Block chain Guide - Mattos Filho

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Block chain Guide - Mattos Filho

 Blockchain Guide   1
Block chain Guide - Mattos Filho
2   Blockchain Guide   Blockchain Guide   3
Block chain Guide - Mattos Filho
WHY A                                                                                           CONTENTS
    GUIDE?                                                                                     1     MAIN   APPLICATIONS                           17
                                                                                               2     ENVIRONMENTAL                                 31
    As revolutionary as it is comprehensive,     Mattos Filho Advogados has deep
    Blockchain technology has shown that it      knowledge in all these areas and              3     COMPLIANCE AND CORPORATE ETHICS               35
    is here to stay. Far from being restricted   applications and knows how to guide and
                                                                                               4     ANTITRUST                                     41
    only to the universe of cryptocurrencies,    advise its clients. Our firm stands out
    Blockchain will be the main tool for         as a reference and has the necessary          5     LITIGATION                                    45
    structuring and enabling business in a       expertise for the technology industry         6     CYBERSECURITY                                 51
    digital environment in the near future.      and for companies that depend on it for
                                                 developing their business in different
                                                                                               7     INVESTMENT FUNDS                              57
    If transactions are made based on trust      areas.                                        8     SUCCESSION LAW                                65
    between parties and intermediaries, no
                                                 We hope that this guide will serve to
                                                                                               9     REAL ESTATE                                   71
    technology in the digital world can better
    translate this environment, whether          clarify information about Blockchain          10    INFRASTRUCTURE                                75
    by its transparency, the immutability        technology and provide a reference for
                                                                                               11    LIFE SCIENCES AND HEALTHCARE                  79
    of its records, or because it allows the     how we can assist our clients.
    parties to be brought closer, removing                                                     12    CRIMINAL LAW                                  85
    unnecessary intermediaries in business.      Happy reading!                                13    PRIVACY AND DATA PROTECTION                   91

    Blockchain applies to several areas such     * This guide should not be used as a legal    14    INTELLECTUAL PROPERTY                         97
    as environment, infrastructure, payment      opinion, nor is it intended to guide anyone   15    INSURANCE                                   105
    methods, contracts, investment funds,        for legal purposes.
    healthcare, insurance, and real estate.
                                                                                               16    CORPORATE/M&A                               111
    Its impacts also vary, being felt across                                                   17    TAX                                         115
    a range of legal areas including criminal,
    antitrust, data protection, compliance,
    tax, cybersecurity, asset management,
    corporate, intellectual property and

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Block chain Guide - Mattos Filho

    Blockchain is a technology for storing        and is then included in the chain,
    and transmitting information in a             referencing the previous block and
    transparent, secure, and distributed          making it visible to the receivers of the
    network, that does not demand a               transactions, as well as throughout the
    centralized control body to exist.            rest of the network. Each transaction
                                                  is recorded in blocks with date and
    As the name suggests, Blockchain              time information (timestamping).
    is based on a chain of “blocks” that          The information for each block in the
    store digital information related to          Blockchain is summarized in its hash,
    the transactions made between its             with each hash referencing the previous
    users. Like a ledger, each Blockchain         hash, thus forming a series of verifiable
    constitutes a database that contains          and permanent data, unable to be
    the history of all the transactions carried   modified without the consent of the
    out and validated since the creation of       entire Blockchain network.
    the first block of information.
                                                  Once inserted into the chain, the content
                                                  of these blocks is highly unlikely to

    How is this possible?                         be modified. If a network user tries to
                                                  modify it, the number of the original
    Transactions made by Blockchain users
                                                  hash will be changed and will show the
    are grouped into blocks, which are
                                                  existence of a “new” block that does
    validated by network “nodes”. These
                                                  not fit in the already validated and
    nodes are nothing more than individual
                                                  authenticated chain.
    computers that make their storage and
    processing resources available to all
                                                  Though it may seem complicated at first
    members of the chain, to ensure that
                                                  glance, it becomes simpler when we seek
    decisions on the Blockchain are made in
                                                  to understand the practical application
    a decentralized manner.
                                                  of Blockchain.

