprehensive overall picture of
their regulatory treatment in Germany and to include possible implica-
tions of an EU initiative. Readers should find this book particularly useful
as a guide when making investment decisions or setting up companies in
connection with crypto assets. Additionally, this book can and should
stimulate the jurisprudential discourse on regulating crypto assets.
For this purpose, we will apply the relevant legal texts and administra-
tive regulations of the German supervisory law to crypto assets with refer-
ence to related literature.
5
6
Deuber/Jahromi, MMR 2020, 576 (576); Siadat, RdF 2021, 12 (12).
Preface vii
Chapter 1 of the book introduces the topic with basic knowledge

about crypto assets. First, relevant terms relating to crypto assets and the
various ways in which they can be structured are explained in more detail.
Subsequently, the market players most important to crypto assets from a
regulatory perspective are introduced. Since the need for regulation of
financial products is closely linked to their positive and negative poten-
tials, following an introduction to the technical basics, the main oppor-
tunities and risks of crypto assets are briefly outlined.
Chapter 2 of the book deals with the classification of crypto assets in
the various areas of the regulatory law of the financial market. Since
German regulatory law is extensively based on EU requirements due to
the Federal Republic of Germany’s membership in the EU, the basics of
European financial market supervision are first explained. Subsequently,
in the following two sections, we will classify the various forms of crypto
assets in capital market and banking supervision law and outline the
resulting legal consequences.
Chapter 3 addresses developments at the national and EU level with a
focus on the Liechtenstein Token and Trusted Technology Service
Provider Act (TVTG) and the EU Proposal for a Regulation on Markets
in Crypto-Assets (MiCAR).
A comparison of the various regulatory approaches and a critical
appraisal of them is provided in Chap. 4 before the book closes with a
conclusion in Chap. 5.
Frankfurt am Main, Germany Hannah Appel
References
CoinMarketCap (2021). Gesamtmarktkapitalisierung. https://coinmarketcap.
com/charts/. Accessed: 21.03.2021.
Deuber, D. & Jahromi, H. (2020). Liechtensteiner Blockchain-Gesetzgebung:
Vorbild für Deutschland? Lösungsansatz für eine zivilrechtliche Behandlung
von Token. MMR, 576–581.
Gschnaidtner, C. (2020). Die Ökonomik von Kryptotoken. In: Maume, P. et al.
(Hrsg). Rechtshandbuch Kryptowerte (1. Aufl.). München: C.H. Beck.
viii Preface
Lange, K. & Heiny, L. (2021). Warum Tesla-Chef Elon Musk 1,5 Milliarden
Dollar in Bitcoin investiert. Manager Magazin Online. https://www.manager-
magazin.de/finanzen/boerse/bitcoin-k ryptowaehrung-s teigt-a uf-
rekordhoch-nach-tesla-investment-a-48541d55-4ed7-4b62-9201-66ee63b
2d93f. Accessed: 21.03.2021.
Siadat, A. (2021). Markets in Crypto Assets Regulation – erster Einblick mit
Schwerpunktsetzung auf Finanzinstrumente. RdF, 12–19.
Statista. (2019). Wertentwicklung der weltweit an den Börsen gehandelten
Aktien von 1980 bis 2019. https://de.statista.com/statistik/daten/
studie/199488/umfrage/wert-des-weltweiten-aktienbestandes-seit-2000/.
Accessed: 21.03.2021.
Contents
1 Basic
Knowledge regarding Crypto Assets 1
1.1 Definition of Terms 2
1.2 Design of Crypto Tokens 3
1.2.1 Currency Tokens 4
1.2.2 Investment Tokens 5
1.2.3 Utility Tokens 6
1.2.4 Hybrid Forms 7
1.3 Technical Principles 7
1.3.1 Distributed Ledger Technology 8
1.3.2 Blockchain 9
1.4 Market Participants in Relation to Crypto Assets 13
1.4.1 Issuers 13
1.4.2 Service Providers 14
1.5 Opportunities and Risks 18
1.5.1 Opportunities 18
1.5.2 Risks 19
References22
2 Regulatory
Classification of Crypto Assets27
2.1 Fundamentals of European Financial Market Supervision 28
2.2 Classification under Capital Market Law 30
ix
x Contents
2.2.1 Financial Instrument within the Meaning

of the WpHG 30
2.2.2 Legal Consequences of Classification 34
2.3 Classification under Banking Supervisory Law 36
of the KWG 36
2.3.2 Legal Consequences of Classification 43
References56
3 Developments
at the National and EU Level59
3.1 The Liechtenstein Token and Trusted Technology
Service Provider Act 60
3.1.1 Legislative Background 61
3.1.2 Structure and Content 62
3.2 The EU Proposal for a Regulation on Markets in
Crypto-assets67
3.2.1 Legislative Background 68
3.2.2 Structure and Content 69
References76
4 Comparison
and Critical Appraisal of the Regulatory
Approaches79
4.1 Scope of Application 80
4.1.1 Utility Tokens 80
4.1.2 Investment Tokens 81
4.1.3 Tokenisation of Other Rights 82
4.2 Regulatory Methodology 84
4.3 Technology Neutrality 85
4.4 Chosen Regulatory Instruments 86
4.4.1 Standardised Information Document 86
4.4.2 Authorisation Procedure 87
4.4.3 Public Register 87
Contents xi
4.5 Neglected Aspects 88

4.5.1 Endogenous Manipulation of the Network 88
4.5.2 Anonymity of Network Participants 89
4.5.3 Sustainability 89
References91
5 Conclusion93
Abbreviations
AMLD V Directive (EU) 2018/843 of the European Parliament and of the

Council of 30 May 2018 amending Directive (EU) 2015/849 on
the prevention of the use of the financial system for the purpose
of money laundering or terrorist financing, and amending
Directives 2009/138/EC and 2013/36/EU
BaFin Federal Financial Supervisory Authority – Bundesanstalt für
Finanzdienstleistungsaufsicht
BGBl German Federal Law Gazette – Bundesgesetzblatt
BKR Zeitschrift für Bank- und Kapitalmarktrecht
BT-Drs Bundestag printed matter – Bundestagsdrucksache
BuA Report and proposal – Bericht und Antrag
CR Computer und Recht – Zeitschrift für die Praxis des Rechts der
Informationstechnologie
DBB German Central Bank – Deutsche Bundesbank
DLT Distributed Ledger Technology
DStR Deutsches Steuerrecht
EBA European Banking Authority
EEA European Economic Area
EIOPA European Insurance and Occupational Pensions
ErwG Recital – Erwägungsgrund
ESAs European Supervisory Authorities
ESMA European Securities and Markets Authority
EU European Union
xiii
xiv Abbreviations
EU Prospectus Regulation Regulation (EU) 2017/1129 of the European

Parliament and of the Council of 14 June 2017
on the prospectus to be published when securities
are offered to the public or admitted to trading
on a regulated market, and repealing Directive
2003/71/EC
EuZW Europäische Zeitschrift für Wirtschaftsrecht
FATF Financial Action Task Force
GwG German Money Laundering
Act – Geldwäschegsetz
GZ Reference – Geschäftszeichen
ICO Initial coin offering
KAGB German Capital Investment
Code – Kapitalanlagegesetzbuch
KWG German Banking Act – Kreditwesengesetz
MAR Regulation (EU) No 596/2014 of the European
Parliament and of the Council of 16 April 2014
on market abuse (Market Abuse Regulation) and
repealing Directive 2003/6/EC of the European
Parliament and of the Council and Commission
Directives 2003/124/EC, 2003/125/EC and
2004/72/EC
MiCAR Regulation of the European Parliament and of the
Council on Markets in Crypto-assets, and
amending Directive (EU) 2019/1937
MiFID Directive 2004/39/EC of the European
Parliament and of the Council of 21 April 2004
on Markets in Financial Instruments amending
Council Directives 85/611/EEC and 93/6/EEC
and Directive 2000/12/EC of the European
Parliament and of the Council and repealing
Council Directive 93/22/EEC
MiFID II Directive 2014/65/EU of the European
Parliament and of the Council of 15 May 2014
on Markets in Financial Instruments and
amending Directives 2002/92/EC and
2011/61/EU
MMR Multimedia und Recht – Zeitschrift für IT-Recht
und Recht der Digitalisierung
Abbreviations xv
MTF Multilateral Trading Facility

NJW Neue Juristische Wochenschrift
OTF Organised Trading Facility
RdF Recht der Finanzinstrumente
TEU Treaty on European Union
TFEU Treaty on the Functioning of the European Union
TVTG Token and Trusted Technology Service Provider Act of 03
October 2019
VermAnlG German Capital Investment Act – Vermögensanlagengesetz
wbl Wirtschaftsrechtliche Blätter
WM Zeitschrift für Wirtschafts- und
Bankrecht – Wertpapiermitteilungen
WpHG German Securities Trading Act – Wertpapierhandelsgesetz
WpPG German Securities Prospectus Act – Wertpapierprospektgesetz
ZAG German Payment Services Oversight
Act – Zahlungsdiensteaufsichtsgesetz
ZBB/JBB Zeitschrift für Bankrecht und Bankwirtschaft/ Journal of
Banking Law and Banking
ZHR Zeitschrift für das gesamte Handelsrecht und Wirtschaftsrecht
1
Basic Knowledge regarding
Crypto Assets
What You Take Away from This Chapter
• No universally accepted definition of the term crypto asset exists.

• Although the terms crypto asset and crypto token are often used inter-
changeably, it is important to distinguish between them.
• In practice, crypto tokens are divided into three main categories due to
their diverse design options.
• The technical basis for most currently known crypto assets is distributed
ledger technology. The most prominent form of this is the blockchain.
• The crypto market is bustling with various market players similar to tra-
ditional financial market participants.
• Despite the many positive potentials of crypto assets, existing risks must
not be disregarded.
A basic understanding of crypto assets is essential for assessing their regu-

latory significance. Due to the complexity and multi-layered nature of
crypto assets, this chapter provides a general introduction to the topic.
© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, 1

part of Springer Nature 2023
H. Appel, Quick Guide Crypto Assets, https://doi.org/10.1007/978-3-658-40462-8_1
2 H. Appel
1.1 Definition of Terms

So far, there is no generally applicable, uniform definition for the term
crypto asset.1 The German legislator indeed introduced the term crypto
asset into the German Banking Act (Kreditwesengesetz – KWG) in the
course of adapting the provisions under the Fifth Anti Money Laundering
Directive (EU) 2018/843 (AMLD V) of 30 May 2018. An explanation
of the term, detached from its regulatory classification, nevertheless seems
appropriate to illustrate the actuality of the topic.
The first body to publish a definition for crypto assets was the Financial
Action Task Force (FATF) in October 2018, which, along with the Basel
Committee, is one of the most important international bodies for com-
bating and preventing money laundering and terrorist financing.2 The
FATF has since used the term virtual asset in its recommendations, which
strictly speaking cannot be considered the same as the term crypto asset.3
Accordingly, a virtual asset is “a digital representation of value that can be
digitally traded, or transferred, and can be used for payment or invest-
ment purposes. Virtual assets do not include digital representations of fiat
currencies, securities and other financial assets that are already covered
elsewhere in the FATF Recommendations.”4
The European Banking Authority (EBA) expanded the FATF defini-
tion in its report on crypto assets dated 09.01.2019 to include the ele-
ment of cryptography and the type of technology used, thereby creating
a definition of a crypto asset for the first time.5 According to the EBA,
crypto assets are “assets whose perceived or inherent value depends
primarily on cryptography and distributed ledger technology or similar
technology, which are not issued or guaranteed by a central bank or pub-
lic authority and which can be used as a medium of exchange and/or for
investment purposes and/or to access a good or service”.6
1
Blassl/Sandner, WM 2020, 1188 (1189).
2
BaFin, 2020; Zöllner, BKR 2020, 117 (120).
3
FATF, 2019, p. 57.
4
FATF, 2019, p. 57.
5
EBA, 2019, pp. 1, 10 f.
6
EBA, 2019, p. 10 f.
1 Basic Knowledge regarding Crypto Assets 3
The European Central Bank (ECB), conversely, described crypto assets

as “a new type of asset recorded in digital form and enabled by the use of
cryptography that is not and does not represent a financial claim on, or a
liability of, any identifiable entity.”7
Similar to this definition, Fromberger, Haffke and Zimmermann
described a crypto asset relatively simply as “all tokens of the same type
based on blockchain technology”.8
In the literature, the term crypto asset is often used interchangeably
with the term crypto token, which, according to the classification just
explained and from a technical point of view, is not precise enough. A
crypto token is a collection of data in a digital database (the blockchain)
that represents a value, a right or a claim.9 A token cannot be duplicated
because it is individual and exclusive.10
The difference between a crypto asset and a crypto token is best illus-
trated by the example of the best-known crypto asset Bitcoin. The totality
of all Bitcoin tokens represents the crypto asset Bitcoin.11 If we transfer
this thought pattern to a classic fiat currency such as the Euro, all Euro
coins and notes in circulation as well as the book money denominated in
Euro are to be equated with the tokens, since they form the sum of the
Euro value.
1.2 Design of Crypto Tokens

Since there is some latitude in the design of crypto tokens, other areas of
application for crypto tokens have been established since the develop-
ment of the cryptocurrency Bitcoin.12 The differentiated design plays an
important role in the regulatory classification of crypto tokens. Therefore,
a classification of tokens is explained in more detail below. This
7
EZB, 2019.
8
Fromberger/Haffke/Zimmermann, BKR 2019, 377 (377).
9
John, BKR 2020, 76 (76); Kaulartz, CR 2016, 474 (475).
10
Maute, 2020, § 4 (2 f.).
11
Fromberger/Haffke/Zimmermann, BKR 2019, 377.
12
Fromberger/Zimmermann, 2020, § 1 (68).
4 H. Appel
classification has emerged in the literature and supervisory practice but is

not universally valid due to its lack of legal foundation.13
1.2.1 Currency Tokens
The first and best-known group are so-called currency tokens, which are
also referred to as payment tokens or exchange tokens.14 Basically, currency
tokens, like Bitcoin tokens, were designed to replace legal tender.15 The
name currency token also suggests that it is a complementary currency.
However, the German Central Bank (Deutsche Bundesbank – DBB) clari-
fied in one of its publications that currency tokens only partially fulfil the
money function.16
To be considered a currency, currency tokens would have to perform
three functions: the exchange and payment function, the unit of account
function, and the store of value function.
An object that is to be used as a means of payment must first be gener-
ally accepted so that it can be used everywhere to receive economic con-
sideration. Currency tokens receive their monetary value because market
participants assign them this value due to their existence and general
acceptance (intrinsic tokens).17 To date (21.03.2021), currency tokens
such as Bitcoin tokens can only be used to make payments on online
platforms, if at all.18 Currency tokens are therefore not accepted like clas-
sic fiat currencies such as the Euro or the US dollar, which is why they do
not currently fulfil the exchange and payment function.
To fulfil the unit of account function, the value of goods and services
would have to be determinable by currency tokens.19 Since currency
13
Kleinert/Mayer, EuZW 2019, 857 (858); Schäfer/Eckhold, 2020, § 16a (30).
14
Kaulartz/Matzke, NJW 2018, 3278 (3279); Zöllner, BKR 2020, 117 (119).
15
Nakamoto, 2008, p. 1.
16
On this and the following: DBB, 2019a, pp. 10 to 17.
17
Möllenkamp/Shmatenko, 2020, part 13.6, (30).
18
Bialluch-von Allwörden/von Allwörden, WM 2018, 2118 (2119).
19
DBB, 2019a, p. 17.
tokens are subject to strong price fluctuations and thus their value is
constantly changing, they are rarely used as a unit of account.20
As a rule, state central banks have the task of safeguarding the value of
money and thus fulfilling the store of value function of money.21 Currency
tokens can also be issued by a state authority, but in principle, there is no
state central bank behind the vast majority of currency tokens.22 The
value of currency tokens is thus not regulated and stabilised by govern-
ment influence, as is the case with a traditional fiat currency. They are
regularly subject to general market fluctuations and can, therefore, hardly
be used as a reliable store of value.
Due to this design, currency tokens have mainly been used as a specu-
lative investment instrument so far.23 Currently, however, so-called stable-
coins are established, whose value is linked to another value, usually a fiat
currency, for stabilisation purposes.24 Price fluctuations of the coin shall
be avoided by replicating the underlying fiat currency.25
With increasing acceptance among the population and the resulting
increase in value stability, future use as a complementary, digital means of
payment is quite conceivable.
1.2.2 Investment Tokens
Another type of crypto token is the so-called investment token. This token
class is characterised by the fact that membership and/or property rights
are linked to the tokens.26 As a rule, investment tokens are structured in
such a way that they grant the holder the right to participate in the profits
of a company in the form of a dividend.27
20
Zöllner, BKR 2020, 117 (119).
21
DBB, 2019a, p. 11.
22
Fromberger/Zimmermann 2020, § 1 (70).
23
Schäfer/Eckhold, 2020, § 16a (28).
24
Houben/Snyers, 2020, p. 34 f.
25
DBB, 2019b, p. 44.
26
BaFin, 2019, p. 5.
27
Hanten/Sacarcelik, RdF 2019, 124 (125).
6 H. Appel
However, an investment token may also be associated with a co-

management or voting right.28 Investment tokens with such a structure
are also called security tokens.29
On the one hand, the issue of such tokens can thus serve to raise equity
capital. On the other hand, an investment token can be structured simi-
larly to an interest-bearing bond so that its issue increases the company’s
debt capital share.30
If the reference point of the investment token is the right to an asset, it
is called an asset token, also known as an asset-backed token.31
The value of the investment token is not created by supply and demand,
as is the case with intrinsic tokens, but is based on an asset that actually
exists, such as a company share (extrinsic token).32
1.2.3 Utility Tokens
The tokens of the third group, the so-called utility tokens, also derive their
value from an actually existing object.33 Utility tokens embody the right
to a service or an economic good and are thus often referred to in the
literature as digital vouchers.34
In contrast to investment tokens, the holders of utility tokens have no
financial claim against the issuer of the token.35 The claim usually consists
of the use of a digital platform of the issuer.36 For instance, a utility token
can be used to grant access to a cloud and provide storage space therein.37
28
29
30
Bialluch-von Allwörden/von Allwörden, WM 2018, 2118.
31
Fromberger/Zimmermann, 2020, § 1 (75); Hahn/Wons, 2018, p. 12; Schäfer/Eckhold, 2020, §
16a (30).
32
Möllenkamp/Shmatenko, 2020, part 13.6, (31), (46).
33
Möllenkamp/Shmatenko, 2020, part 13.6, (31).
34
Fromberger/Haffke/Zimmermann, BKR 2019, 377 (377); Kaulartz/Matzke, NJW 2018,
3278 (3279).
35
Kleinert/Mayer EuZW 2019, 857 (858).
36
37
Hönig, 2020, p. 34.
Utility tokens can also be issued to allow only certain users to access an
exclusive area of the issuer’s platform. Examples of such a use case are in-
app purchases.38 An in-app purchase refers to the ability to buy additional
features in a free app for a fixed price. This example shows that utility
tokens cannot be used universally for payment but are linked to a specific
service.39
Due to the lack of general validity, trading is only conceivable on sec-
ondary markets if there is demand for the product or service.40 Utility
tokens are hence rarely suitable as a capital investment.
1.2.4 Hybrid Forms
In the absence of a legal basis, the issuer of a token is free to link the token
to any claims or rights. Consequently, in practice, a multitude of hybrids
exists in addition to the forms outlined above.41 These combine proper-
ties and elements of the basic forms, which is why it is necessary to assess
in each individual case which attribute of the token constitutes the focus
of the legal classification of the token.42
1.3 Technical Principles