    After the transactions have been
    validated, the block receives a unique
    identification code known as a “hash”

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Block chain Guide - Mattos Filho
Blockchain in practice                                                                    So then, why is the
    The first news about the use of                   the parties - thus excluding them       technology still not
    Blockchain dates back to 2008 when the
    technology was discussed in the article
                                                      from the chain of intermediaries who
                                                      could make negotiations costlier and
                                                                                              used on a large scale?
    “Bitcoin: The Peer-to-Peer Electronic Cash        more time-consuming.                    Notwithstanding all its advantages            tool, Blockchain does not allow the
    System”, by Satoshi Nakamoto. This                                                        and benefits, there are still important       modification of its data. Although data
    article sparked the dawn of the Bitcoin       •   Transparency: all decisions, such as    challenges for using Blockchain.              may be rectified when a new block of
    cryptocurrency, which enables individuals         block validations and registrations,                                                  information is included in the chain, the
    or entities to transact directly, replacing       are public and visible to all           While Blockchain shows agility in             previous block will remain registered in
    the reliance on intermediaries to perform         members of the Blockchain, which        completing transactions, there is no way      the network.
    or validate transactions. On that                 gives greater transparency to the       to prove the unequivocal consensus of
    occasion, Blockchain was introduced as            transactions carried out.               the parties involved in a transaction,        Finally, it is difficult to determine where
    the technology that would serve as the                                                    or even guarantee the quick decision-         modifications in the Blockchain take
    basis for Bitcoin transactions on the         •   Immutability: after the blocks          making of important decisions.                place in the real world, which makes
    network.                                          have been validated by the                                                            identifying the jurisdiction applicable to
                                                      “nodes”, they become part of the        Another point of tension is the anonymity     each transaction quite challenging.
    However, Blockchain’s disruptive                  blockchain definitively. Alterations    guaranteed to transact by the use of
    potential and its ability to serve                to information contained in a given     public keys instead of personal data. As      These factors – especially when
    other purposes was soon realized                  block can only occur through the        users are not qualified in the system by      combined with the exclusion of traditional
    Currently, besides being used to enable           validation and registration of a new    formal identification, assigning rights and   intermediaries such as notaries and
    cryptocurrency transactions in a secure           block, without excluding the previous   responsibilities to acts undertaken inside    banks –have led to distrust in the use
    and decentralized way, Blockchain is              block. This factor makes Blockchain     the network is difficult.                     of Blockchain by some stakeholders of
    also widely used in the realm of smart            applications more reliable. .                                                         society. However, the range of potential
    contracts and tokenization of assets.                                                     There is also the difficulty of controlling   technological applications related to
                                                  The use of Blockchain provides several      false information. For being an immutable     Blockchain tends to increase its use in
                                                  advantages, in particular:                                                                the medium and long term.

    Why use Blockchain?                           •   Cost Reduction
    There are many advantages to using            •   Easy Data Sharing
    Blockchain, mainly due to its main            •   Cutting Red Tape
    characteristics of of decentralization        •   Reliability
    and disintermediation, transparency,
    and immutability:

    •   Decentralization and
        disintermediation: cas there is
        no need for the approval of a
        central entity for the registration
        of transactions on the Blockchain,
        transactions occur directly between

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Block chain Guide - Mattos Filho
 LOCATION                                      SECTOR/SUMMARY/REFERENCE
                                                                                                                                OTHER INITIATIVES
                            In Switzerland, there is specific legislation on energy commercialization by consumers
                               who have production capacity (via solar energy, for example) to other consumers
     SWITZERLAND           through Blockchain solutions that measure the energy production and consumption to
                                                    enable more efficient commercialization.                                    Public Policies in R&D:                       they are purchasing comes from via a QR
                                                                                                                                                                              code, and get information on how it was
                          Sweden has been using Blockchain technology in the real estate market since 2016 and                  Since April 2018, the European Union,         produced.
       SWEDEN               was the first western country to begin exploring the applicatins of the technology.                 along with Norway and Liechtenstein,          Other American companies have also
                                                                                                                                have created “The European Blockchain         adopted monitoring of production in
                          In Italy, Law No. 12/2019 created a legal foundation for adoption of technologies based
                          on distributed ledger technologies and smart contracts and defined such technologies.                 Partnership” that states that its members     the food sector. IBM created the IBM
                                                                                                                                will work together to deliver Blockchain-     Food Trust, one of several Blockchain
                                                                                                                                based services for the benefit of citizens,   consortia that aims to move complex
                               According to the Internal Revenue Service (IRS), general tax principles apply to                 society, and the economy. In addition,        food supply chains to a shared and
         USA                                  property transactions that use virtual currency.
                                                                                                                                the European Commission launched the          distributed platform.
                                                                                                                                European Blockchain Observatory and           WWF-Australia and BCG Digital Ventures
         USA                   Delaware already recognizes the legality of registering corporate actions and                    Forum, investing €200 million in research     have launched OpenSC, a new online
     (DELAWARE)                                     recording ledgers on Blockchain.                                            and development projects supporting the       platform that uses Blockchain to track
                                                                                                                                use of Blockchain in technical and social     food and help people avoid illegal,
                             The Utility Token Bill addresses ambiguity around the definition of a utility token, exempting     areas.                                        environmentally harmful or unethical
                              them from the state’s securities regulations, provided that (i) issuers do not market utility                                                   products. As WWF-Australia’s first
                              tokens as investments; (ii) utility tokens can be redeemed for a product or service; and (iii)
                                                                                                                                                                              social impact venture, OpenSC recently
                           issuers do not actively support the development of a secondary market for these utility tokens.

                                                                                                                                Infrastructure:                               raised more than US$4 million in capital.
                                                                                                                                                                              They are currently working to increase
                              The Crypto Property Tax Exemption Bill establishes that virtual currency is not subject to
      (WYOMING)               taxation as “property” in Wyoming, as well as conventional financial assets, money, bank          In Europe, Blockchain has been used           visibility and transparency in supply
                                                    balances, and precious metals, for example.                                 to guarantee in real time that both           chains with familiar names such as
                                                                                                                                energy supplied and consumed is 100%          Nestlé.
                              The Blockchain Fillings Bill updates the Wyoming Business Corporations Act to authorize
                              the creation and use of the Blockchain to (i) store records; (ii) identify the shareholder of a   renewable. The Spanish group Iberdrola
                             corporation; and (iii) the acceptance of shareholders’ votes by the network’s subscriptions.       has implemented a pilot project based
                                                                                                                                on the use of Blockchain technology that
                                                                                                                                even allows the enforcement of clauses
                             Since 2016, Japan has included two extremely relevant rules on virtual currencies
                           within its legislative framework, namely: The Payment Services Act and the Transfers                 of long-term energy purchase and sale         In 2018, the state of Arizona created
                                                 Prevention Framework for Criminal Activities.                                  contracts (Power Purchase Agreement           a regulatory sandbox for fintechs,
                                                                                                                                - PPA) based on renewable assets,             pioneering the study of regulation of
        JAPAN                  The first deals with transactions with virtual currencies, establishing certain
                                                                                                                                given that one of the requirements they       new technologies in the United States’
                            obligations, such as the need for a representative domiciled in the country, as well
                            as annual submission of transaction records to an inspection body. The Transfers                    establish is the need to prove the origin     financial markets, including blockchain
                             Prevention Framework for Criminal Activities, on the other hand, requires entities                 of the electricity supplied is 100% green.    and cryptocurrencies.
                             to verify the identity of Blockchain users, as well as transaction records, and any
                                      suspicious activity must be reported to the relevant authorities.

                                                                                                                                Supply chain:                                 Voting in meetings:
                           All transactions involving cryptocurrencies must be confirmed by banking institutions, under
     SOUTH KOREA           the Act on Reporting and Using Specified Financial Transaction Information. This document            In the United States, Dole Foods has          Proxy Voting Blockchain. The use of
                               was created to deal with money laundering and the financing of terrorism. Among the              adopted Blockchain throughout its             Blockchain technology in shareholder
                           obligations, cryptocurrency owners must answer to the country’s Financial Intelligence Unit.         fruit processing system. At markets,          meeting voting systems ensures greater
                                                                                                                                consumers can check where the product         efficiency, reliability, and security, and

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Block chain Guide - Mattos Filho
facilitates the counting of shareholders      Government services:                        exchanges and authorities. There would        regulatory authorities, such as the
     with voting rights.                                                                       be due diligence procedures included,         Central Bank (BACEN), the Securities
                                                   The Australian government has
     Meeting information is imported (agenda,                                                  such as know-your-client programs. The        Exchange Commission (CVM), and the
                                                   been a strong supporter of new
     date, time, etc.) to the distributed ledger                                               intention is to create a global standard      Insurance Regulator (SUSEP) have been
                                                   technologies in the field of Blockchain
     and the rules of the meeting are defined                                                  of transparency.                              proposing successful participatory
                                                   and cryptocurrencies, having
     through smart contracts. After meeting                                                                                                  initiatives in respect to other subjects.
                                                   sent AUS$700,000 to the Digital
     conditions are defined and validated,                                                                                                   These experiences can certainly be put
                                                   Transformation Agency in 2018
     qualified shareholders are granted
     access to the platform where their votes
                                                   to examine possible Blockchain              BRAZILIAN                                     to good use.