To properly understand current developments in the regulation of crypto
assets, it is necessary to understand the technologies behind crypto assets.
The core technological basis of crypto assets is distributed ledger technol-
ogy (DLT).43 Following its explanation, the blockchain, the best-known
and most widely used DLT, will be discussed.44
38
39
Kaulartz/Matzke, NJW 2018, 3278 (3279).
40
41
42
BaFin, 2019, p. 5.
43
Federal Ministry of Finance, 2019, p. 8 f.
44
Langenbucher/Hoche/Wentz, 2020, chapter 11 (2).
8 H. Appel
1.3.1 Distributed Ledger Technology
Ledger means general ledger or register. According to the principles of

proper accounting, in the general ledger, all business transactions of a
merchant’s business operation must be documented entirely, continu-
ously, structured according to some criteria and in a permanent form.45
Another example of such a register is the land registry.46
Accordingly, a ledger not only reflects the current state but also docu-
ments the emergence of the state, thus emphasising previously defined
information. The information stored in the register or ledger depends on
the purpose the users of the ledger want to achieve through its use. A
ledger can thus generally be described as a systematic collection of data
for the permanent documentation of such facts and circumstances that
are considered (legally) significant by its users.47
A central instance is responsible for coordinating and controlling the
records in the ledger.48 Before a transaction is entered into the ledger, it
initially checks whether the desired execution is legitimate. Where the
check is positive, the central authority carries out the entry in the led-
ger.49 Taking the land registry as an example, the central authority mak-
ing the entries in the land registry after proper verification is the land
registry office, which is usually the district court of the relevant district.50
For example, the clearing house is also the central authority in securi-
ties transaction processing, as it records each transaction in a central reg-
ister and verifies and approves them.51
The central authorities embody decisive key functions in the various
transactions, which is why they are subject to high demands in terms of
neutrality, trustworthiness and independence.52
45
Zwirner/Heyd, 2019, chapter A (81).
46
Pankratz, IT Governance 2019, p. 5.
47
48
Schlund/Pongratz, DStR 2018, 598 (598).
49
50
Duden Recht A – Z, 2015, p. 303.
51
Geiling, BaFinJournal 2016, p. 29.
52
DLT was developed with this dependency in mind. When used, a cen-
tral control and coordination instance is no longer required.53
For this purpose, a decentralised network of equal users, a so-called
peer-to-peer network,54 is set up, whose computer servers act as nodes.55
An identical copy of the ledger is stored on each server and continuously
synchronised.56
A consensus mechanism ensures the equality of the participants.57 If a
user wants to add a transaction to the ledger, she must propose this to the
other participants.58 The other users then vote on the extension using an
algorithmic procedure.59 Examples of such procedures are proof of work,
proof of stake or proof of importance.60 In each of these procedures, the
nodes have to solve a puzzle, which is more or less complex depending on
the procedure.61
If all or the majority of users accept the transaction, the corresponding
transaction is added to the ledger.62 The entry is made via an encrypted
data record to protect against manipulation. Therefore, it cannot be
deleted or changed once it has been added to the ledger.63
1.3.2 Blockchain
Along with Tangle and Hashgraph, Blockchain is one of the most rele-
vant application examples of DLT.64 It was developed in 2008 by the
pseudonym Satoshi Nakamoto in connection with the cryptocurrency
53
Geiling, BaFinJournal 2016, p. 29.
54
Schacht, 2019, p. 13.
55
56
57
Subhash/Stadler, wbl 2020, p. 181 (186).
58
59
Pankratz, IT Governance 2019, p. 5; Schäfer/Eckhold, 2020, § 16a (24 f.).
60
61
Million, 2019, p. 23.
62
Langenbucher/Hoche/Wentz, 2020, Chapter 11 (1); Langer, 2019, p. 243.
63
Subhash/Stadler, wbl 2020, p. 181 (186).
64
Schacht, 2019, p. 6.
10 H. Appel
Bitcoin.65 In 2017, the market volume of the Blockchain industry was

worth USD 708 million.66 Since the Blockchain is currently the basis for
most transactions with crypto assets, we will only discuss this form of DLT.
The main fields of application of the Blockchain are transactions of
virtual value units, which can only be carried out between the partici-
pants of the respective network.67
The technology got its name because of how the transaction data is
recorded in the ledger.68 The relevant information is grouped into blocks
and inseparably chained together by reference to the previous block.69
Such a block consists of a header and a transaction body, which contains
several transactions made via the blockchain as determined by the block-
chain developer.70
The header, in turn, consists of several components, which vary
depending on the consensus mechanism used.71 The first blockchain
described by the pseudonym Satoshi Nakamoto in the Bitcoin whitepa-
per is based on the proof of work consensus mechanism.72
The block’s header contains the version number of the blockchain, the
hash of the previous block, a timestamp, the difficulty, the hash of the current
block and a nonce.73 The most important components are the two hash
values.74 A hash is an alphanumeric value that is created using a mathe-
matical function (known as a hash function or scatter function) and the
forming of data structures (known as Merkle trees or hash trees) from the
data in the header and all the transactions in the block.75 By including the
multitude of transaction-specific data, the hash value ensures that each
65
66
Schacht, 2019, p. 13 f.
67
68
Million, 2019, p. 14.
69
70
71
Million, 2019, p. 27 f.
72
73
Nakamoto, 2008, p. 2 f.; Schacht, 2019, p. 40.
74
75
Fill/Härer/Meier, 2020, pp. 5, 8, 10.
block is unique, which is why it is regularly referred to as the finger-

print.76 Since each block also stores the hash value of the previous block
in addition to its own hash value, a cryptographic concatenation is cre-
ated that protects the blockchain from manipulation.77
The timestamp of the block is used both to record the time when the
transaction was entered in the ledger78 and to prove that the data existed
at that time.79
The difficulty and the nonce are the proof of work-specific compo-
nents of the header. In proof of work, the participants in the network
must solve a cryptographic puzzle in the form of a hash function to vali-
date the transactions contained in the block, for which the nonce is
required.80 The nonce is an arbitrary number lying in a previously delim-
ited set of values.81 By inserting the nonce into the hash function, a hash
value must be obtained that starts with a certain number of zeros.82 Since
it is practically impossible to deduce the input value from the result of the
function for hash functions used in blockchains, the nonce can only be
found by trial and error.83 The difficulty of the block reflects the degree of
difficulty of this cryptographic puzzle.84
Due to the trial-and-error process, network participants need high
computing power to be able to solve the cryptographic puzzle. Thus, not
all nodes usually participate in the validation of transactions.85 The users
who participate in block creation are called miners. The overall process of
block creation, i.e. the merging of transactions into blocks and their vali-
dation, is called mining.86
76
Kaulartz, CR 2016, 474 (475); Schacht, 2019, p. 9; Schrey/Thalhofer, NJW 2017, 1431 (1432).
77
78
Schacht, 2019, p. 39.
79
80
81
Fill/Härer, 2020, p. 323 f.
82
83
Pankratz, IT Governance 2019, p. 5 f.; Rosenberger, 2018, p. 67.
84
Schacht, 2019, p. 20.
85
86
12 H. Appel
In most blockchains, the transactions contained in the transaction

body refer to tokens.87 When a token is traded, the amount of data for
which the token stands is not transferred to the recipient as in a classic
transfer but is merely assigned to the recipient via the blockchain.88 It is,
therefore, not a matter of the physical movement of data but rather of a
change in the sovereignty of the database entry.89
The change of the allocation ratios on the blockchain is carried out by
another cryptographic mechanism, the so-called public/private key con-
cept.90 This is a method of asymmetric cryptography using a key pair to
encrypt and decrypt data.91 With the public key, information is encrypted
in a manner that it can only be decrypted with the corresponding private
key, also by using hash functions.92
Each network participant possesses both a private and a public key.93 A
participant can use the private key to decrypt transactions in which she is
the recipient of the token.94 If the user is the sender of the token, she uses
the private key to sign the transaction message digitally.95 The public key,
in contrast, is an address within the blockchain to which tokens can be
assigned96 and is thus comparable in its function to a classic account
number.97
If a network participant wants to carry out a transaction, she needs the
recipient’s public key for the transaction message. Thus, the public keys
are made available to the general public, usually via the Internet.98 Before
the sender submits the message to the network underlying the blockchain
for execution, she signs and encrypts it with her private key. Using the
87
88
Fromberger/Zimmermann, 2020, § 1 (15), (19).
89
Kaulartz/Matzke, NJW 2018, 3278 (3278).
90
91
92
Schacht, 2019, p. 9 f.
93
Schacht, 2019, p. 10.
94
Kaulartz, CR 2016, 474 (476).
95
96
97
Safferling/Rückert, MMR 2015, 788 (789).
98
Kaulartz, CR 2016, 474 (475).
two keys, the other network participants can verify the data of the trans-
action.99 If all the data is correct, the transaction is added to the transac-
tion body of the new block.100 Once the new block is attached to the
blockchain, the token is assigned to the recipient, and he can now access
the token with his private key.101
1.4 Market Participants in Relation

to Crypto Assets
In addition to the network participants and miners, there are other groups
of persons who appear on the market in connection with crypto assets.
Of regulatory relevance are issuers of crypto assets and service providers
who take over various activities for the network participants after the
initial issuance of the crypto asset tokens.
1.4.1 Issuers
The initiator of a blockchain is, in principle, also the issuer of a crypto

asset.102 He creates the tokens for the first time and deposits them digi-
tally in the blockchain. The issuer then distributes the first crypto tokens
to potential network participants, who can, in turn, create new tokens
through mining.103
When setting up the blockchain, the initiator can determine the num-
ber of tokens representing the crypto asset.104 When initiating the
Ethereum blockchain, for instance, the number of possible tokens was
made variable, so that there can be an infinite number of Ether tokens.105
In contrast, when the cryptocurrency Bitcoin was developed, the
99
100
Rosenberger, 2018, p. 18.
101
102
103
104
105
14 H. Appel
pseudonym Satoshi Nakamoto specified in its network protocol that a

maximum of 21 million Bitcoin tokens may be created.106 However, only
50 Bitcoin tokens were deposited in the genesis block of the Bitcoin
blockchain, so the remaining Bitcoin tokens can still be mined in the
future.107 Nevertheless, it is possible to already deposit all tokens in the
genesis block and thus prevent the creation of further tokens of the
crypto asset.108
By specifying a fixed or variable number of tokens, the issuer can thus
influence the de facto value of its crypto asset at the initiation. According
to the principle of supply and demand, high demand for a limited supply
of tokens leads to rising prices. Respectively, the infinite generation of
Ether leads to a steady deflation of the crypto asset Ethereum. Since each
additional transaction creates new Bitcoins to reward the miners, mining
more Bitcoins increases the value of the crypto asset Bitcoin, as long as
the demand for Bitcoins grows or stagnates at least. Although this
increases the supply of existing Bitcoins, given the cap of 21 million
Bitcoin tokens, the number of new tokens that can be generated decreases
with each mining, which implies a shortage.
The issuer is generally free to demand a return service for issuing the
tokens.109 If the tokens are issued by a company for consideration, this is
referred to as an initial coin offering (ICO).110 Similar to a share issue in
an initial public offering, newly created tokens are offered to the public
to raise capital for a company or an individual project.111
1.4.2 Service Providers
The blockchain system is based on decentralisation. Due to its complex-

ity, however, network participants regularly use the support of specialised
third parties. The involvement of intermediaries is thus possible, but not
106
107
Blockchain.com, n/a.
108
Schacht, 2019, p. 52.
109
110
BaFin, 2018, p. 5.
111
Hönig, 2020, p. 3.
mandatory, to ensure the functioning of the network. Service providers of

particular importance are wallet providers, operators of trading plat-
forms, and providers of tumbler services.
Wallet Providers
The service provided by wallet providers consists of the provision of so-
called wallets.112 These serve the secure storage of the public and private
cryptographic keys of network participants and are usually referred to as
electronic wallets.113 However, since the wallet is usually only assigned
the key with which the token can be accessed and not the token, i.e. the
value itself, the comparison with a physical wallet is slightly imprecise.114
The term (digital) keychain seems more appropriate.
A wallet can be designed in different ways. On the one hand, it is pos-
sible to store the cryptographic keys on a physical device such as a USB
stick (hardware wallet) or convert them via online generators into a QR
code that can be printed on paper (paper wallet).115 On the other hand,
there are software wallets, which, in contrast to the analogue method of
storage, require corresponding software on the computer (desktop wallet)
or on the smartphone in the form of an app (mobile wallet) and online
wallets, which store the cryptographic keys on servers, similar to a cloud.116
The regulatory practice also distinguishes between hot wallets and cold
wallets.117 A hot wallet is characterised by its continuous connection to
the Internet. Cold wallets, in contrast, are not permanently online, i.e.
they are only connected to the Internet to carry out a token-based
transaction.
The type of wallet determines whether a service provider classifies as a
custodial or non-custodial wallet provider, which has different regulatory
consequences.118 Non-custodial wallet providers provide network partici-
pants with hardware or even software to store, secure, and custody the
112
113
Safferling/Rückert, MMR 2015, 788 (790); Schlund/Pongratz, DStR 2018, 598 (599).
114
115
116
Rosenberger, 2018, p. 23 f.
117
cf. also in the following: EBA, 2019, p. 9; ESMA, 2019, p. 9.
118
Fromberger/Zimmermann, 2020, § 1 (26); Maume, 2020, § 12 (81 f.).
16 H. Appel
cryptographic keys independently.119 Accordingly, a service provider that

operates a website for converting cryptographic keys into QR codes and
manufacturers of USB sticks classifies as non-custodial wallet provider.
However, a custodial wallet provider assumes responsibility for the secure
storage and custody of the keys.120 Operators of wallet apps or cloud-
based online wallets regularly classify within this group.121
Operators of Trading Platforms

Trading platforms for crypto assets allow participation in the crypto
asset’s blockchain network even after the initial issuance of the tokens.122
By their very nature, secondary trading venues generally operate online.123
The mode of operation is similar to a classic online banking account,
where various financial services can be carried out directly via the plat-
form after entering the user’s login data.124
Trading platforms can be structured in different ways.125 On the one
hand, we can differentiate in terms of the object of the transaction. Via
crypto bureaus de change, investors can both exchange classic fiat currency
for crypto tokens and monetise tokens in fiat currency.126 If only tokens
of one crypto asset are exchanged for tokens of another crypto asset on a
platform, this is referred to as crypto exchanges.127 On the other hand, we
can distinguish with regard to transaction processing and the platform
operator’s ability to influence transactions and tokens themselves.128
Platform that actually change the allocation of the token via the block-
chain when a token transaction is executed are called on-chain trading
119
120
EBA, 2019, p. 15.
121
122
Fromberger/Zimmermann, 2020, § 1 (26); Maume, 2020, § 12 (88).
123
124
125
126
127
128
Fromberger/Zimmermann, 2020, § 1 (94 f.).
platforms.129 The counterpart are off-chain trading platform, which only

adjust the virtual platform account balances of the participants to carry
out the transaction and do not initiate an actual token transaction via the
network.130
Concerning the possibility of exerting influence, we can distinguish
between centralised and decentralised trading platforms.131 In the case of
central trading platforms, the tokens are exchanged via a central public
key controlled by the platform itself.132 The parties to the transaction are
not known to each other. The execution of a token transaction on a decen-
tralised trading platform, in contrast, takes place without such an interme-
diary. The platform operator merely mediates between the trading parties.
Providers of Tumbler Services

So-called tumblers allow token holders to anonymise the transactions
associated with the token on the blockchain.133 Although the use of the
cryptographic key pair means that no personal data of the owner is used
to process the transaction, it is possible to conclude the identity of the
owner via the public key.134
If a network participant wants to conceal the origin and prehistory of
the token, she uses the services of a tumbler. To do this, she sends the
token to a public key of the tumbler operator.135 To perform the ano-
nymisation, the tumbler operator needs several tokens of the same crypto
asset and several public keys he controls.136 For concealment, he splits all
tokens of the same crypto asset in his possession into partial amounts and
simulates numerous transactions via his public keys.137 Afterwards, he
transfers a sum of tokens from these partial amounts, which has the same
129
130
131
DBB, 2019b, p. 43.
132
On this and in the following: Fromberger/Zimmermann, 2020, § 1 (97).
133
Fromberger/Zimmermann, 2020, § 1 (102), (106).
134
Fromberger/Haffke/Zimmermann, BKR 2019, 377 (378 f.).
135
136
137
18 H. Appel
value as the user’s token sent at the beginning, to a public key named by
the user.138 As a rule, however, the provider of the tumbler retains a share
of around three per cent as a service fee.139 It is relevant for this procedure
that not only tokens of a single user of the tumbler service are used, as
otherwise blending is impossible.140
1.5 Opportunities and Risks

The efforts of national and European legislators to regulate crypto assets
are closely related to the opportunities and risks of crypto assets for the
financial markets. Since most crypto assets on the markets are currently
based on blockchain technology, we will only discuss the opportunities
and risks of such crypto assets.
1.5.1 Opportunities
The positive potentials of crypto assets arise primarily from the decentral-
ised structure of their underlying networks. Satoshi Nakamoto explains in
the Bitcoin whitepaper that the use of blockchain technology to control
and organise the transaction makes the involvement of an intermediary
obsolete.141 Instead, validation is distributed among all network partici-
pants, which leads to independence from governmental and institutional
influence.142
Since the verification and processing of the transaction is now distrib-
uted among a higher number of actors, the handling of the process can
be faster and more efficient.143 If a network participant loses the copy of
the blockchain on its server due to a local technical problem, this does
not lead to a full-scale loss of data, as a copy of the blockchain is stored
138
139
140
141
142
Schacht, 2019, p. 5.
143
Beinke et al., 2020, p. 138.
on every node of the network.144 The tokens, and thus the crypto asset
itself, thus remain intact.
Theft of the tokens through manipulating a transaction is also almost
impossible due to the immutability of the blockchain data.145 As a result of
the cryptic concatenation of the blocks, the consensus mechanism, and
the simultaneous storage of identical copies on every server in the net-
work, an immensely high computing power would be required to change
the data of the blockchain.
Since tracking all transactions is possible at any time, using crypto
assets as a means of payment or investment could increase the transpar-
ency of financial markets.146
The use of crypto tokens has the potential to reduce costs from the
perspective of both the customer and the credit institutions or financial
service providers.147 For instance, holders of crypto tokens do not have
to pay any transaction fees because the miners receive a reward in return
for validating the transactions, usually in the form of new tokens.148
Since the miners care about the value of the tokens due to this compen-
sation system, they will regularly ensure that the transactions are carried
out correctly.149 Insofar as credit institutions and financial service pro-
viders offer the management of crypto tokens, they can reduce the risk
management costs as the risk of crypto assets failing is very low due to
the transparency, traceability, and forgery-proof nature of blockchain
technology.150
1.5.2 Risks
It is precisely the aspect of cost reduction that makes an investment in

crypto assets attractive for investors. In addition, despite the prevailing
144
145
Flasshoff et al, BaFin Perspectives 2018, p. 35.
146
N.N., Risk Manager 2019, issue 10.
147
Beinke et al., 2020, p. 138.
148
Schacht, 2019, p. 20.
149
John, BKR 2020, 76 (78).
150
Beinke et al., 2020, p. 138.
20 H. Appel
low-interest phase, the prospect of high returns through price gains per-
sists. However, using crypto tokens as a speculative investment instru-
ment leads to extreme price dynamics and the associated fluctuations in
value, which in certain circumstances can lead to a total loss for the
investor.151
The numerous ways in which crypto tokens can be designed and the
technical complexity also mean that it is difficult for investors to under-
stand how the investment model works.152
Since the investor himself is responsible for the safekeeping of the pri-
vate keys, less technically savvy investors also represent a security gap for
the network.153 The investor must always ensure that the program he uses
for cryptographic encryption and safekeeping is up-to-date to be pro-
tected against hacker attacks.
However, a crypto asset network can also be threatened from within.
Validating transactions requires a high level of computing power, which
can only be guaranteed with a high level of energy consumption and stor-
age space.154 Since, in practice, these resources can only be provided by a
few network participants, control can be allocated to a few nodes despite
the decentralised structure of the blockchain.155 Provided these miners
make up the majority of nodes in the network, they can manipulate any
transaction, as they can influence the consensus mechanism in their
favour through their majority. However, such centralisation of control is
unattractive to investors, which is why investors would withdraw from
the network if such manipulation became known. That would, in turn,
be detrimental to the manipulating network participants due to the
resulting collapse in the value of the tokens.
Furthermore, the anonymity of the network participants is critical.
Nowadays, crypto assets, mainly Bitcoin, are already used for payment in
151
Gschnaidtner, 2020, § 2 (12 f.); BaFin, 2017.
152
BaFin, 2017.
153
N.N., Risk Manager 2019, issue 10.
154
BT-Drs 19/13.433, p. 3, 8.
155
Hönig, 2020, p. 119.
the Darknet, the (global) online black market.156 Since tokens are only
assigned to network participants via the cryptographic keys, the true
identity of the crypto token holders remains obscured. For this reason,
crypto assets are also frequently used for money laundering or terrorist
financing.157
As technology is constantly changing and innovating very fast, the legal
framework must also constantly adapt in order to protect consumers and
stabilise financial markets adequately. Due to the increase in technically
complex modes of operation, there is a risk that newly emerging instru-
ments may remain misunderstood and proliferate undetected. That could
result in the values created in the shadow economy no longer being con-
trollable when discovered.
Your Transfer into Practice