     are imported into the distributed ledger
                                                   applications within government services.
     and encrypted in immutable registration
                                                                                               In Brazil, Blockchain can open up
     blocks, guaranteeing the security
     of information. This application of           Regulation of                               opportunities for entities interested in
                                                                                               using this technology, as well as for those
                                                                                                                                                   Regulatory sandboxes are
     Blockchain technology has already been
     used in Europe, North America and Asia,
                                                   exchanges:                                  intending to offer it to the market as a
                                                                                                                                                    environments created by
                                                                                                                                                 regulators that allow startups
     by institutions such as Banco Santander       The United States-led FATF (Financial                                                           and technology companies
     (Spain), Nasdaq, the ICJ and ACCESS           Action Task Force) has released                                                                    to carry out tests and
                                                                                               In view of the country’s traditional
     (Singapore).                                  an updated practice guide so that                                                                experiments in regulated
                                                                                               red tape, Blockchain represents an
                                                   Blockchain exchanges may have the                                                                sectors of the market for
                                                                                               opportunity for innovation, agility and
                                                   same duties as traditional financial                                                             a specific time and under
                                                                                               transparency, especially by means
     Environment:                                  institutions. This includes identifying
                                                   actors in transactions and developing
                                                                                               of smart contracts, which provide
                                                                                                                                                     regulatory supervision.

     Proxy Voting Blockchain. The use of                                                       security and speed for the execution
                                                   processes for institutions to enforce the
     Blockchain technology in shareholder                                                      of transactions between the parties
                                                   sharing of this information with other
     meeting voting systems ensures greater                                                    involved.
                                                   exchanges and authorities. There would
     efficiency, reliability, and security, and
                                                   be due diligence procedures included,
     facilitates the counting of shareholders                                                  There will certainly be adequate demand
                                                   such as know-your-client programs. The
     with voting rights.                                                                       for Blockchain in Brazil, since several
                                                   intention is to create a global standard
     Meeting information is imported (agenda,                                                  fields of the market stand to benefit
                                                   of transparency.
     date, time, etc.) to the distributed ledger                                               from it – especially if public authorities
     and the rules of the meeting are defined                                                  adequately balance mechanisms to
     through smart contracts. After meeting                                                    foster innovation and the development of
     conditions are defined and validated,         Regulação de                                technology.
     qualified shareholders are granted
     access to the platform where their votes
                                                   exchanges:                                  The regulation of the technology will
     are imported into the distributed ledger      The United States-led FATF (Financial       require the engagement of society.
     and encrypted in immutable registration       Action Task Force) has released             Public authorities can implement
     blocks, guaranteeing the security             an updated practice guide so that           regulatory sandboxes and launch public
     of information. This application of           Blockchain exchanges may have the           consultations, allowing for the testing of
     Blockchain technology has already been        same duties as traditional financial        new technologies in regulated sectors
     used in Europe, North America and Asia,       institutions. This includes identifying     and enabling stakeholders to take
     by institutions such as Banco Santander       actors in transactions and developing       part of the construction of a Blokchain
     (Spain), Nasdaq, the ICJ and ACCESS           processes for institutions to enforce the   legal framework. Some of the Brazilian
     (Singapore).                                  sharing of this information with other

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Block chain Guide - Mattos Filho