Individuals looking to invest in crypto assets should ask themselves the
following questions, among others:
• Am I aware of how crypto assets work and of the different ways they can
be structured?
• Do I want to invest in crypto assets despite the risks involved, such as a
possible total loss of my investment?
• Am I willing to keep my wallets up-to-date with the latest and highest
security standards to protect myself from hacker attacks?
Individuals looking to start a business related to crypto assets should ask

themselves the following questions, among others:
• In what form do I want to be active in the crypto market? (Issuer, service

provider, miner, etc.)
• As an issuer, how do I want to structure my crypto assets and associ-
ated tokens?
• How do I protect my crypto assets from losing value and the technology
behind them from hacker attacks?
• How do I ensure that my crypto assets are not used for terrorism and
money laundering financing purposes?
156
Gschnaidtner, 2020, § 2 (62).
157
22 H. Appel
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Kaulartz, M. (2016). Die Blockchain-Technologie. CR, 474–480.
Kaulartz, M. & Matzke, R. (2018). Die Tokenisierung des Rechts. NJW,
3278–3283.
Kleinert, U. & Mayer, V. (2019). Elektronische Wertpapiere und Krypto-Token.
EuZW, 857–863.
Langenbucher, K., Hoche, M. & Wentz, J.: Kap. 11 Virtuelle Währungen, in:
Langenbucher, K. et al. (Hrsg.) (2020). Bankrechts-Kommentar (3. Aufl.).
München: C.H. Beck.
Langer, M. (2019). Das liechtensteinische Steuerrecht (1. Aufl.). Wiesbaden:
Springer.
Maume, P.: § 12 Finanzdienstleistungsaufsichtsrecht, in: Maume, P. et al. (Hrsg.)
(2020). Rechtshandbuch Kryptowerte (1. Aufl.). München: C.H. Beck.
Maute, L.: § 4 Die Rechtsnatur von Kryptowerten, in: Maume, P. et al. (Hrsg.)
Million, C. (2019). Crashkurs Blockchain (1. Aufl.). Freiburg/München/
Stuttgart: Haufe.
Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. https://
bitcoin.org/bitcoin.pdf. Accessed: 21.03.2021.
Neulen, P. (Hrsg.) (2015). Duden Recht A – Z: Fachlexikon für Studium,
Ausbildung und Beruf (3. Aktualisierte Aufl.). Berlin: Duden.
N.N. (2019). Chancen und Risiken der Blockchain-Technologie für
Finanzdienstleister. Bankv_rm_1910006. Risiko Manager (10), https://www.
wiso-n et.de/login?targetUrl=%2Fdocument%2FRISK__cc6a738b7b-
ba5de490865201b33f9ecb09407629. Accessed: 21.03.2021.
Pankratz, G. (2019). Blockchains und Distributed Ledgers – konzeptionelle

Grundlagen, Einsatzmöglichkeiten und Grenzen. IT-Governance (30), 4–11.
Rosenberger, P. (2018). Bitcoin und Blockchain (1. Ed.). Berlin/
Heidelberg: Springer.
Schacht, S.: Die Blockchain-Technologie, in: Schacht, S. & Lanquillon,
C. (Hrsg.) (2019). Blockchain und maschinelles Lernen (1. Ed.). Berlin/
Heidelberg: Springer.
Safferling, C. & Rückert, C. (2015). Telekommunikationsüberwachung bei
Bitcoins – Heimliche Datenauswertung bei virtuellen Währungen gem.
§ 100a StPO. MMR, 788–794.
Schäfer, F. & Eckhold, T.: § 16a Crowdfunding, Crowdlending, Crowdinvesting,
Kryptowährungen und Initial Coin Offerings (ICOs), in: Assmann,
H.-D. et al. (Hrsg.) (2020). Handbuch des Kapitalanlagerechts (5. überarbe-
itete Aufl.). München: C.H. Beck.
Schlund, A. & Pongratz, H. (2018). Distributed-Ledger-Technologie und
Kryptowährungen – eine rechtliche Betrachtung. DStR, 598–604.
Schrey, J. & Thalhofer, T. (2017). Rechtliche Aspekte der Blockchain. NJW,
1431–1436.
Subhash, S. & Stadler, D. (2020). Die Emission von Wertrechten auf Basis ver-
teilter elektronischer Register – Distributed Ledger Technology. wbl, 181–193.
Zöllner, L. (2020). Kryptowerte vs. Virtuelle Währungen. BKR, 117–125.
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München: C.H. Beck.
2
Regulatory Classification
of Crypto Assets
• The regulatory classification of crypto assets depends on the specific

design of the crypto token in each individual case.
• Investment tokens regularly qualify as financial instruments within the
meaning of the WpHG and the KWG. In contrast, currency and utility
tokens are merely financial instruments within the meaning of the KWG.
• The regulatory classification entails various legal consequences, such as
prospectus and information obligations or the requirement of a licence
to operate.
• Deviating from the EU requirements, the German legislator has estab-
lished a comprehensive regulation of crypto assets in Germany by includ-
ing the elements of crypto assets and crypto custody in the KWG.
• Providers of tumbler services are nevertheless not covered by supervi-
sory law.
The legal nature of crypto assets is essential for the legal capture of actual
transactions. A distinct classification of crypto assets in the legal system
creates legal certainty and confidence in the underlying technology.
Given the lack of a universal legal definition of the term, both the civil
and the regulatory character of crypto assets are widely discussed in the

28 H. Appel
literature.1 Due to the regulatory focus of this book, we will not dis-
cuss the various views on civil law classification. In the following, we will
focus on how crypto assets classify under capital market and banking
supervisory law and what implications the respective classification entails.
2.1 Fundamentals of European Financial

Market Supervision
First, one has to understand the interplay between national and EU
supervision. According to the first sentence of Article 3 (3) of the Treaty
on European Union (TEU) and Article 26 (1) of the Treaty on the
Functioning of the European Union (TFEU), a central objective of the
EU is the establishment and guarantee of a functioning internal market.
Market freedoms in the form of the free movement of goods, persons,
services, and capital are, according to Article 26 (2) TFEU, intended to
serve the realisation of this objective. Therefore, the framework condi-
tions of these market freedoms have been regulated in detail in Part Three,
Titles II and IV TFEU. The second sentence of Article 114 (1) TFEU
also empowers the European Parliament and the Council to adopt legal
acts aligning the national law of the member states for the purpose of
achieving the objectives of Article 26 TFEU.
Due to the financial market crisis of 2007 and 2008, the European
Parliament and the Council have increasingly used this possibility of har-
monisation in banking and capital market law.2 Besides developing and
revising solvency and market supervision regulations, such as the Capital
Requirements Directive3 and the Markets in Financial Instruments
Directive (MiFID)4, the Systemic Risk Board5 was established in 2010,
1
Cf. Kaulartz/Matzke, NJW 2018, 3278 (3280 f.); Kleinert/Mayer, EuZW 2019, 857 (857 f.);
Maute, 2020, § 4; Omlor, ZHR 183 (2019), 294 (306 f.); Möllenkamp/Shmatenko, 2020, part
13.6, (29 f.).
2
Recitals 3 and 4 of Directive 2014/65/EU; Recitals 1 and 2 of Regulation (EU) No 1093/2010.
3
Directive 2013/36/EU.
4
Directive 2014/65/EU.
5
Regulation (EU) No 1092/2010.
2 Regulatory Classification of Crypto Assets 29
among other things. It provides macro-prudential oversight of the finan-

cial system at the EU level by monitoring, analysing, and assessing sys-
temic risks and issuing clear warnings and recommendations.6
For micro-prudential supervision, three new EU level supervisory
authorities (ESAs) have been established to cooperate with national super-
visors: The European Banking Authority (EBA), the European Insurance
and Occupational Pensions Authority (EIOPA), and the European
Securities and Markets Authority (ESMA).7 The ESAs issue guidelines and
recommendations and develop draft regulatory technical standards and
implementing standards to harmonise financial supervision.8 Guidelines
and recommendations are intended to assist national supervisory authori-
ties, such as the German Federal Financial Supervisory Authority
(Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin), in interpreting
EU law consistently.9 In contrast to regulations, these legal acts are gener-
ally not legally binding according to Article 288 (5) TFEU.
Both the ESMA and the EBA as well as the BaFin have already com-
mented on the regulatory classification of crypto assets in the existing EU
and national legal frameworks.10 In this regard, the Markets in Financial
Instruments Directive II (MiFID II) plays a significant role. Since the
German legislator implemented the requirements of MiFID II with the
Second Act Amending Financial Market Regulations11, the focus of the
following classification will be on German law.
German supervisory law consists on the one hand of banking supervi-
sion law, which deals in particular with the supervision of the establish-
ment and operation of credit and financial services institutions.12 This is
the so-called institutional supervision, whose most important legal basis is
the German Banking Act (Kreditwesengesetz – KWG). On the other
hand, German supervisory law comprises operational supervision in the
6
Recitals 6, 10 and 11 of Regulation (EU) No 1092/2010.
7
BaFin, 2016.
8
Article 8 (1), point (a) of Regulation (EU) No 1093/2010; Article 8 (1), point (a) of Regulation
(EU) No 1094/2010; Article 8 (1), point (a) of Regulation (EU) No 1095/2010.
9
Recital 26 of Regulation (EU) No 1093/2010.
10
EBA, 2019; ESMA, 2019.
11
BGBl 2017 I p. 1693.
12
BaFin, 2019a.
30 H. Appel
form of capital market supervision, which is intended to regulate the

transactions and behaviour of the participants in the capital market.13
2.2 Classification under Capital Market Law

The regulations on capital market law in Germany are primarily found in
the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG),
the German Capital Investment Code (Kapitalanlagegesetzbuch – KAGB)
and the German Capital Investment Act (Vermögensanlagengesetz –
VermAnlG).14 Other capital market regulations such as the German
Stock Exchange Act (Börsengesetz) or the German Securities Deposit Act
(Depotgesetz) will not be part of the legal analysis of this book.

of the WpHG
The key connecting factor of the WpHG is the concept of a financial

instrument within the meaning of section 2 (4) WpHG, which is based
on Article 4 (1), point (15) in conjunction with Section C of Annex I
MiFID II.15 Accordingly, financial instruments are securities within the
meaning of section 2 (1) WpHG, units in investment funds within the
meaning of section 1 (1) KAGB, money market instruments within the
meaning of section 2 (2) WpHG, derivatives within the meaning of sec-
tion 2 (3) WpHG, emission certificates, rights to subscribe for securities
and investments within the meaning of section 1 (2) VermAnlG. Since
the BaFin considers it possible to classify tokens as securities, as shares in
an investment fund or as investments in the senses just mentioned due to
their flexible design options, we will discuss these financial instruments
in more detail below.16
13
Kumpan, 2020, WpHG § 2 (3 f.).
14
Hakenberg, 2020.
15
BaFin, 2018, p. 1 f.
16
BaFin, 2018, p. 2.
Security within the Meaning of the WpHG

Based on Article 4 (1), point (44) MiFID II, the definition of securities
in section 2 (1) WpHG comprises three features: transferability, trade abil-
ity on the financial or capital markets, and “comparability”17 with the
financial instruments listed in section 2 (1) numbers 1 to 3
WpHG. Furthermore, both regulations stipulate the negative criterion of
means of payment. Accordingly, liquid assets such as cash or cheques do
not constitute securities within the meaning of the WpHG or MiFID II.18
The wording of section 2 (1) WpHG makes it clear that, in contrast to
the concept of securities under civil law, securitisation of the security is
not necessary. Consequently, one must consider the criterion of transfer-
ability separately from the transfer provisions under civil law. The BaFin
declares the possibility of documenting the security holder in a technol-
ogy such as DLT as already sufficient for proof of ownership.19 A token
can be transferred to another network participant by a new assignment.
The assignment process is irrevocably documented in the distributed led-
ger. Thus, a token basically fulfils the criterion of transferability.
The trade ability on the financial or capital markets is closely linked to
the classification structure specified in section 2 (1) WpHG. The inter-
pretation of the term financial market under EU law is to be understood
broadly, which is why, according to the BaFin, crypto trading platforms
can be regarded as financial or capital markets within the meaning of the
WpHG and the MiFID II.20 Only if an instrument conveys the same
rights and is determinable by type and number of units, it can be traded
on such a market.21 Therefore, it must be fungible. To be able to affirm
this prerequisite, each crypto asset and the associated tokens must be
assessed individually. For instance, the tokens of the cryptocurrency
Bitcoin are tradable because the tokens are subject to standardisation
through Nakamoto’s whitepaper. However, if an issuer equips its tokens
17
Weitnauer, BKR 2018, 231 (233).
18
Kumpan, 2020, WpHG § 2 (12).
19
BaFin, 2018, p. 2.
20
White, BaFinJournal 2019, p. 9.
21
Kumpan, 2020, WpHG § 2 (7).
32 H. Appel
with individual customer-specific characteristics, trade ability on finan-

cial or capital markets is precluded.22
Finally, tokens must represent membership or ownership rights or
comparable rights to qualify as securities within the meaning of the
WpHG or the MiFID II.23 This criterion in particular requires a con-
crete examination in each case, as the supervisory authorities regularly
apply the principle of substance over form.24 This means that it is not
the designation of the crypto token but the concrete form of the claims
associated with the token that is decisive for the regulatory
classification.
With regard to the token categories described in Sect. 1.2 of this book,
only investment tokens fulfil this criterion and thus the concept of securi-
ties under the WpHG and the MiFID II. In addition, hybrid tokens may
also qualify as securities within the meaning of the WpHG and the
MiFID II, provided that the focus of their function is on the representa-
tion of membership or ownership rights.25 Currency tokens and utility
tokens do not fall under the definition of a security and therefore do not
fall within the scope of the WpHG or the MiFID II.
Share in an Investment Fund within the Meaning of the KAGB
Depending on its design, a token may also qualify as a share in an invest-
ment fund within the meaning of the first sentence of section 1 (1)
KAGB. In EU law, the equivalent is a unit in collective investment under-
takings within the meaning of Section C.3 of Annex I MiFID II.
An investment fund as defined in the first sentence of section 1 (1)
KAGB is any collective investment undertaking that collects capital from
several investors to invest it in accordance with a defined investment
strategy for the benefit of these investors and that is not an operationally
active company outside the financial sector. This legal definition is the
22
Kumpan, 2020, WpHG § 2 (7).
23
BaFin, 2018, p. 2.
24
Weiß, BaFinJournal 2019, p. 9; Kleinert/Mayer, EuZW 2019, 857 (859).
25
BaFin, 2019b, p. 4.
generic term for all types of funds.26 Using the example of a real estate
fund, it becomes clear that only investment tokens and hybrid forms
with a corresponding focus can meet the requirements for a share in an
investment fund within the meaning of the KAGB.27
Real estate funds regularly pool the capital of investors to invest it in a
large number of buildings. Profits are generated through the purchase,
sale, or rental of real estate. By contributing their capital the investors
acquire a right to this generated fund income. This right represents a
financial claim, which can be digitally represented in the form of an
investment token.
Currency tokens and utility tokens do not generally represent any
asset-related rights, which is why such structured tokens do not qualify as
units in an investment fund within the meaning of the KAGB or as units
in collective investment undertakings within the meaning of the
MiFID II.
Investment Product within the Meaning of the VermAnlG
To the extent that a token does not fall within the definition of a security
under the German Securities Prospectus Act (Wertpapierprospektgesetz –
WpPG) or the definition of a share in an investment fund within the
meaning of the KAGB as just described, it may meet the requirements of
section 1 (2) VermAnlG and thus would be nevertheless treated as a
financial instrument within the meaning of the WpHG in the form of an
investment product pursuant to section 2 (4) number 7 WpHG. The
definition of securities in section 2 (1) WpPG, which is based on Article
2, point (a) of Regulation (EU) 2017/1129 (EU Prospectus Regulation)
in conjunction with Article 4 (1), point (44) MiFID II, is consistent with
the concept of securities in the WpHG, which is why reference can be
made on this point to the explanations on security within the meaning of
the WpHG in Sect. 2.2.1 of this book.28
26
Volhard/Jang, 2021, KAGB § 1 (2).
27
Cf. Weitnauer, BKR 2018, 231 (234).
28
Kumpan, 2020, WpHG § 2 (5).
34 H. Appel
Classification as an investment product is also subsidiary to the quali-

fication as a deposit business within the meaning of the second sentence
of section 1 (1) KWG. Eventually, an instrument must represent one of
the cases of application described in section 1 (2) numbers 1 to 7
VermAnlG to qualify as an investment product. In its information letter
the BaFin clarifies that tokens can only meet the requirements of an
equity investment product (section 1 (2) number 1 VermAnlG), a patri-
archal loan (section 1 (2) number 3 VermAnlG), a subordinated loan
(section 1 (2) number 4 VermAnlG), a profit participation right (section
1 (2) number 5 VermAnlG) or another investment (section 1 (2) number
7 VermAnlG).29
Likewise, the actual design of the individual tokens is decisive for the
qualification as an investment product within the meaning of the
VermAnlG. The instruments mentioned by the BaFin regularly serve the
issuer to finance their undertakings.30 Currency tokens are generally
intended to fulfil a payment function. Additionally, utility tokens repre-
sent vouchers for specific services. In general, the issuance of these two
token classes does not primarily pursue the goal of raising funds. Only
crypto tokens designed as investment tokens have a financing character
so that a regulatory classification as an investment product within the
meaning of the VermAnlG can only be considered for tokens designed
accordingly.
2.2.2 Legal Consequences of Classification
If a token meets the requirements of a financial instrument within the

meaning of the WpHG, various legal consequences are triggered. Both
issuers and companies offering services in context with such tokens must
comply with the requirements of securities supervision. Given the abun-
dance of securities supervision regulations, only the most relevant provi-
sions are outlined below.
29
BaFin, 2018, p. 3.
30
Schwarz van Berk. 2018, § 42 (4).
First of all, in the case of public offerings of tokens in Germany, a pro-

spectus obligation may arise from the classification as a financial instru-
ment. For investment tokens that meet the definition of a security under
the WpHG or the MiFID II, this obligation may arise from Article 3 (1)
of the EU Prospectus Regulation, as the definition of a security under
Article 2, point (a) of the EU Prospectus Regulation also refers to Article
4 (1), point (44) MiFID II. If a token qualifies as a share in an investment
fund, the obligation to publish sales prospectuses and key investor infor-
mation is based on the various provisions of the KAGB. Classification of
the publicly offered investment token as an investment product results in
the obligation to publish a sales prospectus pursuant to section 6
VermAnlG.
Furthermore, issuers and service providers must comply with the vari-
ous obligations of the WpHG. Of particular importance are the conduct,
organisation and transparency obligations of Chapter 11 WpHG, as well
as the information obligations under sections 48 et seq. WpHG. In its
recommendation the ESMA clarifies that, in particular, the transparency
requirements of Directive 2013/50/EU regarding the information on
issuers whose securities are authorised for trading on a regulated market
shall be respected by issuers offering crypto tokens.31 These requirements
were mainly incorporated into the WpHG by the German Transparency
Directive Implementation Act32. They primarily comprise periodic and
ongoing disclosure obligations.
The qualification of a token as a financial instrument may also lead to
the application of Regulation No. 596/2014, the Market Abuse
Regulation (MAR), as its scope is also based on the concept of a financial
instrument within the meaning of the MiFID II. If the token fulfils the
additional requirements of Article 2 MAR, insider dealing, the unlawful
disclosure of inside information and market manipulation concerning
the token are prohibited pursuant to Articles 14 and 15 MAR. Article 17
MAR also contains an ad hoc disclosure obligation.33
31
ESMA, 2019, p. 23 f.
32
BGBl I No. 46 2029.
33
Kleinert/Mayer, EuZW 2019, 857 (860).
36 H. Appel
2.3 Classification under Banking

Supervisory Law
To ensure the stability of the financial system, undertakings in Germany
that conduct banking business commercially or on a scale which requires
commercially organised business operations are, in principle, directly
supervised by the BaFin, the DBB or the ECB regarding their incorpora-
tion and business operations.34 The activities requiring authorisation are
defined in section 1 (1) sentence 2 KWG (banking business) and section
1 (1a) sentence 2 KWG (financial services).
As in capital market law, the key connecting factor for banking busi-
ness and financial services is the concept of a financial instrument. Due
to the implementation of the MiFID II, the definitions of section 2
WpHG and section 1 KWG have been aligned but are not entirely iden-
tical with regard to the subgroups.35

of the KWG
The term financial instrument under banking supervision law is defined

in section 1 (11) sentence 1 KWG. In section 1 (11) sentence 1 number
10 KWG, crypto assets are explicitly mentioned as a subcategory of a
financial instrument within the meaning of the KWG. However, this
category was developed as a catch-all, wherefore we will discuss the pre-
cedence groups of financial instruments similar to securities, foreign
exchange and units of account, and derivatives first.36 As in capital markets
law, the legal classification of tokens depends on their specific design in
each case.37 Since, at the time of writing, no case has been identified in
which tokens are structured in analogy to money market instruments or
34
BaFin, 2019a.
35
Kumpan, 2020, WpHG § 2 (5).
36
BT-Drs 19/13.827 p. 110.
37
BaFin, 2019b, p. 11.
emission certificates, these subgroups of financial instruments within the

meaning of the KWG will not be elaborated on in this book.
Financial Instruments Similar to Securities

Regarding financial instruments similar to securities within the meaning
of section 1 (11) sentence 1 numbers 1 to 5 KWG, reference can be made
to the explanations in Sect. 2.2.1 of this book, due to the alignment by
the MiFID II. According to the BaFin, investment tokens used purely for
investment purposes can, in principle, meet the requirements of an invest-
ment product within the meaning of the VermAnlG (number 2), a debt
instrument (number 3) or an investment fund within the meaning of the
KAGB (number 5).38 Utility tokens and currency tokens do not qualify as
financial instruments similar to securities.
Foreign Exchange or Units of Account
Foreign exchange within the meaning of section 1 (11) number 6 KWG
are “foreign means of payment denominated in foreign currency with the
exception of foreign notes and coins”.39 Foreign notes and coins are cash
of a currency in circulation abroad. Thus, all non-cash means of payment
of a foreign currency, such as bank deposits, bills of exchange, cheques
and money orders, constitute foreign exchange.40 Tokens, including cur-
rency tokens, cannot be subsumed under this definition because, as
explained in detail in Sect. 1.2.1 of this book, they do not generally fulfil
the characteristics of a currency.
However, tokens may qualify as units of account within the meaning
of section 1 (11) number 6 KWG, which, although they are not legal
tender, are treated in the same way as foreign exchange.41 There is no
commonly accepted definition of a unit of account.42 The BaFin has
38
BaFin, 2021.
39
Schwennicke, 2021, KWG § 1 (249).
40
BaFin, 2021.
41
42
Spindler/Bille, WM 2014, 1357 (1361).
38 H. Appel
therefore established a broad understanding of the term in regulatory,

administrative practice.43
In the view of the supervisory authority, complementary currencies
issued under private law, such as currency tokens, fall within the defini-
tion of a unit of account.44 The German legislator confirmed this regula-
tory classification of currency tokens in the explanatory memorandum to
the Fourth EU Money Laundering Directive Implementing Act.45 In lit-
erature, however, this interpretation is regarded critically to some extent.46
One of the reasons for the critical evaluation of the classification is a
decision by the Berlin Court of Appeal,47 which denied the qualification
of Bitcoin as a unit of account within the meaning of section 1 (11) num-
ber 6 KWG. Utility and investment tokens do not regularly meet the
criteria of a unit of account due to their typical design.
Derivatives
Section 1 (11) sentence 5 KWG defines derivatives generally as future or
options contracts in the form of a purchase, exchange or similar transac-
tion, which are to be settled with a time lag and whose value is derived
directly or indirectly from the price or measure of an underlying (forward
contracts). Furthermore, section 1 (11) sentence 5, points (a) to (f ) KWG
contain a catalogue of possible underlying assets, which are aligned with
the MiFID II.48 In addition to the units of account just explained (point
(b)), this list also includes securities (point (a)).
Since the original definition of a security was deleted from the KWG
in 2013, the MiFID II must be used to define it.49 Accordingly, invest-
ment tokens can, in any case, serve as an underlying asset for forward
contracts. However, pure utility tokens do not qualify as securities within
43
Schäfer, 2016, KWG § 1 (287).
44
BaFin, 2021.
45
BT-Drs 19/13.827 p. 110.
46
Spindler/Bille, WM 2014, 1357 (1362); Terlau, 2017, § 55a (161).
47
KG, Urt. v. 25.09.2018 – (4) 161 Ss 28/18 (35/18).
48
49
Maume, 2020, § 12 (17).
the meaning of Article 4 (1), point (44) MiFID II. Also, they do not fall
under the definition of a unit of account. Hence utility tokens are not
classifiable in the catalogue of underlying assets. Currency tokens, as
opposed to the latter, can be the subject of a futures transaction since they
regularly classify as units of account.
Cryptoc Assets
Since 01.01.2020, crypto tokens may qualify as crypto assets under sec-
tion 1 (11) number 10 KWG subsidiary to the other subgroups of finan-
cial instruments. The term was included with the implementation of the
AMLD V into German law. The latter provides for an extension of the
scope of obligations under money laundering law to counteract the
potential for abuse of virtual currencies.50 Therefore, due to the amend-
ment by the AMLD V, the material scope of Directive (EU) 2015/849
now also includes service providers who exchange virtual currencies into
fiat money and vice versa (Article 2 (1), point (3)(g) AMLD V) and pro-
viders of electronic purses (Article 2 (1), point (3)(h) AMLD V).
However, the requirements of Union law refer only to virtual curren-
cies, which are defined in Article 3, point (18) AMLD V as digital repre-
sentations of value that is not issued or guaranteed by a central bank or
public authority, is not necessarily attached to a legally established cur-
rency and does not possess a legal status of a currency or money, but is
accepted by natural or legal persons as a means of exchange and which
can be transferred, stored and traded electronically.
The German legislator, in contrast, has extended the definition when
implementing. On the one hand, this entails the inclusion of means of
payment and investments as purposes of use of crypto assets and, on the
other hand, in the addition of how these purposes are to be determined.
Pursuant to the fourth sentence of section 1 (11) KWG crypto assets are
digital representations of value that are not issued or guaranteed by a
50
Recital 8 of Directive (EU) 2018/843.
40 H. Appel
central bank or public authority and do not possess the legal status of
currency or money, but are accepted by natural persons or legal entities as
a means of exchange or payment on the basis of an agreement or actual
practice or serve investment purposes and can be transferred, stored and
traded electronically [emphasis added].
To comply with recital 10 of the AMLD V, the German legislator
included an exception in section 1 (11) sentence 5 KWG, which excludes
electronic money within the meaning of the German Payment Services
Oversight Act (Zahlungsdiensteaufsichtsgesetz – ZAG) and certain mone-
tary assets from the definition.51 However, the EU wording does not pro-
vide for such a negative definition.
The German legislator justifies the extension of the definition by stat-
ing that the limitation to the purpose as a mean of exchange in the statu-
tory definition is not in accordance with recital 10 of the amending
Directive.52 Hence, “all potential uses of virtual currencies”53 are to be
covered by the AMLD V. The enumerated fields of application of tokens
(“as means of exchange, investment, store-of-value products or use in
online casinos”54) would also indicate a broader scope than the actual
definition implies. In principle, it is possible to use a broad interpretation
of the concept of a means of exchange so that all types of tokens would
qualify. However, apart from the deviations from recital 10, a narrow
understanding of the notion seems preferable from an economic point
of view.55
Furthermore, recitals of secondary legislation are not legally binding,
whereas secondary legislation, according to Article 288 (2) and (3) TFEU,
is. Based on this understanding, the definition of virtual currency under
Union law only includes currency tokens. Investment and utility tokens
do not fall within the scope, as they do not fulfil the function of a means
of exchange in the narrower sense.
51
BT-Drs 19/13.827 p. 110.
52
BT-Drs 19/13.827 p. 110.
53
54
55
Cf. Fromberger/Haffke/Zimmermann, BKR 2019, 377 (380); Zöllner, BKR 2020, 117 (121).
The definition of crypto assets in the fourth sentence of section 1 (11)

KWG, in contrast, does cover investment tokens and some utility tokens
due to the additional purposes.56 By their very nature, investment tokens
serve investment purposes, wherefore their subsumption under the defini-
tion is not questionable. In the absence of a legal definition of the invest-
ment purpose, however, utility tokens require closer examination.57
The legislator states that “pure electronic vouchers for the purchase of
goods or services of the issuer or a third party in exchange for the provi-
sion of a corresponding counter value, which are only intended to have
an economic function through redemption towards the issuer and which
are therefore not tradable and which, due to their design, do not reflect
an investor-like expectation of the performance of the voucher or the
general business performance of the issuer or a third party in terms of
value or calculation”,58 do not fall within the scope of the requirements
under money laundering law. Presumably, the German legislator intended
to regulate the trading of utility tokens on secondary markets with this
justification.
The legislator did not further explain the investor-like expectation in
the explanatory memorandum. Investors regularly expect an increase in
the value of their invested capital. If there is a demand for the service
represented in the utility token and the issuer of the token does not issue
any further tokens of this type, the value of the utility token increases.
For this reason, utility tokens can, in principle, serve an investment pur-
pose. The premises are thus misleading to some extent. The investor-like
expectation does not necessarily result from the issuer’s token design but
rather from the market interest.
Furthermore, the conclusion is erroneous that tokens which are
intended to have an economic function only through redemption towards
the issuer and are, therefore, non-tradable.59 A contractual agreement on
the token may indeed provide that the token is intended to be redeem-
able only against the issuer. By including the criterion, the legislator even
56
BT-Drs 19/13.827 p. 110.
57
Resas/Ulrich/Geest, ZBB/JBB 1/2020, p. 26.
58
BT-Drs 19/13.827 p. 110.
59
Similarly Fromberger/Haffke/Zimmermann, BKR 2019, 377 (384).
42 H. Appel
clarifies that tokens can, in principle, be used de facto for other purposes
in deviation from agreements with the issuer. As utility tokens can be
traded on a secondary market, they can also develop an economic value
towards other market participants. Only the issuer can prevent the trad-
ing of utility tokens by using a so-called lock-up.60 This is a “technical
transfer lock”61, which prevents further allocations to other public keys
after the token has been issued to the public key of the buyer for the first
time. Accordingly, the lack of trade ability does not result from the pur-
pose of the token but from its technical design. In addition, the defini-
tion of the fourth sentence of section 1 (11) KWG already presumes
trade ability for qualification as a crypto asset, which is why mention-
ing it again seems questionable.
Therefore, when classifying utility tokens under banking supervision
law, one must first assess whether the purchasers of the token can derive
investor-like expectations from an agreement, such as an increase in the
value of the capital invested. If this is not the case, one must consider the
actual use. In the case of an initial public offering, however, this is not
possible, so utility tokens that are not based on a respective agreement do
not initially fall under the definition of a crypto asset pursuant to the
fourth sentence of section 1 (11) KWG.
According to the derogation of section 1 (11) sentence 5 KWG, elec-
tronic money as well as some payment instruments and transactions
within the meaning of the ZAG do not fall within the concept of crypto
assets. A qualification of a crypto token as electronic money within the
meaning of section 1 (2) sentence 3 ZAG, based on Directive 2009/110/
EC, requires that the tokens are issued in exchange for legal tender as well
as grant a right of return and that third parties accept the tokens as means
of payment.62 This exception of the scope is consistent with the EBA’s
view that crypto assets may, in principle, qualify as electronic money.63 If
tokens of a crypto asset are used in interconnected payment systems and
60
61
62
BaFin, 2019b, p. 10.
63
EBA, 2019.
for payment transactions of providers of electronic communication net-

works or services, they are also excluded from the scope of the KWG.64
2.3.2 Legal Consequences of Classification
Classification of a crypto token as a financial instrument within the

meaning of the KWG entails various legal consequences. Of utmost
importance for supervisory law is the requirement of authorisation for
certain activities that are commercial in nature or, to an extent, that
requires business operations to be conducted commercially. The licensing
requirements can arise from the KWG, the ZAG or the KAGB. Anyone
who fulfils the criteria for an activity requiring an authorisation qualifies
as a credit or financial services institution, a capital management company or
a payment institution. Pursuant to section 2 (1) of the German Money
Laundering Act (Geldwäschegsetz – GwG), these groups are obliged to
comply with the provisions of money laundering law.
Indeed, the various types of authorisations are generally related to the
specific business activity and not to the operator of the activity itself.
Nevertheless, in the interest of clarity, an explanation is provided below
of which activities requiring authorisation are relevant for the individual
market participants described in Sect. 1.4 of this book. The details of the
offences will only be dealt with if particularities for crypto-related activi-
ties exist. In general, however, this is not the case.65
Issuers
With regard to the required authorisation for issuers, one can distinguish
between the creation, issuance and public offering of the tokens. Generation
of the tokens by initiating the crypto asset does not constitute an activity
requiring authorisation.66 Additionally, commercial activity is not evi-
dent herein. It is generally possible to tokenise assets for one’s use without
wanting to place them on the financial markets. Regulation of pure cre-
ation would therefore be excessive.
64
65
BaFin, 2019b, p. 12.
66
BaFin, 2019b, p. 12.
44 H. Appel
The initial offering of crypto tokens by an issuer to third parties also

does not qualify as an activity requiring authorisation.67 It is only when
the tokens are actually issued that an authorisation may be required.
Depending on the design of the tokens and the rights related to them.68
If the tokens are issued in exchange for cash or book money, the issuance
could be classified as operating a deposit business within the meaning of
section 1 (1) sentence 2 number 1 KWG and thus entail an authorisation
requirement pursuant to section 32 (1) sentence 1 KWG, to the extent
that the issuer has endowed the tokens with an unconditional promise of
repayment to the investors upon initialisation of the crypto asset.69 The
issuance in exchange for complementary currencies, such as tokens of
another crypto asset, does not fulfil the requirement of the deposit
business.70 If a company issues specially created tokens only against
Bitcoins or Ether, for example, it does not need to apply for authorisation
under the KWG. If the issuance qualifies as a deposit business pursuant
to section 1 (1) sentence 2 number 1 KWG, the issuer is to be classified
as a credit institution and thus obliged to comply with the requirements
of money laundering law according to section 2 (1) number 1 GwG.
Insofar as the tokens are accepted as means of payment by third parties
in addition to the issuance of the tokens in exchange for legal tender and
the granting of an unconditional redemption claim, the KWG authorisa-
tion is not pertinent due to the derogation of section 1 (11) sentence 5
KWG. Instead, the issuer requires authorisation under section 11 ZAG
to operate the e-money business.71 In this case, the issuer is subject to the
obligations of money laundering law according to section 2 (1) num-
ber 3 GwG.
Under certain circumstances, the initiator of a crypto asset could also
classify as the operator of a capital management company, which would
entail an authorisation requirement pursuant to sections 44 (1) sentence
1 number 1 and 20 (1) KAGB.72 Prerequisite for this is that the issuer
67
BaFin, 2019b, p. 12.
68
Maume, 2020, § 12 (86).
69
BaFin, 2019b, p. 9, Schwennicke, 2021, KWG § 1 (11 f.).
70
BaFin, 2014b.
71
BaFin, 2019b, p. 10.
72
BaFin, 2019b, p. 10.
gives an undertaking according to section 1 (1) KAGB that he will invest

the capital collected through the issuance in accordance with a defined
investment strategy for the benefit of the investors. By qualifying as a
capital management company, the issuer falls within the scope of those
obligated under money laundering law pursuant to section 2 (1) number
9 of the GwG.
Wallet Provider
In Germany, the obligation to supervise wallet providers under money
laundering law, imposed by Article 2 (1), point (3)(h) AMLD V, was
implemented through the introduction of the crypto custody business.
According to Article 3, point (18) AMLD V, a custodian wallet pro-
vider is an entity that provides services to safeguard private crypto-
graphic keys on behalf of its customers to hold, store and transfer virtual
currencies.
Instead of including a new obligated party in section 2 GwG, the
German legislator has introduced the crypto custody business as a new
type of financial service in the catalogue of services requiring an authori-
sation pursuant to section 1 (1a) sentence 2 number 6 KWG, so that
crypto custodians as financial services institutions now fall within the
scope of obligated parties in accordance with section 2 (1) number 2
GwG.73 The legal consequences for wallet providers operating in
Germany are thus more extensive than intended by the EU legislator.
The latter did not aim to make wallet providers subject to authorisation
but merely to monitor their activities under money laundering law.74
The German legislator justifies its more far-reaching approach with the
need to protect customers from the not insignificant risks associated
with cryptocurrencies.75
Pursuant to section 1 (1a) sentence 2 number 6 KWG, the crypto
custody business is defined as the custody, management and protection of
crypto assets or private cryptographic keys used to keep, store or transfer
73
BT-Drs 19/13.827, p. 109.
74
75
BT-Drs 19/13.827, p. 109.
46 H. Appel
crypto assets for others. In principle, the mere presence of one of the vari-
ants is already sufficient to fulfil the offence of the crypto custody
business.76 Also, in this respect, the German legislator exceeds the required
level of the EU standards. The definition of a custodian wallet provider
under EU law only refers to virtual currencies. These only include cur-
rency tokens. By using the term crypto asset, the scope of the German
definition is also extended to investment and some utility tokens, result-
ing in a comprehensive regulation of the crypto market.
According to the German legislator, the crypto custody business is
subsidiary to the deposit and the restricted custody business.77 However,
despite some parallels to the deposit business, parts of the literature as
well as the BaFin, hold the view that, due to the lack of securitisation of
the right represented by the token, the custody of crypto tokens cannot
be classified as a deposit business pursuant to section 1 (1a) sentence 2
number 5 KWG and that this subsidiarity is therefore irrelevant.78
Nevertheless, the BaFin’s administrative practice with regard to deposit
business can be used as a guide when interpreting the criteria.79
In line with the custodial activities of the deposit business, the German
legislator understands custody within the meaning of section 1 (1a) sen-
tence 2 number 6 KWG as the custody of crypto assets providing services
for third parties.80 The explanatory memorandum to the law explicitly
refers to the custody of service providers “who store their customers’
crypto assets in a collective portfolio without the customers themselves
knowing the cryptographic keys used in the process”81. Custody means
transferring the token into the service provider’s domain so that the token
is accessible to the service provider.82 A token passes into the other per-
son’s domain by being assigned to that person’s public key. The wallets
explained in Sect. 1.4.2 of this book only refer to the storage of private
keys and not of crypto assets themselves. However, so-called omnibus
76
BT-Drs 19/13.827, p. 109.
77
BT-Drs 19/13.827, p. 109.
78
BaFin, 2020a; Maume, 2020, § 12 (79); Rennig, BKR 2020, 23 (27).
79
Maume, 2020, § 12 (84); Rennig, BKR 2020, 23 (28).
80
BT-Drs 19/13.827, p. 109; Resas/Ulrich/Geest, ZBB/JBB 1/2020, p. 29.
81
BT-Drs 19/13.827, p. 109.
82
Behrens/Schadtle, WM 2019, 2099 (2103); Schwennicke, 2021, KWG § 1 (50).
wallets and multi-signature wallets are likely to meet the criteria for secure
holding on a regular basis.83
In using the term management, the legislator has also drawn inspira-
tion from the deposit business.84 Management in the context of the
crypto custody business means “in the broadest sense, the ongoing exer-
cise of the rights arising from the crypto asset”85. In addition to the right
to dispose of the crypto asset, the exercise of voting or co-management
rights or the use of the service linked to the token, for example, is also
likely to be regarded as an administrative activity. In any case, the service
provider must be granted access to the owner’s private key for the ongo-
ing exercise of the right to sell or use the service. If the service provider
only fulfils notification or monitoring obligations, the owner does not
need to disclose the private key to the service provider.86
Protection is understood to be “both the digital storage of the private
cryptographic keys of third parties provided as a service and the storage
of physical data carriers (e.g. a USB stick or a sheet of paper) on which
such keys are stored”87. In this context, it is essential to note that if the
service recipient uses the hardware or software independently, without
the service provider being able to access the stored information as
intended, an activity requiring authorisation pursuant to section 1 (1a)
sentence 2 number 6 KWG does not arise.88 Accordingly, a person who
secures her tokens within a hardware or paper wallet located in her
domain does not qualify as a crypto custodian requiring authorisation.
However, if the person transfers the hardware or paper wallet to a third
party, this third party will qualify as a crypto custodian if the service is
performed commercially. The provision of a software wallet also does not
constitute crypto custody within the meaning of section 1 (1a) sentence
2 number 6 KWG, as the service consists solely in creating the software
and not storing the crypto asset or the private key.89 Providing an online
83
84
85
BT-Drs 19/13.827, p. 109.
86
87
BT-Drs 19/13.827, p. 109.
88
BT-Drs 19/13.827, p. 109.
89
Behrens/Schadtle, WM 2019, 2099 (2103); Resas/Ulrich/Geest, ZBB/JBB 1/2020, p. 31.
48 H. Appel
wallet, in contrast, regularly qualifies as crypto custody within the mean-