16   Blockchain Guide            Blockchain Guide   17
Block chain Guide - Mattos Filho
CRYPTOCURRENCY                                Cryptocurrencies are independent
                                                   of central banks, and the amount in
                                                                                                  another of its notable characteristics
                                                                                                  is transparency. Every detail of
                                                                                                                                                transactions carried out through
                                                                                                                                                Blockchain’s structure.
     Cryptocurrency is a financial asset that      circulation can be increased by any            each transaction that occurs is duly
     allows electronic payment based on            person or group that follows the pre-          registered in the Blockchain network,         The term “mining” is used in comparison
     cryptographic evidence, thus removing         established rules for their issuance in        through its chain of interconnected           to the work of miners to obtain gold,
     the need for financial intermediaries         white papers.                                  blocks, forming a large accounting book       in the sense of it being extracted and
     (such as banks) to ensure its                                                                available to multiple participants. This      then circulated. In the case of digital
     authenticity.                                 A cryptocurrency transaction is a direct       permanent, multi-faceted record raises        currencies, once the mathematical
                                                   transaction between two users (peer-           the level of security for cryptocurrencies,   problem has been solved, that is, once
     Cryptocurrencies are issued according to      to-peer), thus their use as an instrument      away from forgery, transaction fraud,         the computational effort and the
     pre-established rules, publicly available     of exchange does not depend on a               theft, and robbery.                           work to achieve the result have been
     in so-called white papers. The most           central verifying agent. Transactions                                                        demonstrated, the miner is awarded with
     famous white paper is attributed to           can be validated by any of the points          Although cryptocurrencies are                 cryptocurrency, duly registered on the
     Satoshi Nakamoto, who introduced              in the Blockchain network, which act           decentralized by nature, how agents will      Blockchain network.
     the concept of cryptocurrency via             as verifying agents and generate the           use them and their application in society
     the creation of Bitcoin, along with           necessary consensus for transactions           are subject to constant evolution
     Blockchain’s support architecture.            to be completed and recorded within the        and regulation in several jurisdictions
                                                                                                  around the world. News reports from
     Once cryptocurrency is issued, it is the
                                                                                                  countries that have started to regulate
                                                                                                                                                Initial Coin Offering -
     Blockchain architecture that allows the       Just as with the issuance and transfer         the circulation of cryptocurrencies –         ICO
     asset to be validated.                        of cryptocurrencies, there are no              such as Japan and Switzerland – are
                                                                                                                                                ICO (Initial Coin Offering) is the term
                                                   central institutions with an exclusive         recurrent. Thus, depending on the
                                                                                                                                                adopted to refer to what is essentially
     Blockchain’s continuous registration          prerogative for cryptocurrency storage.        country, cryptocurrencies can be
                                                                                                                                                an IPO (Initial Public Offering) for
     works like a stamp or digital signature.      Some software options – so-called              banned, regulated as currency, or
                                                                                                                                                cryptocurrencies. However, unlike
     It makes each cryptocurrency a unique         “wallets” – provide means for creating         considered as intangible assets, liable
                                                                                                                                                what would happen in a traditional IPO
     asset, preventing duplication, and            and securing cryptocurrencies that can         for commercialization without any
                                                                                                                                                – where a portion the capital raised
     allowing it to be used in transactions like   be stored either in the cloud, or offline on   regulation from monetary authorities.
                                                                                                                                                would be attributed to an investing
     a digital currency.                           physical media.
                                                                                                                                                shareholder, providing a certain amount
                                                                                                                                                of money – the ICO aims to raise funds
                                                   Due to the absence of intermediaries,
                                                                                                                                                through public funding in exchange for
                                                   cryptocurrencies are international
                                                                                                  Mining                                        fractions or cryptocurrency units offered.
     Characteristics:                              in scope, with no conversion rates
                                                   for different countries, or fees for           Mining is the method by which a
                                                                                                                                                It is a procedure that is still awaiting
     Cryptocurrencies possess some                 international transactions. Transactions       cryptocurrency is traditionally issued.
                                                                                                                                                specific regulation, but some central
     particular characteristics that make          are not restricted to bank hours - the         Despite its name, the process does not
                                                                                                                                                aspects must be taken into account:
     them different from traditional               concept of a “business day” is not             relate to any ores or minerals, rather
     currencies. Decentralization is               applicable to cryptocurrencies.                consisting of a process for solving
                                                                                                                                                •   White paper - consistent with the
     fundamental to cryptocurrency, and is                                                        complex mathematical problems.
                                                                                                                                                    description of the ICO’s scope,
     present in the creation, transfer, and        So that decentralization does not              “Miners” invest time and computing
                                                                                                                                                    with an explanation of the related
     maintenance of cryptocurrencies.              harm the reliability of cryptocurrencies,      capacity to solve such mathematical
                                                                                                                                                    technology behind it.
                                                                                                  problems, which involve verifying