ing of the KWG.90 Only service providers who “do not offer their services
explicitly for storage of private cryptographic keys” are excluded.91 If, for
instance, a token owner uploads a classic Word document containing his
private keys to a cloud storage such as OneDrive, Microsoft is not subject
to banking supervision.
The criterion of acting on behalf of others is fulfilled if the activity is car-
ried out for a third party outside the own company, not by way of disclosed
agency.92 Since there is no reason for customer protection in the case of
own custody due to the lack of a provider-user relationship, and it never-
theless does not pose any risks for the markets, it appears appropriate not
to subject this form of crypto custody under the supervision of the BaFin.
A wallet provider only has to apply for an authorisation pursuant to
sections 32 (1) sentence 1, 1 (1a) sentence 2 number 6 KWG if he pro-
vides crypto custody on a commercial basis or to an extent that requires
a commercially established business. The BaFin has not yet commented
on the interpretation of this criterion. In analogy to the deposit business,
the custody of cryptographic keys for five or more customers or of a total
of at least 25 crypto assets is likely to be considered a commercial service.93
Operator of Trading Platforms
In practice, service providers usually offer trading in crypto tokens or pri-
vate keys in addition to custody.94 In this case, the authorisation for the
crypto custody business alone does not suffice. Moreover, trading plat-
forms that only want to provide commercial trading of crypto assets as a
service must also obtain authorisation according to section 32 (1) sentence
1 KWG. The underlying activity requiring authorisation depends on the
specific design of the platform, which can be very different in principle.95
According to the BaFin, the activities of operators of trading platforms
requiring authorisation include the operation of principal broking services
according to section 1 (1) sentence 2 number 4 KWG, underwriting
90
Behrens/Schadtle, WM 2019, 2099 (2103).
91
BT-Drs 19/13.827, p. 109.
92
BaFin, 2020a.
93
Rennig, BKR 2020, 23 (28).
94
Behrens/Schadtle, WM 2019, 2099 (2102).
95
Patz, BKR 2019, 435 (436).
business according to section 1 (1) sentence 2 number 10 KWG, a multi-

lateral trading facility (MTF) according to section 1 (1a) sentence 2 num-
ber 1b KWG or an organised trading facility (OTF) according to section
1 (1a) sentence 2 number 1d KWG as well as the provision of investment
or contract broking according to section 1 (1a) sentence 2 number 1 or
number 2 KWG, of investment advice according to section 1 (1a) sen-
tence 2 number 1a KWG, of placement business according to section 1
(1a) sentence 2 number 1c KWG, of portfolio management according to
section 1 (1a) sentence 2 number 3 KWG, of proprietary trading pursuant
to section 1 (1a) sentence 2 number 4 KWG and of asset management
according to section 1 (1a) sentence 2 number 11 KWG.96
If a platform fulfils one of the criteria of a banking business according
to section 1 (1) sentence 2 KWG, it constitutes a credit institution and is
subject to the obligations under money laundering law according to sec-
tion 2 (1) number 1 GwG. If the trading platform operates within the
scope of a financial service requiring authorisation according to section 1
(1a) sentence 2 KWG, it qualifies as a financial services institution and is
thus subject to obligations pursuant to section 2 (1) number 2 GwG.
Principal Broking Service With regard to the fulfilment of the authori-
sation required principal broking service, the BaFin has specifically for-
mulated four criteria for crypto platforms based on the legal definition of
section 1 (1) sentence 2 number 4 KWG.97 First, the various participants
of the platform must have a right of direction concerning the transaction
details, such as the quantity and price of the transactions. Second, the
trading partners must be unknown to each other. Third, the transaction
must be carried out by the trading platform in its own name for the
account of the trading partners, which means that the economic advan-
tages and disadvantages arising from the transaction must affect the trad-
ing partners themselves and not the platform. Lastly, the platform must
commit towards the participants to report on the course of the transac-
tions as well as to transfer the traded crypto assets. With regard to the
crypto service providers described in Sect. 1.4.2 of this book, centrally
96
BaFin, 2019b, p. 11 f.
97
On this and the following: BaFin, 2020b.
50 H. Appel
structured trading platforms probably meet the criteria for principal

broking service pursuant to section 1 (1) sentence 2 number 4 KWG on
a regular basis.98 In addition to the obligation to obtain authorisation for
the trading of investment tokens, the trading platform is required to exe-
cute its customer orders to the best of its ability pursuant to section 2 (8)
number 1 WpHG in conjunction with section 82 WpHG.99
Multilateral Trading System Operating an MTF is the most important
business in the market.100 Pursuant to section 1 (1a) sentence 2 number
1b KWG, such a system exists if it brings together a large number of
persons’ interests in the purchase and sale of financial instruments within
the facility according to set rules in a way that results in a purchase agree-
ment for these financial instruments. The existence of a set of rules con-
taining provisions on membership, admission to trading in financial
instruments, trading between members, notifications of executed trans-
actions and disclosure obligations is decisive.101
It is also crucial that the members of the system cannot determine
their contracting party themselves because the matching has to take place
automatically via software or protocols.102 Trading, therefore, does not
take place bilaterally with the platform’s operator but between a large
number of members of the system. Consequently, the system has a mar-
ketplace function.103 The system’s operator exclusively brings together the
parties to a potential transaction, which is why only decentrally struc-
tured trading platforms fulfil the requirements for operating an MTF if a
corresponding set of rules is in place.
Central trading platforms can only qualify as MTFs if they stipulate in
the underlying rulebook that the economic consequences of trading are
98
Similarly Maume, 2020, § 12 (70).
99
Patz, BKR 2019, 435 (440).
100
Maume, 2020, § 12 (47).
101
BT-Drs 16/4028, 56.
102
BaFin, 2020b.
103
solely borne by the members.104 However, this would be unusual for the
design of a centrally structured trading platform.
According to the BaFin, platforms where users make the transaction of
their placed crypto assets conditional on reaching a price threshold fulfil
the criteria of an MTF.105 By trading investment tokens, the requirements
of sections 63 et seq. WpHG, in particular sections 72 and 74 WpHG,
also apply to the operation of an MTF.106
Organised Trading System Similar to an MTF, an OTF is operated
within the meaning of section 1 (1a) sentence 2 number 1d KWG, which
also constitutes a financial service requiring an authorisation. An OTF is
a multilateral system, but it is not an organised market or MTF and
brings together the interests of a large number of third parties in the pur-
chase and sale of bonds, structured financial products, emission certifi-
cates or derivatives within the system in a way that leads to a contract for
the purchase of these financial instruments.
The decisive difference to MTFs is the operator’s discretion, for
instance, with regard to the matching of participants, the granting of
access or the forwarding of orders.107 Since only debt instruments within
the meaning of section 1 (11) sentence 1 number 3 KWG can be traded
on OTFs, only transactions in investment tokens similar to such a debt
instrument can be carried out on an OTF accordingly.108 Consequently,
the operator of the OFT is obliged to comply with the special require-
ments of sections 72 and 75 WpHG.109
Proprietary Trading Furthermore, crypto services may qualify as pro-
prietary trading. The prerequisite for this is, pursuant to section 1 (1a)
sentence 2 number 4 letter a KWG, the continuous offering to purchase
and sell financial instruments at prices set by the bank for its own account
using its own capital or, pursuant to section 1 (1a) sentence 2 number 4
104
Maume, 2020, § 12 (50).
105
BaFin, 2020b.
106
Patz, BKR 2019, 435 (438).
107
Schwennicke, 2021, KWG § 1 (107e).
108
Maume, 2020, § 12 (60); Schwennicke, 2021, KWG § 1 (107f ).
109
Maume, 2020, § 12 (59).
52 H. Appel
letter c KWG, to purchase or sell financial instruments for its own

account as a service for others.
It is necessary to differentiate between proprietary trading and propri-
etary business that does not require authorisation within the meaning of
section 1 (1a) sentence 3 KWG. The BaFin states that the service must
specifically contribute to creating and maintaining the market instead of
merely participating in it.110 Market management, fixed-price and open
transactions, as well as clearing and transactions safeguarding interests,
are regularly to be qualified in the sense of proprietary trading.111
The BaFin also classifies the exchange of currency tokens into legal cur-
rencies and vice versa as proprietary trading if the trader publicly adver-
tises that she regularly buys and sells such tokens.112 According to the
BaFin’s second guidance letter, it can be assumed that exchanging invest-
ment and utility tokens into legal currencies and vice versa for own
account also fulfils the offence of proprietary trading.113 Since the law
does not specify what type of consideration must be given when trading
the financial instrument, it is evident that the exchange of tokens of one
crypto asset for tokens of another crypto asset for one’s own account also
qualifies as proprietary trading.114 Crypto exchanges such as anycoindi-
rect or stormgain would consequently require an authorisation according
to section 32 (1) sentence 1 KWG.
Crypto services can also classify as systematic internalisation, a specific
form of proprietary trading pursuant to section 1 (1a) sentence 2 number
4 letter b KWG. Accordingly, it is systematic internalisation in proprie-
tary trading when the entity trades, often for its own account, in an
organised and systematic manner outside an organised market or a mul-
tilateral trading facility by providing a system accessible to third parties to
transact business with these third parties. Whether it is frequent, system-
atic trading is determined in accordance with section 1 (1a) sentence 5
110
BaFin, 2020b.
111
112
BaFin, 2020b.
113
BaFin, 2019b, p. 11.
114
Maume, 2020, § 12 (64).
KWG; whether there is trading on a substantial scale is determined in

accordance with section 1 (1a) sentence 6 KWG.
The central element of the definition for the classification of trading
platforms is the frequent execution of token transactions for their own
account. A centrally structured trading platform that regularly executes
transactions via its own public keys and uses tokens from its own portfo-
lio for this purpose will most likely be classified as a systematic
internaliser.115 Also, in the case of systematic internalisation, an invest-
ment service is provided according to section 2 (8) number 2 letter b
WpHG when transactions relating to investment tokens are executed,
which also results in further obligations under the WpHG.116
Investment and Contract Broking Trading platforms for crypto assets
can also operate in the form of investment broking or contract broking.
According to section 1 (1a) sentence 2 number 1 KWG, investment
broking is the brokering of business involving purchasing and selling
financial instruments.
Therefore, the business activity of the trading platform shall be the
deliberate and ultimate causation of the willingness to conclude a con-
crete transaction by forwarding the investors’ declarations of intent.117
The trading platform thereby becomes active as a messenger for the ser-
vice recipient.118 However, if the platform operator only offers contact
possibilities for sellers and buyers without naming a concrete transaction,
it does not qualify as investment broking. A platform that, for example,
only publishes the public keys of prospective buyers or sellers of a crypto
asset for everyone is generally not to be classified as an investment broker.
The platform cannot influence who accesses the information and which
specific transaction is carried out by retrieving the public keys, so the ele-
ment of influence is not likely to be fulfilled.
115
Patz, BKR 2019, 435 (438).
116
Maume, 2020, § 12 (68).
117
BaFin, 2017.
118
Maume, 2020, § 12 (73).
54 H. Appel
However, if registration of the interested parties is required for access-

ing the public keys, the transaction can only be carried out with the ser-
vice provider participating, so that investment broking may be
presumed.119 The actual execution of the transaction is nevertheless the
responsibility of the parties to the transaction, as the platform is only
involved in arranging the willingness to conclude the transaction.
Decentrally structured trading platforms regularly operate in this
form, so they generally classify as investment brokers under section 1 (1a)
sentence 2 number 1 KWG.120 Additionally, the BaFin subsumes the
offering of “regionally structured lists of persons or companies offering
VC [Virtual Currencies] for sale or purchase”121 under the criteria of
investment and acquisition brokerage.
Contract broking according to section 1 (1a) sentence 2 number 2
KWG (and also portfolio management according to section 1 (1a) sen-
tence 2 number 3 KWG) may be applicable if the trading platform acts
on a disclosed agency basis for the seller or buyer of a crypto asset instead
of being a messenger.122 Contract broking is the purchase and sale of
financial instruments on behalf of and for the account of others. Although
a contract broker provides a declaration of intent on behalf of the service
recipient, this constitutes a separate declaration of intent on the part of
the service provider.123 Since the platform acts with the power of repre-
sentation for the user, it has discretionary power as a contract broker with
regard to the submission of the offer or the acceptance.124
In contrast to the operation of an MTF, the service provider may influ-
ence which parties enter into a contract.125 Therefore, contract broking
pursuant to section 1 (1a) sentence 2 number 2 KWG can only be con-
sidered for centrally structured trading platforms which, as an intermedi-
ary, take over the contract negotiations on behalf of the service recipient.
119
Patz, BKR 2019, 435 (440).
120
Maume, 2020, § 12 (71).
121
BaFin, 2020b.
122
BaFin, 2017.
123
BaFin, 2014a.
124
BaFin, 2014a; Maume, 2020, § 12 (75).
125
Patz, BKR 2019, 435 (440).
Since no particularities arise for crypto tokens, which classify as finan-

cial instruments, from the prerequisites of the other possible authorisa-
tion criteria (financial portfolio and asset management, investment advice
as well as placement business), and they are therefore applicable in the
same way as for classic financial instruments,126 they are not further
elaborated.
Providers of Tumbler Services
The classification of tokens as a financial instrument has no regulatory
relevance for providers of tumbler services. Their service cannot be sub-
sumed under the catalogue of banking business or financial services
requiring an authorisation pursuant to section 1 (1) sentence 2 and (1a)
sentence 2 KWG. In addition, the ZAG or the KAGB explicitly exclude an
authorisation requirement. As a result, providers of tumbler services do
not fall within the scope of the GwG. The AMLD V did not provide for
an extension of the catalogue of obligated persons. Hence the German
provisions comply with the EU requirements.

Individuals looking to invest in crypto assets should ask themselves the fol-
lowing questions, among others:
• What kind of crypto assets do I want to invest in?

• Do I feel sufficiently protected by the regulatory measures to invest?
• What level of third-party support do I need when buying/selling
crypto tokens?
• Do I want to use third-party services to hold my crypto assets/tokens/keys?

• What are my obligations under securities law as an issuer of crypto

assets? For example, do I comply with the prospectus obligation?
• In what form do I want to offer my service?
• Do I meet all the criteria for the relevant financial service?
• Do I have all the necessary documents to apply for a licence in accor-
dance with section 32 KWG?
126
BaFin, 2019b, p. 11.
56 H. Appel
References
BaFin (2014a). Hinweise zum Tatbestand der Abschlussvermittlung. https://
www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/
mb_091204_tatbestand_anlagevermittlung.html. Accessed: 21.03.2021.
BaFin (2014b). Hinweise zum Tatbestand des Einlagengeschäfts. https://www.
bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/mb_140311_tat-
bestand_einlagengeschaeft.html. Accessed: 21.03.2021.
BaFin (2016). Europäische Aufsicht. Die Einordnung eines Kryptotoken als
Finanzinstrument. Accessed: 21.03.2021.
BaFin (2017). Hinweise zum Tatbestand der Anlagevermittlung. https://www.
bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/mb_091204_tat-
bestand_anlagevermittlung.html. Accessed: 21.03.2021.
BaFin (2018). Aufsichtsrechtliche Einordnung von sog. Initial Coin Offerings
(ICOs) zugrunde liegenden Token bzw. Kryptowährungen als
Finanzinstrumente im Bereich der Wertpapieraufsicht, GZ: WA 11-QB
4100–2017/0010. Hinweisschreiben. https://www.bafin.de/SharedDocs/
Downloads/DE/Merkblatt/WA/dl_hinweisschreiben_einordnung_ICOs.
BaFin (2019a). Bankenaufsicht. https://www.bafin.de/DE/DieBaFin/Aufgaben
Geschichte/Bankenaufsicht/bankenaufsicht_node.html. Accessed: 21.03.2021.
BaFin (2019b). Zweites Hinweisschreiben zu Prospekt- und Erlaubnispflichten
im Zusammenhang mit der Ausgabe sogenannter Krypto-Token, GZ: WA
51-Wp 7100–2019/0011 und IF 1-AZB 1505–2019/0003. https://www.
bafin.de/SharedDocs/Downloads/DE/Merkblatt/WA/dl_wa_merkblatt_
ICOs.html. Accessed: 21.03.2021.
BaFin (2020a). Hinweise zum Tatbestand des Kryptoverwahrgeschäfts. https://
www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/mb_200302_
kryptoverwahrgeschaeft.html?nn=13733456. Accessed: 21.03.2021.
BaFin (2020b). Virtuelle Währungen/Virtual Currency (VC). https://www.
bafin.de/DE/Aufsicht/FinTech/VirtualCurrency/virtual_currency_artikel.
BaFin (2021). Hinweise zu Finanzinstrumenten nach § 1 Abs. 11 Sätze 1 bis 5
KWG. https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/
mb_111220_finanzinstrumente.html. Accessed: 21.03.2021.
Behrens, A. & Schadtle, K. (2019). Erlaubnispflichten für Bank- und
Finanzdienstleistungen im Zusammenhang mit Kryptowerten nach
Umsetzung der Fünften EU-Geldwäscherichtlinie. WM, 2099–2104.
EBA (2019). Report with advice fort he European Commission on crypto-

21.03.2021.
Fromberger, M., Haffke, L. & Zimmermann, P. (2019). Kryptowerte und
Geldwäsche. BKR, 377–386.
Fromberger, M. & Zimmermann, P.: § 1 Technische und rechtstatsächliche
Grundlagen, in: Maume, P. et al. (Hrsg.) (2020). Rechtshandbuch Kryptowerte
(1. Aufl.). München: C.H. Beck.
Hakenberg, M.: Kapitalmarktrecht, in: Weber, K. (Hrsg.) (2020). Creifelds
kompakt. Rechtswörterbuch (3. Ed.). München: C.H. Beck.
3278–3283.
Kleinert, U. & Mayer, V. (2019). Elektronische Wertpapiere und Krypto-Token.
EuZW, 857–863.
Kumpan, C.: WpHG § 2 Begriffsbestimmungen, in: Schwark, E. & Zimmer,
D. (Hrsg.) (2020). Kapitalmarktrechts-Kommentar (5. Aufl.). München:
C.H. Beck.
Maume, P.: § 12 Finanzdienstleistungsaufsichtsrecht, in: Maume, P. et al. (Hrsg.)
Omlor, S. (2019). Kryptowährungen im Geldrecht. ZHR (183), 294–345.
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Der Versuch einer Konturierung des neuen Erlaubnistatbestands. ZBB/JBB
(1), 22–35.
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(2016). KWG – CRR-VO (5. Aufl.). München: C.H. Beck.
Schwarz van Berk, P.: § 42 Vermögensanlagengesetz, in: Pöllath, R. et al. (Hrsg.)
(2018). Private Equity und Venture Capital Fonds (1. Aufl.). München:
C.H. Beck.
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Auerbach, D. (Hrsg.) (2021). Kreditwesengesetz (KWG) mit
Zahlungsdiensteaufsichtsgesetz (ZAG) Kommentar (4. Aufl.). München:
C.H. Beck. Zitiert: Bearbeiter in KWG mit ZAG Kommentar Gesetz § Rn.
Spindler, G. & Bille, M. (2014). Rechtsprobleme von Bitcoins als virtuelle
Währung. WM, 1357–1369.
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Coins), in: Schimansky, H. et al. (Hrsg.) (2017). Bankrechts-Handbuch (Bd.
I, 5. Aufl.). München: C.H. Beck.
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W. et al. (Hrsg.) (2021). KAGB Kommentar (3. Aufl.). München: C.H. Beck.
Weiß, Hagen (2019). Tokenisierung. BaFinJournal. https://www.bafin.de/
SharedDocs/Veroeffentlichungen/DE/Fachartikel/2019/fa_bj_1904_
Tokenisierung.html. Accessed: 21.03.2021.
Weitnauer, W. (2018). Initial Coin Offerings (ICOs): Rechtliche
Rahmenbedingungen und regulatorische Grenzen. BKR, 231–236.
Zöllner, L. (2020). Kryptowerte vs. Virtuelle Währungen. BKR, 117–125.
3
Developments at the National
and EU Level
• The Liechtenstein Token and Trusted Technology Service Provider Act

takes a pioneering role with regard to the regulation of crypto assets.
• In addition to supervisory provisions, the TVTG also contains civil law
clauses.
• The European Commission published a proposal for a Regulation on
Markets in Crypto-assets on 25 September 2020.
• This proposal primarily contains regulatory requirements for crypto
assets in financial market law. The proposal consists of a multi-level
system with regard to the degree of regulation.
Apart from Germany, other member states of the EU have also identified
the need for regulating crypto assets and thus have enacted respective
national regulations.1 Particularly noteworthy in this regard is the
Liechtenstein Token and Trusted Technology Service Providers Act
(TVTG), which established an essential legal framework for token-related
market participants in Liechtenstein. However, other Member States,
such as Malta and France, have already developed and adopted discrete
1
ESMA, 2019, p. 48 f.