18   Blockchain Guide      Main applications                                                                                                    Main applications           Blockchain Guide   19
•   Credibility/Team - it is important
         to note who is behind the ICO and
                                                 distribution, (iii) transaction speed,
                                                 and (iv) algorithms used. The creation
                                                                                              SMART                                                                  contractual, depending on the smart
         investigate its history, in order to    method and the structure (Blockchain)        CONTRACTS                                                              contract model, as will be discussed
         give the ICO greater credibility.       that support them are usually the same.                                                                             later.
                                                                                              Smart contracts were well defined
                                                                                              by Nick Szabo in 1996 as “a set of
     •   Liquidity - attention should be         Bitcoin – the precursor to all other                                                                          •     Digital form: This is related to
                                                                                              promises, specified in digital form,
         paid to how the newly minted            cryptocurrencies – remains the most                                                                                 the fact that the smart contracts
                                                                                              including protocols within which the
         cryptocurrency will be used after the   popular one with the highest market                                                                                 operate electronically through
                                                                                              parties perform on these promises”1. In
         ICO has finished.                       value, with all other currencies that have                                                                          lines of code and software that
                                                                                              other words, they can be understood
                                                 followed on thus known as altcoins.                                                                                 prescribe certain conditions and
                                                                                              as lines of code that are stored in
     One of the most successful examples of      Ether has become very relevant among                                                                                consequences. The contractual
                                                                                              a Blockchain and are automatically
     an ICO is the Ether cryptocurrency, the     these altcoins due to the Ethereum                                                                                  clauses and/or functional
                                                                                              executed when their predetermined
     currency of the Ethereum platform used      platform, developed not only to serve                                                                               consequences are described in the
                                                                                              conditions are met.
     to create new cryptocurrencies, which       as a model for cryptocurrency but for                                                                               form of codes in the software, and
     raised approximately US$18 million from     several other purposes such as smart                                                                                the entire procedure is carried out
                                                                                              Although old, this definition remains
     its ICO in 2014.                            contracts and tokens.                                                                                               digitally.
                                                                                              compatible with what is understood
                                                                                              by smart contracts today. Through
                                                                                                                                                               •     Protocols: Computational protocols
                                                                                              this definition it is possible to reflect
                                                                                                                                                                     in the form of algorithms constitute
                                                                                              on the technical, business, and legal
     Cryptocurrency                                                                           developments of this technology.
                                                                                                                                                                     a set of rules for which each party
                                                                                                                                                                     must process data in relation to a
     Options:                                                                                 •    Set of promises: They may have
                                                                                                                                                                     smart contract. It is the mechanism
                                                                                                                                                                     that performs the qualifications and
     There are thousands of cryptocurrencies                                                       been contractual – characterized as
                                                                                                                                                                     basic rules of the transactions, and
     available, with the main differences                                                          terms or rules of operation – or non-
     being (i) market value, (ii) form of

                                                                                                  1    “[…] a set of promises, specified in digital form, including protocols within which the parties perform on
                                                                                                  these promises.” - Nick Szabo, Smart Contracts: Building Blocks for Digital Markets, 1996.

20   Blockchain Guide   Main applications                                                                                                                     Main applications                  Blockchain Guide   21
allows the execution of actions such        which are encoded in a Blockchain.
         as making payments.                         When particular conditions are met and
                                                     verified, computer networks perform the
     •   Pre-established promises: Self-             actions called for in smart contracts,
         enforcement is one of the central           updating the contract history while being
         points of these contracts. Because          registered in the chain.
         they are traditionally stored in
         a Blockchain, their clauses are             With such objectivity, smart contracts
         automatically enforced, and                 present several benefits, such as: (i)
         the effects of their predictions            speeding up transactions and saving
         are unlikely to be avoided once             time related to inaccuracies and
         underway.                                   corrections in contractual wording;
                                                     (ii) increasing the confidence of
     Unlike traditional contracts, where             parties involved in a transaction, as all
     a third-party describes the terms               conditions are automatically executed
     and writes the document, with smart             in accordance with predetermined rules,
     contracts, the terms can be developed           and encrypted records of transactions
     physically, or through an electronic            are created and shared with all
     platform, and can be implemented and            participants.
     signed in a digital manner that is secure
     and transparent for all parties. Thus,          Examples of possible applications for
     smart contracts inserted in a Blockchain        smart contracts are:
     have the ability to simplify interactions
     between parties in a given transaction or       (i)     Insurance contracts: the
     business activity, leading to transactions      parameters of an insurance policy
     based on pre-established and automatic          can be coded in a smart contract and
     commands.                                       enforced automatically. A certain policy
                                                     may provide for automatic payment of a
     It is important to note that there are a        specific amount of insurance coverage
     variety of smart contract forms, which          as a result of a certain event, without
     can be: (i) fully coded, (ii) a contract with   the need for an administrative process
     one coded version and another in natural        to ascertain what took place (if X occurs,
     language; (iii) a combination of contract       then the insured will receive Y);
     with natural language, with codified
     enforcement; or (iv) a natural language         (ii)    Escrow: smart contract protocol
     contract with an encrypted payment              retains funds until the occurrence of a
     system.                                         certain event and the verification of a
                                                     message. Once the event has occurred
     Despite this variety of forms, all smart        and the content of the message has
     contract models involve coding. The             been observed, the contract protocol
     operation of this technology is based           automatically enforces a contractual
     on cause and effect (“if/when/then”),           action such as the payment of a certain
                                                     amount to the beneficiary.