60 H. Appel
legal provisions to regulate the crypto market in 2018 and 2019.2

However, at the EU level, legislation is progressing more gradually. On
25 September 2020, slightly more than two years after the first token-
regulating legislation within the European Economic Area (EEA), a pro-
posal for a Regulation of the European Parliament and of the Council on
Markets in Crypto-assets (MiCAR) was published by the European
Commission.3
3.1 The Liechtenstein Token and Trusted

Technology Service Provider Act
The TVTG, which came into force in the Principality of Liechtenstein on
01 January 2020, takes a pioneering role with regard to regulating crypto
assets. It is the first law in the German-speaking area that has established
a clear legal framework for crypto assets.
As a member of the EEA, the Principality of Liechtenstein participates
in the European Single Market.4 As a result, the Principality must comply
with the rights and obligations of the single market, even if it is not a
member of the EU.5 According to Article 26 (2) TFEU, this includes, in
particular, the four market freedoms, i.e. the free movement of goods,
persons, services and capital. As the financial services sector is primarily
based on the freedom to establish and provide services and the free move-
ment of capital, legal acts on this are regularly incorporated into the EEA
Agreement.6 Regulating crypto assets on the EU level could affect the
TVTG, depending on the design of the regulation. However, it is also
possible that the EU legislator will follow the example of the Principality
of Liechtenstein. Due to its pioneering role and potential role model
function, we will discuss the TVTG in more detail below, unlike the
French and Maltese regulations.
2
Deuber/Jahromi, MMR 2020, 576 (576).
3
COM/2020/593 final.
4
Government of the Principality of Liechtenstein, n/a.
5
Álvarez Lopez/Rakstelyte, 2020.
6
Parenti, 2020.
3 Developments at the National and EU Level 61
3.1.1 Legislative Background
Article 2 (1) (a) TVTG defines trustworthy technologies (TT) as tech-

nologies through which the integrity of tokens, the clear assignment of
tokens to TT identifiers and the disposal over tokens is ensured. Hence,
the Liechtenstein legislator has chosen a technology-neutral and abstract
term to cover not only blockchain technology, but also to take into
account the high speed of technological innovation.7
As the first statutory objective, Article 1 (2) (a) TVTG states ensuring
of trust in digital legal communication, in particular, in the financial and
economic sector, and the protection of users on TT systems. The objec-
tive of promoting innovation has found its way into the legislation through
the creation of optimal, innovation-friendly and technology-neutral
framework conditions for the provision of services on TT systems in
Article 1 (2) (b) TVTG.
Accordingly, the Liechtenstein Legislator created a legal framework to
protect both token owners and token-related service providers from
abuse. The government of the Principality pursued a broad regulatory
approach, as the legal framework covers not only financial market-related
services but all manifestations of the token economy.8 In this context, the
token economy is understood as all applications representing a right or
an asset in a token and all services performed in connection with these
mappings.9 As the Liechtenstein legislator formulated the TVTG as a
framework law, special legal regulations may attach higher requirements
to some token-based applications.10 For instance, the provider of a token
designed as a currency token must, in principle, comply with the more
specific standards of financial market legislation.11 The provisions of the
TVTG are to be seen as a supplement.12
7
BuA No. 2019/54, p. 55 f.
8
BuA No. 2019/54, pp. 6, 46, 54.
9
BuA No. 2019/54, p. 5 f.
10
BuA No. 2019/54 p. 36.
11
BuA No. 2019/54, p. 44 f.
12
BuA No. 2019/54, p. 121.
62 H. Appel
However, establishing legal certainty is not only intended to serve con-

sumer protection. By providing a uniform framework, the Liechtenstein
government hopes to be able to fully exploit the potential of blockchain
technology as well as subsequent generations and thereby strengthen the
Liechtenstein financial centre.13 Token-based payments and financial
investments are becoming increasingly attractive so that their legal
enabling and ensuring can lead to an increased establishment of respec-
tive service providers in Liechtenstein. Therefore, the government of the
Principality of Liechtenstein expects a broad range of employment oppor-
tunities for the region and is thus also pursuing strategic objectives with
the legislation.14
3.1.2 Structure and Content
In addition to general provisions (Chapter I) and a civil law section

(Chapter II), which regulates the civil law qualification of tokens and
their transfer, the TVTG contains regulatory framework conditions
(Chapter III), in which the rights and obligations of TT service providers
are standardised. The act concludes with the transitional and final provi-
sions in Chapter IV.
General Provisions
The general provisions contain, in addition to the objectives of the act
explained above, a catalogue of legal definitions in Article 2 (1)
TVTG. This is a particularity since the terms listed therein had not been
legally defined in the German-speaking area until the TVTG entered into
force. The Liechtenstein legislator has used some neologisms to describe
the blockchain-specific terms in a technology-neutral way. For example,
the TT key pursuant to Article 2 (1) (e) TVTG corresponds to the private
key. TT identifier according to Article 2 (1) (d) TVTG stands for the
public key, which acts as an address. The term TT service provider is also
specified in Article 2 (k) to (t) TVTG.
13
BuA No. 2019/54, pp. 48, 52.
14
BuA No. 2019/54, p. 52 f.
The definition of the term token in Article 2 (1) (c) TVTG is of par-
ticular importance, as it introduces a new independent legal object.15
Accordingly, a token is understood to be a piece of information on a TT
system which can represent some claims or rights of memberships against
a person, rights to property, or other absolute or relative rights and is
assigned to one or more TT identifiers. If such a token is created or issued
by a TT service provider with its registered office in Liechtenstein, it falls
within the scope of Article 3 (2) (a) TVTG and is a domestic asset within
the meaning of Article 4 TVTG. The application scope of the TVTG
may further be opened by choice of law pursuant to Article 3 (2)
(b) TVTG.
Creating these new assets entailed that their legal consequence, par-
ticularly their transfer, had to be legally determined.16 Due to its imma-
teriality, a token within the meaning of the TVTG does not qualify as a
thing (corporeal object), but in terms of the transfer, it bears a resem-
blance to the transfer of a corporeal object, which is why the application
of the property law principles on the transfer of ownership was initially
envisaged.17 To prevent a profound intervention in Liechtenstein prop-
erty law by reformulating large parts of it and still apply property law in
a functionally adequate manner18, Article 5 TVTG introduced the con-
cepts of power of disposal and right of disposal, which are modelled on
possession and ownership under property law.19
Civil Law Provisions
Another particularity is the introduction of the legal offence of the trans-
fer in Article 6 TVTG, particularly paragraph 3. According to Article 6
(1) (a) TVTG, disposal is the transfer of the right of disposal of the token.
In Liechtenstein, the disposal transaction is “the legal transaction by
which a right is transferred, encumbered, amended or cancelled”.20
However, in contrast to German property law, the principle of causality
15
BuA No. 2019/54, pp. 6, 62.
16
BuA No. 2019/54, p. 61.
17
BuA No. 2019/54, p. 62.
18
BuA No. 2019/54, p. 185.
19
BuA No. 2019/54, pp. 63, 185.
20
BuA No. 2019/54, p. 68.
64 H. Appel
applies generally rather than the principle of abstraction.21 Given the

immutability of the entry in a TT system, unauthorised disposal of the
token would lead to a discrepancy between the material and the actual
legal situation.22 If, for example, an unauthorised person were able to
gain unauthorised access to the wallet of a token owner and thereby gain
control over the private key by using the private key for a transaction, she
would trigger both an obligation and a disposal transaction. However,
since she lacks the authorisation to transfer the token, the obligation
transaction is invalid. According to the principle of causality, this would
result in the disposal transaction being equally invalid. However, this
cannot be displayed in the network due to the ultimacy of the transaction
after validation. To prevent this discrepancy between the formal and
actual legal situation, the Liechtenstein legislator introduced the princi-
ple of abstraction for the disposal of tokens by Article 6 (3) TVTG.23 The
reversal of an invalid transaction is thus executed under the provisions of
the law of enrichment (ex-nunc) rather than under the provisions of
property law (ex-tunc).
In the last four articles of the civil basis, the Liechtenstein legislator
regulated the effects of disposal, the legitimacy and exemption, the acqui-
sition in good faith and the cancellation of tokens. Since these do not
present any particularities, we will not discuss these in more detail in
this book.
Regulatory Framework
The third chapter regulates the registration and supervision of TT service
providers with headquarters or place of residence in Liechtenstein and
their rights and obligations, Article 11 (1) TVTG. It constitutes the larg-
est part of the TVTG.
Of the various TT service providers within the meaning of Article 2
(1) (k) to (t) TVTG, the token issuer and token generator, as well as the
TT key depositary and TT token depositary, are particularly noteworthy.
The Liechtenstein law deliberately distinguishes between issuance, i.e. the
public offering of tokens in one’s name or on behalf of a principal
21
Translation from German to English: Deuber/Jahromi, MMR 2020, 576 (580).
22
BuA No. 2019/54, p. 69.
23
BuA No. 2019/54, p. 69.
pursuant to Article 2 (1) (k) TVTG, and the generation of tokens accord-
ing to Article 2 (1) (l) TVTG.
According to the government of Liechtenstein, a token can represent
any right.24 For example, if the owner of an object generates a token rep-
resenting the ownership rights in the physical object, he generates a token
but does not automatically offer it for sale to a broad public. If we would
not distinguish between generation and issuance, in this example, the
generator of the token would only fall under the TVTG when he offers
the token to the general public.
By distinguishing between generation and issuance, the government of
Liechtenstein had attempted to take into account the broad regulatory
approach and to cover the entire spectrum of the token economy.25 Since
there is a particular risk of abuse and manipulation in a public offering of
tokens due to the large audience of prospective buyers and the anonymity
of the market participants, the Liechtenstein legislator saw a need for
regulatory action from the perspective of buyer protection.26
Such risks also exist, according to the government of Liechtenstein, in
the custody of TT keys and tokens, which is why the service providers of
such custody are also regulated by the TVTG.27 TT key depositaries
within the meaning of Article 2 (1) (m) TVTG include, for instance, wal-
let providers that store the private keys of token owners on a cloud-based
server.28 In contrast, the TT token depositary possesses the power of dis-
posal over the token itself, which is regularly the case with crypto
exchanges.29 Since crypto exchanges usually also offer custody of the pri-
vate keys to carry out their customers’ transactions more efficiently, they
can simultaneously fulfil the criteria of both TT key depositary and TT
token depositary.
Pursuant to Article 12 (1) TVTG, TT service providers must register
in the TT Service Provider Register before providing a service for the first
time. In addition to professional practice, this registration is linked to
24
BuA No. 2019/54, p. 78.
25
BuA No. 2019/54, p. 78.
26
BuA No. 2019/54, p. 79.
27
BuA No. 2019/54, p. 76 f.
28
BuA No. 2019/54, p. 76.
29
BuA No. 2019/54, p. 78.
66 H. Appel
some minimum requirements for TT service providers, such as, for

example, under Article 13 (1) (b) and (c) TVTG, their reliability or their
technical suitability. Furthermore, it is essential for registration to cover
the necessary minimum capital according to Article 16 TVTG, to fulfil
organisational requirements such as the establishment of an appropriate
organisational structure according to Article 13 (1) (f ) TVTG or to guar-
antee internal procedures and control mechanisms according to Article
13 (1) (g) TVTG.
The regulatory section of the TVTG also includes storage and record-
keeping obligations under Article 26 TVTG, reporting obligations under
Article 28 TVTG, publication obligations under Article 29 et seq. TVTG,
and requirements for the outsourcing of tasks under Article 27
TVTG. This structure and content of the regulatory requirements with
which TT service providers must comply evoke the provisions of
European financial market legislation, especially the minimum require-
ments for risk management. The government of the Principality of
Liechtenstein justified the analogy to financial market law, particularly
the alignment with the regulation of account information service provid-
ers, on the one hand, with the fact that some tokens already fall under
financial market supervision anyway due to their design as currency or
investment tokens.30 On the other hand, it argues that the financial sys-
tem has already proven to be reliable with regard to the requirements for
the quality of the service, as customers have the corresponding trust.31
Particularly noteworthy, however, is the obligation to prepare and pub-
lish basic information and to notify the issuance of the token pursuant to
Article 30 TVTG. By imposing this obligation, the Liechtenstein govern-
ment hoped to improve the buyers’ understanding of the purpose, the
mode of operation, and the opportunities and risks of the tokens offered,
which, in turn, serves legal certainty.32 Before investing in a token, the
buyer, thus, has the opportunity to inform herself sufficiently and to
assess whether she considers the token or the TT service provider
trustworthy.
30
BuA No. 2019/54, pp. 44 f., 85.
31
BuA No. 2019/54, p. 47.
32
BuA No. 2019/54, p. 79 f.
Article 29 (b) TVTG and Article 30 (c) TVTG also clarify that
although the issuer of the token generally has to report the issuance to the
Financial Market Authority of the Principality of Liechtenstein, the latter
does not assess the suitability of the TT system used. The technical assess-
ment of the functioning of the offered service is the task of the TT service
providers themselves.33 The regulatory requirements can thus be under-
stood as support for informed, autonomous decisions.
At the same time as the TVTG, the Law on the Amendment of the
Due Diligence Act entered into force, which deals with the implementa-
tion of the requirements of the AMLD V. However, the Liechtenstein
legislator exceeded the implementation scope in expanding the circle of
obligated parties.34 Pursuant to Article 3 (1) (r) in conjunction with
Article 2 (1) (l) of the Due Diligence Act, TT exchange service providers
who exchange virtual currencies or payment tokens for other virtual cur-
rencies or payment tokens are nevertheless regulated under money laun-
dering law. Conversely, the AMLD V only stipulated the inclusion of
service providers who exchange virtual currencies for fiat money.
3.2 The EU Proposal for a Regulation

on Markets in Crypto-assets
At the EU level, the publication of the FinTech Action Plan by the
European Commission on 8 March 2018 initiated the creation of a uni-
form legal framework.35 Thus, the European supervisory authorities EBA
and ESMA were instructed to examine the extent to which the existing
supervisory regulations already cover crypto assets.36 Based on the work
of the ESAs, the European Commission developed a strategy for digital
finance in the EU, which aims, among other things, at a comprehensive
33
BuA No. 2019/54, p. 84.
34
BuA No. 2019/54, p. 96.
35
COM/2018/0109 final.
36
COM/2018/0109 final, p. 7.
68 H. Appel
uniform regulation of crypto assets within the EU.37 Alongside the strat-
egy, a draft Regulation on Markets in Crypto-assets (MiCAR) has been
published.38 We will elaborate on its content below.
3.2.1 Legislative Background
Both the EBA and the ESMA have concluded in their analyses of the
application of the existing regulatory framework to crypto assets that the
regulatory provisions, in particular the MiFID II, on the one hand, do
not cover all forms of tokens and, on the other hand, constrain the use of
DLT in the financial services sector.39 As one of the objectives of the EU
Digital Finance Strategy is to ensure a technology-neutral and innovation-
friendly regulatory framework, the MiCAR aims to address the identified
shortcomings and provide legal certainty.40
The impracticable classification of some tokens under existing legal
standards also has the effect that consumers and investors are not ade-
quately protected and, thus, a crypto market with integrity cannot be
guaranteed.41 By introducing the MiCAR, the European Commission
hopes to achieve an appropriate level of consumer and investor protection as
well as market integrity.42
Another objective of the MiCAR is to ensure financial stability. It is
true that, according to national and European supervisory authorities,
crypto assets do not yet pose a significant risk to the stability of the finan-
cial system.43 However, the increased emergence of stablecoins may
change this unexpectedly.44
37
COM/2020/591 final, p. 11.
38
COM/2020/593 final, p. 1.
39
EBA, 2019, p. 29; ESMA, 2019, p. 37.
40
COM/2020/593 final, p. 2 f.
41
EBA, 2019, p. 29; ESMA, 2019, p. 1.
42
Recital 5 of COM/2020/593 final.
43
EBA, 2019, p. 29; ESMA, 2019, p. 39.
44
Stablecoins are tokens that are, similar to a derivative, linked to another

asset, usually a fiat currency, and thus reflect the performance of
that asset.45
They feature elements of value stabilisation so that they are essentially
less volatile and can thus be used as a means of payment.46 Although only
private-sector versions of stablecoins currently exist, state cryptocurren-
cies in the form of stablecoins that reflect the value of the national cur-
rency are also conceivable.47 The stability of value is likely to make
stablecoins more attractive to a broad mass of investors than more volatile
tokens, with the result that their spread could lead to systemic relevance.48
Furthermore, due to the possible fragmentation of the market, the
supervisory authorities view single national legislation independently of
the EU as critical.49 The EU, therefore, considers the legal act of a regula-
tion in the form of full harmonisation to be a proven means of achieving
the aforementioned objectives.50 As more specific objectives, the proposal
additionally mentions the expansion of financing possibilities in the form
of initial coin offerings and security token offerings, as well as the reduc-
tion of the risk of misuse of crypto assets for illegal purposes.51
3.2.2 Structure and Content
The proposal of the MiCAR is structured in nine titles with a total of 126
articles. Title I, which deals with the subject matter, the scope and defini-
tions, is followed by specific rules on the issuance of asset-referenced
tokens (Title III), electronic money tokens (Title IV) and crypto-assets
other than asset-referenced tokens or e-money tokens (Title II). Title V
contains provisions on authorisation and operating conditions for crypto-
asset service providers, whereas Title VI stipulates rules to prevent market
45
Houben/Snyers, 2020, p. 34 f.
46
47
Auffenberg, BKR 2019, 341 (344).
48
COM/2020/593 final, p. 3.
49
EBA, 2019, p. 17; ESMA, 2019, p. 40.
50
COM/2020/593 final, p. 7, 9.
51
COM/2020/593 final, p. 7, 160.
70 H. Appel
abuse in relation to crypto-assets. Title VII specifies the powers and duties
of the competent supervisory authorities, as well as administrative mea-
sures and sanctions. Title VII enables the adoption of delegated and
implementing acts, followed by Title IX, which concludes the proposal
with transitional and final provisions. Due to the abundance of articles,
the following section focuses on the most significant regulations.
Subject Matter, Scope and Definitions

Article 1 MiCAR reflects the subject matter of the MiCAR. In addition
to the admission to trading of crypto-assets, the EU legislator primarily aims
to regulate the supervision and authorisation of issuers of crypto-assets and
crypto-asset service providers. The EU proposal contains transparency and
disclosure requirements, as well as consumer protection provisions and
measures to prevent market abuse. According to Article 2 (1) MiCAR,
these requirements apply to all persons engaged in the issuance of crypto-
assets or persons that provide services related to crypto-assets in the
EU. According to Article 2 (2) MiCAR, financial instruments or struc-
tured deposits within the meaning of the MiFID II, electronic money
within the meaning of Directive 2009/110/EC, provided that it does not
constitute electronic money tokens within the meaning of the MiCAR,
deposits within the meaning of Directive 2014/49/EU and securitisa-
tions within the meaning of Regulation (EU) 2017/2402 are to be
excluded from the material scope of application. Pure investment tokens,
which by their nature qualify as financial instruments within the mean-
ing of the MiFID II, would therefore not fall within the scope of
the MiCAR.
In this context, the distinction between e-money and e-money tokens
seems remarkable. According to Article 3 (1), point (4) MiCAR, elec-
tronic money tokens within the meaning of the MiCAR are crypto-assets
whose primary purpose is to be used as a means of exchange and for
which a nominal currency that is legal tender is used as a reference basis
to achieve value stability. The crucial element of distinction from tradi-
tional e-money shall be the claim towards the issuer to exchange the
e-money at any time at the nominal value of the nominal currency.52
52
E-money tokens within the meaning of the MiCAR are thus not endowed
with a right of redemption or exchange. Nevertheless, they must not be
placed on par with the category of currency tokens.
In addition, the MiCAR introduces a classification of tokens that devi-
ates from the generally accepted categorisation to date and creates two
additional token classes for this purpose. It distinguishes between asset-
referenced tokens within the meaning of Article 3 (1), point (3) MiCAR,
electronic money tokens within the meaning of Article 3 (1), point (4)
MiCAR and utility tokens within the meaning of Article 3 (1), point (5)
MiCAR. The definition of Article 3 (1), point (5) MiCAR is in line with
the general understanding of utility tokens. In contrast to the German
regulatory approach, the definition of the MiCAR thus includes all util-
ity tokens, that is, also those that do not serve an investment purpose and
only have an economic function towards the issuer.
Asset-referenced tokens are, according to Article 3 (1), point (3)
MiCAR, crypto-assets that purport to maintain a stable value by referring
to the value of several fiat currencies that are legal tender, one or several
commodities or one or several crypto-assets, or a combination of such
assets. Together with the category of e-money tokens, they form the sta-
blecoins described above.53
A common criterion for the various tokens is the superordinate term
crypto-asset, defined under Article 3 (1), point (2) MiCAR as a digital
representation of value or rights which may be transferred and stored
electronically, using DLT or similar technology. This definition, as well as
the definition of DLT in Article 3 (1), point (1) MiCAR, shall be under-
stood broadly, so that all crypto assets that did not previously fall under
the regulatory requirements are covered in the future.54
Article 2 (3) to (6) MiCAR contains a list of exceptions to the personal
scope. In particular, Article 2 (3), point (d) MiCAR is prominent.55
Accordingly, crypto-asset services provided exclusively within a group are
not regulated by the MiCAR. For instance, if a subsidiary keeps all private
53
COM/2020/593 final, p. 12.
54
55
Siadat, RdF 2021, 12 (13).
72 H. Appel
keys of the group, the scope of the MiCAR does not apply. If the business
of a group company also consists of crypto custody, but for companies
and persons outside the group, and if the first subsidiary in turn also
keeps the private keys of the clients of the other subsidiary, the exception
of Article 2 (3), point (d) MiCAR does not apply. Article 2 (4) to (6)
MiCAR provides further exemptions for already regulated entities.
The EU legislator included the most relevant definitions in Article 3
MiCAR. Especially the definitions of an issuer of crypto-assets and an
offer to the public as well as of the catalogue of crypto-asset services in
Article 3 (1) MiCAR are a central component. The various forms of trad-
ing platforms are covered in single offences and defined by law. The dif-
ferentiation between issuers and service providers is essential with regard
to the resulting requirements and obligations.
Supervision of Issuers of Crypto-Assets
Pursuant to Article 3 (1), point 6 MiCAR, issuers of crypto-assets
are legal persons who offer to the public any crypto-assets or seek the
admission of such crypto-assets to a trading platform for crypto-assets.
In this context, a public offer within the meaning of Article 3 (1),
point (7) MiCAR is understood as an offer to third parties to acquire
a crypto-asset in exchange for fiat currency or other crypto-assets.
According to Article 4 (1) MiCAR, the prerequisites for public offers
or admission to trading of crypto-assets are the corporate form of a
legal entity, the preparation, notification and publication of a crypto-
asset white paper and compliance with the requirements of Article 13
MiCAR. Issuers of asset-referenced tokens and e-money tokens must
comply with further authorisation requirements under Article 15 and
Article 43 MiCAR. Concerning the preparation, notification and pub-
lication of the crypto-asset white paper, Article 4 (2) MiCAR permits
facilitations for certain issuances in order to ensure the principle of
proportionality.56
The crypto-asset white paper is the central connecting factor for the
other legal norms of the MiCAR. Both the obligations for issuers con-
tained in the MiCAR and the civil liability provisions of Articles 14, 22
56
and 47 MiCAR, as well as the powers of the supervisory authorities with

regard to the prohibition or withdrawal of authorisation, are based on its
content. Parallels to the prospectus obligations under securities law are
indeed apparent here.57 According to Article 5 MiCAR, the white paper
must describe the issuer and its project, as well as specific features, risks
and technical functions of the crypto-asset. The EU legislator justifies
the introduction of such an information document with consumer
protection.58
In addition to the content and form of the crypto-asset white paper,
Article 6 MiCAR contains provisions on marketing communications
relating to a public offer or admission to trading. In this context, the EU
legislator also provides for more specific requirements regarding asset-
referenced tokens and e-money tokens in Articles 17, 25, 46 and
48 MiCAR.
The notification and publication of the documents are carried out
according to the exact same requirements, also included in the MiCAR. In
contrast to white papers of asset-referenced tokens, the issuance of crypto
tokens that are neither asset-referenced tokens nor e-money tokens does
not require prior approval of the white paper by the supervisory author-
ity, according to Articles 7 (1), 46 (9) MiCAR. Although the wording of
Article 7 (1) MiCAR only specifies that ex-ante approval is not required,
which could be concluded that ex-post approval by the supervisory
authority is necessary. However, using the term notification indicates that
the EU legislator did not intend an ex-post approval procedure. Instead,
formal notification to the competent supervisory authority is sufficient.59
Crypto-asset white papers of asset-referenced tokens, in contrast, have to
go through the approval procedure described in Articles 15 et seq. MiCAR.
Another requirement for the public offering or admission to trading of
crypto-assets that are neither asset-referenced tokens nor e-money tokens
is compliance with the obligations of Article 13 MiCAR. These tend to
be very general with vague terms such as act honest, fair and professional
or communicate in a fair, clear and not misleading manner. In addition to
57
So also Siadat, RdF 2021, 12 (17).
58
59
Siadat, RdF 2021, 12 (18).
74 H. Appel
the manner of trading and communication, Article 13 MiCAR contains

a disclosure obligation regarding conflicts of interest and the duty to treat
all crypto-asset holders in principle equally and to act in their best interest.
With regard to the issuance of asset-referenced tokens, the EU legisla-
tor extends the issuers’ obligations by reporting obligations towards the
holders of the tokens and the competent supervisory authorities accord-
ing to Articles 26, 29 MiCAR, the obligation to establish a complaint
handling procedure according to Article 27 MiCAR, provisions on cor-
porate governance in terms of Article 30 MiCAR, own funds require-
ments according to Article 31 MiCAR and the obligation to have reserve
assets according to Articles 32 et seq. MiCAR. With the latter, the EU
legislator intended to ensure the stability of the tokens’ value and to serve
as a basis for the calculation of own funds requirements.60 For the issu-
ance of significant asset-referenced tokens and significant e-money
tokens, Article 41 and Article 52 MiCAR prescribe specific obligations.
Another noteworthy aspect of MiCAR is the facilitation of cross-
border issuance of crypto-assets within the EU stipulated in Article 10
MiCAR, which can be compared, for example, to the EU passporting
regime for credit institutions or e-money and payment services institu-
tions. To the extent that an entity would already be authorised to operate
in the crypto market in one Member State of the EEA, it would not need
to apply for further authorisation to carry out its activities in another
Member State. In addition, it is worth mentioning that for issuers of
asset-referenced tokens, the EU legislator included specific rules on their
acquisition (Title III, Chapter 4) and their orderly wind-down (Title III,
Chapter 6).
Supervision of Crypto Service Providers
The catalogue of crypto-asset services in Article 3 (1), point (9) MiCAR
is broadly defined so that market players may fall within more than one
category. Crypto exchanges that exchange both traditional fiat currencies
for crypto tokens and vice versa, as well as crypto tokens of one crypto
asset for crypto tokens of another crypto asset, provide a crypto-asset
60
Recitals 36 and 37 of COM/2020/593 final.
service within the meaning of Article 3 (1), points (9)(c) and (d)
MiCAR. Depending on their design, their business activities may also
qualify as operating a trading platform according to Article 3 (1), point
(9)(b) MiCAR, as executing orders for crypto-assets on behalf of third
parties pursuant to Article 3 (1), point (9)(e) MiCAR or as receiving and
transmitting orders for crypto-assets on behalf of third parties under
Article 3 (1), point (9)(g) MiCAR.
Pursuant to Article 53 (1) MiCAR, such crypto-asset services may only
be provided by legal persons having a registered office in a member state
and have been authorised as crypto-asset service providers. The applica-
tion for authorisation must contain all the information listed in Article
54 MiCAR and be submitted to the competent supervisory authority for
assessment according to Article 55 MiCAR. If the assessment result is
positive, the competent authority adds the crypto-asset service provider
to a public register established by the ESMA pursuant to Article 57 (1)
MiCAR. Article 58 MiCAR would also extend the passporting regime to
crypto-asset service providers.
In addition to the general conduct of business obligations (Article 59
MiCAR), which correspond to the requirements for issuers of crypto-
assets, Article 60 MiCAR establishes prudential safeguards in the form of
a fixed amount, and Article 61 MiCAR sets out organisational require-
ments for crypto-asset service providers. The latter include provisions
already known from existing EU banking supervision law, e.g., regula-
tions on the reliability and professional suitability of management bodies
or internal control mechanisms.
Crypto-asset service providers shall also be obliged to inform the com-
petent authorities on an ongoing basis according to Article 62 MiCAR
and to keep their clients’ crypto-assets and funds safe pursuant to Article
63 MiCAR. Like issuers of asset-referenced tokens, crypto-asset service
providers are required to establish a complaint handling procedure in
accordance with Article 64 MiCAR. In addition, Article 66 MiCAR pro-
vides provisions for outsourcing.
Chapter 3 of Title IV also sets out specific obligations for each
crypto-asset service. The EU legislator justifies this by stating that the
various activities naturally entail particular risks requiring specific
76 H. Appel
treatment.61 Thus, pursuant to Article 67 (3) MiCAR, custodians of

crypto-assets would have to develop a custody policy to ensure the safe-
keeping of crypto-assets. Such a custody policy would be irrelevant for
advisors on crypto-assets within the meaning of Article 73 MiCAR, as
their original activity does not generally provide for custody.
Lastly, Chapter 4 of Title IV also seeks to introduce specific provisions
regarding the acquisition of a crypto-asset service provider.

Individuals looking to invest in crypto assets should ask themselves the
following questions, among others:
• Do I want to acquire a token generated or issued in Liechtenstein?

• If yes, is the service provider registered in the TT Service Provider
Register?
• Do I want to wait until the MiCAR is finally enacted before investing in
crypto assets?

• Are the Liechtenstein framework conditions more favourable for my

company than the existing German regulations?
• What impact would the adoption of the MiCAR have on my business?
• How can I prepare myself/my business for the possible new requirements?
References
Álvarez Lopez, M. & Rakstelyte, A. (2020). Der Europäische Wirtschaftsraum
(EWR), die Schweiz und der Norden. Europäisches Parlament. https://www.
europarl.europa.eu/factsheets/de/sheet/169/der-europaische-wirtschaftsraum-
ewr-die-schweiz-und-der-norden. Accessed: 21.03.2021.
Auffenberg, L. (2019). E-Geld auf Blockchain-Basis. BKR, 341–345.
Deuber, D. & Jahromi, H. (2020). Liechtensteiner Blockchain-Gesetzgebung:
Vorbild für Deutschland? Lösungsansatz für eine zivilrechtliche Behandlung
von Token. MMR, 576 –581.
61
EBA (2019). Report with advice for the European Commission on crypto-
21.03.2021.
Houben, R. & Snyers, A. (2020). Crypto-assets – key developments, regulatory
concerns and responses. Study for the Committee on Economic and
Monetary Affairs, Policy Department for Economic, Scientific and Quality
of Life Policies. European Parliament. https://www.europarl.europa.eu/
RegData/etudes/STUD/2020/648779/IPOL_STU(2020)648779_EN.pdf.
Accessed: 21.03.2021.
Parenti, R. (2020). Finanzdienstleistungspolitik. https://www.europarl.europa.eu/
factsheets/de/sheet/83/finanzdienstleistungspolitik. Accessed: 21.03.2021.
Regierung des Fürstentums Liechtenstein (n/a). Liechtensteins Teilnahme
am EWR. https://www.regierung.li/ministerien/ministerium-fuer-aeusseres/
diplomatische-vertretungen/deutsch/bruessel-b /aktuelles/europäischer-
wirtschaftsraum/. Accessed: 21.03.2021.
4
Comparison and Critical Appraisal
of the Regulatory Approaches
• Each of the regulatory approaches has advantages and disadvantages.

• While the approaches overlap in some aspects, adapting the MiCAR will
ultimately fully harmonise the regulation of crypto assets in the EEA.
• The approaches differ in scope, regulatory methodology, technology
neutrality and the type of regulatory instruments chosen.
• In the regulation of crypto assets, some aspects have been neglected so
far, which will/should be taken into account in future legislative changes.
Both the national efforts of Germany and Liechtenstein, as well as the

EU proposal regarding the regulation of crypto assets, are based on
observations of the crypto market, analyses of the opportunities and
risks and consultations with affected market participants. Due to the
increasing market interest in crypto assets, the focus of the legislators is
primarily on consumer and investor protection, as well as the creation
of legal certainty.
With the TVTG, the government of the Principality of Liechtenstein
has created the most comprehensive legal framework for tokens, as the
law, in addition to the regulatory provisions, also sets out requirements

80 H. Appel
for the civil law treatment of tokens. Both the amendment to the KWG
and the proposal of the MiCAR regulate solely supervisory law issues,
apart from civil liability arising from a flawed prospectus or crypto white
paper. The legal nature of tokens under civil law is currently assessed
diversely, not only in Germany.1 A uniform civil law regime within the
EEA would be desirable, especially with regard to unlawful or erroneous
transfers of ownership of tokens.
4.1 Scope of Application

The different approaches also differ in terms of their scope of application.
The TVTG covers all tokens, whereas in Germany, to date, only crypto
assets that constitute financial instruments are regulated. In this context,
we need to look closely at the different treatment of utility tokens.
4.1.1 Utility Tokens
In contrast to the German regulatory approach, the MiCAR and the

TVTG cover any form of utility tokens, regardless of whether they serve
investment purposes or not. The German legislator explicitly excluded
utility tokens that do not serve an investment purpose when amending
the KWG when implementing the AMLD V. Accordingly, issuers of such
tokens are not subject to prudential supervision. However, trading with
these on secondary markets is already supervised in Germany.
The German legislator probably based the exception on the consider-
ation that pure utility tokens only develop their economic function vis-à-
vis the issuer and thus do not qualify as a financial or payment instrument.
Parts of the literature argue that the German approach is consequently
preferable.2 Nevertheless, a detailed examination seems to be reasonable.
1
Kaulartz/Matzke, NJW 2018, 3278 (3280 ff.); Maute, 2020a, § 4; Omlor, ZHR 183 (2019), 294
(306 ff.); Möllenkamp/Shmatenko, 2020, part 13.6, (29 ff.).
2
Siadat, RdF 2021, 12 (15).
4 Comparison and Critical Appraisal of the Regulatory… 81
The ability to use a utility token for investment purposes depends on

its market demand and the presence of a lock-up. If the issuer includes a
lock-up when generating the crypto asset, assigning the associated tokens
to any other public key is not feasible. As a result, these tokens are
excluded from trading on the secondary market due to a lack of transfer-
ability. Where such a lock-up does not exist, the market decides whether
the service or product represented by the utility token is attributed a
higher value. In principle, the attribution of a value can also happen after
the issuance resulting in the issuer unintentionally issuing a utility token
with an investment purpose. The uncertainty for issuers as to when an
investor-like expectation is created may therefore justify a comprehensive
obligation of authorisation and supervision within the meaning of the
MiCAR and the TVTG with regard to investor protection.
4.1.2 Investment Tokens
In contrast, the EU legislator especially excluded investment tokens from

the scope of the MiCAR. In this context, according to Article 2 (6) MiCAR,
companies already authorised under the MiFID II which provide crypto
services are also intended to be privileged. They shall be exempt from the
authorisation procedure described in Chapter 1 of Title V MiCAR.
However, such crypto service providers would have to comply with the
additional general obligations of Articles 59 et seq. MiCAR and the more
specific requirements of Articles 67 et seq. MiCAR. In contrast to the
German approach, which provides uniform rules for crypto service pro-
viders, the entry into force of the MiCAR would lead to more complex
supervisory practices for crypto service providers already authorised
under the MiFID II. Indeed, they would not have to go through multiple
authorisation processes. However, they would have to comply with the
requirements of several legal acts at any time, which would mean organ-
isational effort, especially for smaller companies. That would hinder
smaller companies from entering the market.
In addition, the Member States of the EEA have been given leeway in
the implementation of the requirements of the MiFID II due to the form
of the legal act of the Directive. Different regulations for investment
82 H. Appel
firms in the Member States could lead to competitive disadvantages for

crypto service providers and corresponding issuers.
Different legal provisions for various crypto assets also require that the
explicit assignment of the crypto asset’s tokens to a token category is pos-
sible. However, hybrid forms regularly exist. For these, it would have to
be assessed on a case-by-case basis where the main focus lies. On the one
hand, this requires trained personnel at the supervisory authorities who
can understand the complex arrangements and classify them legally. On
the other hand, it would have to be ensured that each supervisory author-
ity applies the same criteria and procedures when identifying the focus of
the tokens in order to avoid competitive disadvantages. It is highly con-
ceivable that different staff members of the same supervisory authority
would come to varying classifications.
Including investment tokens in the scope of the MiCAR and con-
versely introducing an exemption for crypto service providers in the
MiFID II could create a consistent and less complex legal framework.
The form of the legal act of the regulation would have the effect that the
MiCAR would be automatically binding and directly applicable in a uni-
form manner in all member states of the EEA upon entry into force.
Therefore, the provisions of the EU framework would not have to be
incorporated into national law and would replace national regulations
such as the German and Liechtenstein approaches. The envisaged pass-
porting regime would lead to fair competition in the EU-wide crypto
market.
4.1.3 Tokenisation of Other Rights
In connection with the various areas of application, it is notable that the

TVTG and the MiCAR cover tokenised rights to assets of all kinds due
to the broad understanding of the term token or crypto-asset. In practice,
property rights to movable objects, such as gold or oil, and real estate are
already digitally represented by tokens.3 In addition, intangible assets
such as rights to musical works are now also being tokenised.
3
Kaulartz/Matzke, NJW 2018, 3278 (3279); Maute, 2020b, § 6 (208), (211).
For instance, the German musician Fynn Kliemann recently created

100 jingles, digitally depicted their rights in tokens and auctioned them
off.4 If he had offered the tokens publicly in Liechtenstein, he would have
had to comply with the requirements of the TVTG. It is reasonable to
assume that the value of the jingles will change positively or negatively in
the future, which is why the buyers of the tokens are likely to have
investor-like expectations. According to the definition of the KWG, these
tokens would consequently certainly qualify as crypto assets relevant for
regulatory purposes and thus as financial instruments. However, since the
tokens have been issued without redemption rights, the artist is nonethe-
less not subject to institutional supervision. This example shows that
assets which, in principle, do not constitute financial instruments can
nevertheless be classified as such under German law as a result of tokeni-
sation and may thus entail financial supervision under certain circum-
stances. That requires a critical view with regard to the regulatory
objectives of the KWG.
Conversely, the EU legislator intends to subject issuers of such one-off
crypto assets to lower requirements pursuant to Article 4 (2), point (c)
MiCAR. If the MiCAR enters into force in this form, issuers of one-off
crypto assets would only have to comply with the obligations of Article
13 MiCAR, i.e. above all, act honestly, fairly and professionally, commu-
nicate fairly, clearly and truthfully with the holders of the crypto assets
and identify, prevent, manage and disclose conflicts of interest.
Compared to an authorisation requirement, which the Liechtenstein
and German approaches provide for, the EU approach is more propor-
tionate. Buyers of tokens representing rights to unique assets such as
works of art or real estate will thus be adequately protected without sub-
jecting the issuers of the tokens to overly stringent prudential require-
ments. As over-regulation is likely to lead to a paralysis of innovation
which would be contrary to the objective of promoting it, the EU
approach is preferable in this case.
4
Kliemann, 2021.
84 H. Appel
4.2 Regulatory Methodology

Furthermore, the approaches differ in the nature of regulation. All three
approaches stipulate that crypto assets already falling under the existing
financial market regulation are subject to these more stringent requirements.
For example, issuers of investment tokens in Germany must comply with
the additional requirements of securities supervision due to their qualifica-
tion as a financial instrument in the sense of the WpHG, in contrast to
issuers of currency tokens and utility tokens. However, unlike the TVTG
and the KWG, the MiCAR introduces additional gradations in the degree
of regulation. It distinguishes between asset-referenced tokens, e-money
tokens and crypto tokens that are neither of the two aforementioned types.
Stablecoins are nevertheless subject to the TVTG and, depending on
their structure, also to the KWG. However, only the MiCAR offers cer-
tain specific provisions. Essentially, the MiCAR provides for certain dis-
closure obligations for issuers and an obligation to maintain a reserve to
secure asset-referenced tokens. It is questionable to what extent a distinct
regulation of such token types is necessary. The European Commission
justifies its plan with the fact that asset-referenced tokens will be in greater
demand in the future than other crypto assets due to the promised stabil-
ity of value and that they are consequently riskier in terms of consumer
protection and financial market stability.5
As a rule, issuers try to ensure the stability of the stablecoin’s value by
holding its counter value.6 However, currently, there is no legal obligation
to do so. To date, issuers of stablecoins are also free to provide the stable-
coins with or without a redemption claim.7 If the issuer issues the stable-
coins with a redemption claim and meets the other requirements of
section 1 (1) sentence 2 number 1 KWG, the investors’ investment would
be protected at least by deposit protection if a counterparty defaults.
Since the holding of the counter value of the issued stablecoins has not
been subject to supervision so far, the initiators of stablecoins could
exploit this to their advantage.
5
6
DBB, 2019, p. 44.
7
DBB, 2019, p. 44.
The special regulations of the MiCAR would provide an obligation to

hold an asset reserve and specifications for its safekeeping and invest-
ment. The value of the stablecoin would thus be secured so that even in
the absence of a redemption claim against the issuer, the investment’s
value is guaranteed when selling the token. The existing regulatory gaps
would thus be closed. Therefore, a separate regulation of stablecoins and
the measures proposed by the European Commission in this respect are
reasonable for consumer protection.
4.3 Technology Neutrality

A further examination of the objectives and their corresponding imple-
mentation also reveals differences in the technology neutrality of the
wording. The Liechtenstein legislator formulated the TVTG in the most
technology-neutral way. The use of concrete terms such as DLT or cryp-
tography was completely dispensed with, as these are merely technical
expressions.8 The TVTG refers to trustworthy technologies. Also, the term
token is understood abstractly and not in a technological sense. In con-
trast to the German and the EU approach, the neutral wording ensures
that regulation can keep pace with the speed of technological innovation.
It is highly conceivable that digital representations will exist in the
future, not based on cryptographic key pairs or digital ledgers. Unless
these new technologies are comparable to DLT or cryptography, they will
not fall under the KWG or the MiCAR, so the legislators may need to
redraft the laws.
However, with a view to proportionality, it still seems sensible to wait
for the development of new technologies before subjecting their products
to supervision. It should always be examined whether there are specific
risks that require supervision. These depend on the design of the technol-
ogy, which is de facto not yet foreseeable. Without tangible indications,
the legislators cannot create a secure, conclusive and, most importantly,
proportionate legal framework. In this respect, the approach of the
German and the EU legislators is justifiable.
8
BuA No. 2019/54, p. 13.
86 H. Appel
4.4 Chosen Regulatory Instruments

With regard to the regulatory instruments, all three legislators essentially
opted for the same measures. On the one hand, they want to supervise the
issuance of crypto assets by publishing a corresponding information doc-
ument. On the other hand, they want to regulate service providers oper-
ating in connection with crypto assets through an authorisation procedure
upon their establishment and through ongoing supervision by the super-
visory authorities.
4.4.1 Standardised Information Document
With regard to the issuance of crypto assets, all three legislators provide
for the requirement of a legally standardised information document to
ensure consumer and investor protection. The different designation of
the documents is immaterial, as the essential contents are similar.
Such information documents have already been introduced for other
financial instruments, such as securities or investment units, in the form
of prospectuses or basic information in the EEA. However, the German
approach, so far, only provides for a prospectus requirement for the issu-
ance of investment tokens. For example, the BaFin already considered the
issuance of security tokens to require such a securities prospectus under
the WpPG in early 2019.9 Both the TVTG and the MiCAR, in conjunc-
tion with the MiFID II, stipulate a corresponding information document
for all token categories.
Due to the specific risks of crypto assets, the sometimes very complex
technical functionalities and the increasing market interest, it seems rea-
sonable to legally prescribe a mandatory information document for all
token categories. Through the EU-wide legal regulation of securities pro-
spectuses, it was possible, for instance, to regain investor confidence in
the securities markets after the financial market crisis. In this respect, we
can assume that the introduction of crypto white papers or basic infor-
mation for all token categories will have similar effects. Appropriate
9
White, BaFinJournal 2019, p. 10.
exemptions can also avoid over-regulation of minor issuances that do not

pose a threat to financial stability.
4.4.2 Authorisation Procedure
The requirements for authorising crypto service providers are basically

the same in all the regulatory approaches discussed. Thus, the proven
organisational requirements, such as fit and proper managing directors,
internal control mechanisms or record-keeping and safekeeping obliga-
tions, can be found in all legal acts. However, only the MiCAR contains
specific obligations for the various groups of crypto service providers.
Without elaborating on the details of the provisions, the approach of
the EU legislator seems reasonable. Crypto assets represent novel, dispa-
rate instruments from the digital world that are now entering the ana-
logue legal system. The activities of crypto service providers can regularly
be subsumed under the existing licensing requirements. Nevertheless, the
technical background and manifold design possibilities of crypto assets,
as well as the resulting complex functioning of the services themselves
require additional protection mechanisms for investors.
For instance, Article 67 (8) MiCAR provides that crypto custodians
are liable to their clients for losses resulting from malfunctions or hacking
up to the market value of the crypto assets lost. Neither the German nor
the Liechtenstein approach contain such specific provisions on liability
with regard to hacking.
Moreover, specially tailored obligations for individual groups are
appropriate in terms of proportionality, as they are only to be complied
with by the relevant service providers.
4.4.3 Public Register
Concerning the obligations of crypto service providers, the TVTG as well

as the MiCAR, in contrast to the German approach, provide for a regis-
tration obligation in a register publicly maintained by the supervisory
authorities. It is questionable whether such a public register is necessary
at all. By their very nature, crypto services are used digitally via the
88 H. Appel
Internet. The reliability of the providers is not always recognisable, which

is why measures to protect consumers are necessary.
Publicly accessible directories on the websites of national regulators, as
envisaged by the TVTG, will allow prospective customers to learn about
the provider and make a more informed decision before using a service.
To date, crypto investors are likely to choose a provider by consulting
online reviews and testimonials, which are known to be fake to some
extent. A government-maintained register containing essential informa-
tion about all nationally authorised service providers can counteract the
influence of manipulated reviews. However, since not only national pro-
viders are usually displayed when searching for services via search engines,
a register at the EU level is more practical and more desirable in terms of
consumer protection than the national register envisaged by Liechtenstein.
The register according to Article 57 MiCAR shall be published on the
ESMA’s website and include all providers of crypto services within the
EEA. Thus, the EU approach is preferable on this point.
4.5 Neglected Aspects

Recalling the risks described in Sect. 1.5.2, it is clear from the above
analysis that the legislators have not considered all potential negative
impacts.
4.5.1 Endogenous Manipulation of the Network
It is true, for example, that the MiCAR contains regulations on interfer-

ence by third parties outside the blockchain network. Nevertheless,
the legislators did not include the possibility of manipulation by partici-
pants in the network itself in their regulatory considerations. In this
regard, the possible centralised control over a network due to the com-
puting power required is of great importance. Especially the mining pro-
cess is easily manipulatable by exercising control over the consensus
mechanism. In addition, such manipulation is difficult to identify.10 The
10
Rückert, 2020, § 20 (26).
ability to control the consensus mechanism also enables those in power to

favour blocks that are advantageous to them. Possibly, by regulating the
network itself, legislators fear hindering the innovation they intend to
promote. Moreover, since the nodes of the networks are spread across
jurisdictions around the world, as the example of Bitcoin shows, moni-
toring could be challenging.11 Nevertheless, from a consumer protection
perspective, a concentration of control is a concern, so the legislators
should consider the risk of investment loss due to a threat from within
the network when regulating crypto assets.
4.5.2 Anonymity of Network Participants
Another risk that the legislators have not sufficiently considered is the
anonymity of the network participants. By monitoring the issuance of
crypto assets, it is ensured that initiation by pseudonyms such as Satoshi
Nakamoto is no longer possible. Nevertheless, the recipients of the ini-
tially issued tokens remain anonymous. The anonymity of the partici-
pants is almost an invitation to use crypto assets for criminal purposes,
which is amplified by the possibility of disguising the origin of the crypto
assets through tumblers. The misuse of crypto assets has the potential to
threaten financial stability as market relevance increases. It is thus neces-
sary to include tumbler service providers in the group of obligated parties
under money laundering law.
4.5.3 Sustainability
Although it seems sensible to promote innovation, the legislators have

not accounted for the impact of technological progress on the ecological
environment. Environmental protection may not be an objective of regu-
latory law. This point should nevertheless call into question the inten-
tions of lawmakers. The Bitcoin network itself currently (as of 22 February
11
Waidmann, 2021.
90 H. Appel
2021) consumes as much electricity as the Netherlands to create new

tokens over the course of a year, and the creation of Ethereum similarly
requires an enormous amount of electrical energy.12 These two crypto
assets thus form only 72% of the crypto market.13 So far, the consump-
tion has been absorbed by countries such as Iceland, which generates
more electricity than the country itself needs due to the available thermal
energy.14
Since the crypto market tends to keep growing, demand for energy
will increase nonetheless. If the crypto market ever reaches the stock mar-
ket volume, which we cannot rule out entirely, this would have an
immense impact on the environment. Appropriate provisions in supervi-
sory law could encourage initiators of crypto assets to use mechanisms
that require less computing power or otherwise be obliged to balance the
environmental footprint.

• Does the issuer provide a standardised information document, and do I

understand it?
• In which nation is the service provider whose services I want to use
located?
• Are the neglected aspects acceptable to me?

• Do I want to voluntarily provide my customers with an information doc-

ument describing my crypto asset?
• Can I possibly attract a broader mass of customers by considering the
neglected aspects?
12
Spinnler, 2021.
13
14
Wischmeyer, 2018.
References
CoinMarketCap (2021). Gesamtmarktkapitalisierung, eigene Berechnung
anhand der Marktkapitalisierung. https://coinmarketcap.com/charts/.
Accessed: 21.03.2021.
DBB (2019). Krypto-Token im Zahlungsverkehr und in der Wertpapierab
wicklung. Monatsbericht – Juli 2019. https://www.bundesbank.de/de/pub-
likationen/berichte/monatsberichte/monatsbericht-j uli-2 019-8 02234.
Accessed: 21.03.2021.
3278–3283.
Kliemann, F. (2021). NFT. Was zur Hölle is das? Wie geht das? Was hab ich als
erster auf der Welt damit gemacht und warum rate ich dir (noch) davon ab.
https://oderso.cool/blogs/update/nft-wtf. Accessed: 21.03.2021.
(2020a). Rechtshandbuch Kryptowerte (1. Aufl.). München: C.H. Beck.
Maute, L.: § 6 Verträge über Kryptotoken, in: Maume, P. et al. (Hrsg.) (2020b).
Rechtshandbuch Kryptowerte (1. Aufl.). München: C.H. Beck.
Omlor, S. (2019). Kryptowährungen im Geldrecht. ZHR (183), 294–345.
Rückert, C.: § 20 Phänomenologie, in: Maume, P. et al. (Hrsg.) (2020).
Rechtshandbuch Kryptowerte (1. Aufl.). München: C.H. Beck.
Spinnler, T. (2021). Stromfresser Bitcoin. Tagesschau.de. https://www.tagess-
chau.de/wirtschaft/technologie/stromfresser-b itcoin-m ining-1 01.html.
Accessed: 21.03.2021.
Waidmann, L. (2021). Die 5 größten Bitcoin Miner: Wer dominiert den Mining-
Sektor? BTC-Echo. https://www.btc-echo.de/news/die-5-groessten-bitcoin-
miner-wer-dominiert-den-mining-sektor-108986/. Accessed: 21.03.2021.
Weiß, Hagen (2019). Tokenisierung. BaFinJournal. https://www.bafin.de/
SharedDocs/Veroeffentlichungen/DE/Fachartikel/2019/fa_bj_1904_
Tokenisierung.html. Accessed: 21.03.2021.
Wischmeyer, N. (2018). In der Inselkälte rattern die Bitcoin-Server. SZ.de.
https://www.sueddeutsche.de/digital/island-in-der-inselkaelte-rattern-die-
bitcoin-server-1.4181656. Accessed: 21.03.2021.
5
Conclusion
• Regulation of crypto assets has progressed significantly in recent years,

though it is not yet finalised.
• Harmonisation of the regulatory framework for crypto assets is immi-
nent due to the EU approach.
• Given the discussed need for optimising the regulatory approaches, an
amendment of the MiCAR is expected before it is adopted.
The aim of this book was, building on the basic knowledge conveyed ini-
tially, to classify crypto assets within the existing legal framework of
German supervisory law and to include current developments at the
national and EU level in answering the question of the extent to which the
regulatory requirements for the regulation of crypto assets are sufficient.
In addition, the book should serve as a guide for investors and founders.
First, the various terms used in connection with crypto assets were
highlighted and explained in more detail. Thereby, we noted that, to
date, no generally applicable definition of the term exists and that one
should generally distinguish between the term crypto token and
crypto asset.
Subsequently, we examined the design options of crypto tokens. The
division into three main categories – currency tokens, investment tokens,

94 H. Appel
and utility tokens – which is widespread in practice seems reasonable at

first glance for a better understanding. However, due to the wide range of
design options and the principle of substance over form, a case-by-case
examination must be carried out in each case with regard to the regula-
tory classification. Hence, such designations are irrelevant to the admin-
istrative practice of the supervisory authorities.
Applying the relevant laws of the financial market law as well as the
administrative regulations of the BaFin entails that only crypto tokens
designed as investment tokens can qualify as financial instruments within
the meaning of the WpHG. Accordingly, issuers and service providers
that provide remunerated services in connection with investment tokens
must comply with the obligations of the WpHG. Issuers of investment
tokens are also obliged under the WpPG to publish a corresponding pro-
spectus when issuing the tokens.
As part of the examination of the national banking supervisory regula-
tions, we determined that, due to the amendment of the KWG when
implementing the AMLD V, the majority of crypto assets known to date
are covered by the regulation. The reason for this is the inclusion and
legal definition of the catch-all category of crypto assets in the catalogue
of financial instruments of the KWG. In the context of the explanations
on the definition of crypto assets, we have noted that one cannot inter-
pret the term investment purpose unambiguously.
Qualification as a financial instrument within the meaning of the
KWG entails the requirement of a license for business activities in con-
nection with crypto assets and compliance with the obligations under
money laundering law. We could subsume the majority of the business
activities of the market participants relevant for regulatory purposes
under the facts requiring authorisation. With regard to providers of tum-
bler services, we identified a regulatory gap.
The comparison of the regulatory approaches led us to various find-
ings: First, we identified different areas of application. The Liechtenstein
and the EU approaches are more comprehensive than the German
approach. By distinguishing between crypto assets with and without an
investment purpose, the German legislator created an ambiguous term
that may lead to uncertainty in the market and exploitation of the grey
area. For this reason, we preferred an all-encompassing legal framework.
5 Conclusion 95
In this context, however, it has been critically noted that assets that are
fundamentally not financial instruments become subject to financial
supervision through the tokenisation of rights in them. Therefore, regula-
tion outside of financial market regulations is desirable.
We assessed the MiCAR’s graduated regulatory system positively in
contrast to the equal treatment of all token categories and crypto service
providers of the Liechtenstein and the German approaches. Due to the
specific provisions, the EU approach allows for a more proportionate
regulation, which is more relevant in terms of promoting innovation.
Likewise, the comparison of the technological neutrality of the require-
ments led us to conclude that, in the course of the principle of propor-
tionality, regulation of still unknown future technologies should not take
place at present.
With regard to the selected regulatory instruments, we have identified
predominantly consensus. In this context, we endorsed the extension of
the obligation to publish an information document when crypto assets
are issued to all types of tokens, as well as the introduction of an EEA-
wide register of all crypto service providers.
Finally, we raised aspects the legislators did not consider in their regu-
latory deliberations. Firstly, the approaches analysed do not contain any
regulations protecting consumers from manipulation in the network
itself. Furthermore, the regulatory gap concerning providers of tumbler
services was considered critical from a money laundering and consumer
protection law perspective. Lastly, we suggested that the legislators
include the long-term effects of a generous promotion of the crypto mar-
ket on the environment in their regulatory considerations.
In conclusion, regarding the research question, we thus can state that
Germany’s existing regulatory legal framework covers the majority of cur-
rently known crypto assets. However, adapting the MiCAR would har-
monise the treatment of crypto assets and crypto market participants,
thereby improving supervision across the EEA. Despite the more specific
requirements of the MiCAR, there is still a need for optimisation with
regard to the particular risks of crypto assets until the final adoption of
the regulation.
96 H. Appel

• Do I feel informed enough to invest in crypto assets?

• Do I want to wait until the MiCAR is adopted before I invest so I can
enjoy the benefits of the European Single Market?

• Am I aware of the regulatory obligations I must fulfil?

• Do I want to incorporate my business before the MiCAR is entered into
force to take advantage of any competitive advantages?
• What benefits can I derive from the adoption of the MiCAR for my
business?

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Quick Guide Crypto Assets - How They Classify Within The Framework of Financial Market Law Springer Gabler Hannah Appel 2023

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Hannah Appel

Quick Guide Crypto

ISBN 978-3-658-40461-1 ISBN 978-3-658-40462-8 (eBook)

Cover illustration: Lektorat: Catarina Gomes de Almeida

EUR 1.52 trillion – This value currently (as of 21.03.2021) equates to

assets continues to inflate.5 If the market’s interest in crypto assets keeps

Chapter 1 of the book introduces the topic with basic knowledge

Frankfurt am Main, Germany Hannah Appel

2.2.1 Financial Instrument within the Meaning

4.5 Neglected Aspects 88

AMLD V Directive (EU) 2018/843 of the European Parliament and of the

EU Prospectus Regulation Regulation (EU) 2017/1129 of the European

MTF Multilateral Trading Facility

What You Take Away from This Chapter

• No universally accepted definition of the term crypto asset exists.

A basic understanding of crypto assets is essential for assessing their regu-

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, 1

1.1 Definition of Terms

The European Central Bank (ECB), conversely, described crypto assets

1.2 Design of Crypto Tokens

classification has emerged in the literature and supervisory practice but is

1.2.1 Currency Tokens

1.2.2 Investment Tokens

However, an investment token may also be associated with a co-­

1.2.3 Utility Tokens

1.2.4 Hybrid Forms

1.3 Technical Principles

1.3.1 Distributed Ledger Technology

Ledger means general ledger or register. According to the principles of

Bitcoin.65 In 2017, the market volume of the Blockchain industry was

block is unique, which is why it is regularly referred to as the finger-

In most blockchains, the transactions contained in the transaction

1.4 Market Participants in Relation

The initiator of a blockchain is, in principle, also the issuer of a crypto

pseudonym Satoshi Nakamoto specified in its network protocol that a

1.4.2 Service Providers

The blockchain system is based on decentralisation. Due to its complex-

mandatory, to ensure the functioning of the network. Service providers of

cryptographic keys independently.119 Accordingly, a service provider that

Operators of Trading Platforms

platforms.129 The counterpart are off-chain trading platform, which only

Providers of Tumbler Services

1.5 Opportunities and Risks

It is precisely the aspect of cost reduction that makes an investment in

Your Transfer into Practice

Individuals looking to start a business related to crypto assets should ask

• In what form do I want to be active in the crypto market? (Issuer, service

DBB (2019b). Krypto-Token im Zahlungsverkehr und in der Wertpapiera

Hanten, M. & Sacarcelik, O. (2019). Zivilrechtliche Einordnung von

Pankratz, G. (2019). Blockchains und Distributed Ledgers – konzeptionelle

What You Take Away from This Chapter

• The regulatory classification of crypto assets depends on the specific

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, 27

2.1 Fundamentals of European Financial

among other things. It provides macro-prudential oversight of the finan-

form of capital market supervision, which is intended to regulate the

2.2 Classification under Capital Market Law

2.2.1 Financial Instrument within the Meaning

The key connecting factor of the WpHG is the concept of a financial

Security within the Meaning of the WpHG

with individual customer-specific characteristics, trade ability on finan-

Classification as an investment product is also subsidiary to the quali-

2.2.2 Legal Consequences of Classification

Frankfurt am Main, Germany Hannah Appel

2.2.1 Financial Instrument within the Meaning

4.5 Neglected Aspects 88

1.1 Definition of Terms

1.2 Design of Crypto Tokens

1.2.1 Currency Tokens

1.2.2 Investment Tokens

However, an investment token may also be associated with a co-

1.2.3 Utility Tokens

1.2.4 Hybrid Forms

1.3 Technical Principles

1.3.1 Distributed Ledger Technology

1.4 Market Participants in Relation

1.4.2 Service Providers

1.5 Opportunities and Risks

2.1 Fundamentals of European Financial

2.2 Classification under Capital Market Law

2.2.1 Financial Instrument within the Meaning

2.2.2 Legal Consequences of Classification

2.3 Classification under Banking

2.3.1 Financial Instrument within the Meaning

2.3.2 Legal Consequences of Classification

EBA (2019). Report with advice fort he European Commission on crypto-

3.1 The Liechtenstein Token and Trusted

3.1.1 Legislative Background

3.1.2 Structure and Content

3.2 The EU Proposal for a Regulation

3.2.1 Legislative Background

3.2.2 Structure and Content

4.1 Scope of Application

4.1.1 Utility Tokens

4.1.2 Investment Tokens

4.1.3 Tokenisation of Other Rights

4.2 Regulatory Methodology

4.3 Technology Neutrality

4.4 Chosen Regulatory Instruments

4.4.1 Standardised Information Document