22   Blockchain Guide    Main applications                                                        Main applications   Blockchain Guide   23
(iii)   Royalties Distribution:
     automatic payment of royalties
     according to a certain event.

     Despite these positive prospects,          SMART CONTRACTS AND THE
     smart contracts are the result of
     coding and may contain defects and/
                                                INSURANCE MARKET:
     or not correspond to parties’ initial
                                                Smart contracts could have several functions in the insurance market,
     plans. Command transmission can be
                                                including the automation of risk underwriting and claim regulation.
     hampered by network instability, and
     there is a risk that encrypted keys will
                                                In the risk underwriting process, a smart contract can be used for
     be hacked. In addition, the automation
                                                the insurer to issue an insurance policy if certain requirements are
     of some contracts becomes more
                                                established. For example, a customer seeking protection for robbery and
     complex as we face situations such
                                                theft of a smartphone could include their personal data and data about
     as the reversibility of transactions,
                                                the smartphone to be protected (brand, model, IMEI) in the Blockchain;
     subjective analyses, complex principles
                                                such data would be validated (by means of external checks and/or in the
     (such as reasonability), and many
                                                Blockchain itself) and if certain conditions are subsequently met, the
     other interactions between Blockchain
                                                smart contract could automatically generate an insurance policy for such
     structures and external information.
                                                an asset, all without human interference.

     Therefore, while smart contracts have
                                                Another application of smart contracts occurs in the claims regulation
     positive prospects and may be able
                                                process, being especially interesting in the case of parametric insurance.
     to reduce costs and make contractual
                                                In parametric insurance, the regulation of the claim does not depend
     relationships less unstable, they are
                                                only on the verification of the damage caused to the insured asset (such
     not necessarily exempt from errors
                                                as the analysis of damages to an asset in an automobile accident), but
     and difficulties that may arise in new
                                                also on the verification of certain parameters. There is also climate-
     ways – something typically found in
                                                linked parametric insurance, in which the payment of indemnity is due if
     technological contract mechanisms.
                                                a certain meteorological event occurs (number of dry days, frost, volume
                                                of rain, etc.), and parametric insurance that provides for the payment
                                                of indemnity in case of delays on flights. In those cases where claim
                                                regulation depends on the verification of certain parameters, smart
                                                contracts can be widely used to verify these with external sources and,
                                                once verified, to adjust the claim and pay the compensation very quickly.
                                                This could even be done with the aid of data automatically transferred to
                                                the Blockchain using equipment that has incorporated IoT functionality.]

24    Blockchain Guide   Main applications                                          Main applications        Blockchain Guide   25
                                                                                                                                                                Tokens are security devices that              will however focus on the process of
                                                                                                                                                                generate unique, exclusive, and               tokenization with the application of
                                                                                                                                                                random digital identifier codes. The          Blockchain technology, known as the
                                                                                                                                                                transformation and individualization          “security token”, which aims to cut red
                                                                                                                                                                of data or assets in a token is called        tape and speed up certain everyday
                                                                                                                                                                “tokenization”, and has several               transactions.
                                                                                                                                                                applications, as we will see below.
                                                                                                                                                                                                              Through the Blockchain structure, it is
                                                                                                                                                                In the payment industry, tokenization         possible to “tokenize” real assets, in
                                                                                                                                                                is a security mechanism in which the          a process of converting all or part of
                                                                                                                                                                complete data on a credit card, for           assets into a certain number of tokens,
                                                                                                                                                                example, is replaced by a token at            depending on their value, such process
                                                                                                                                                                random. Thus, all entities participating in   being registered, moved and stored in

              SMART CONTRACTS                                                                                                                                   the payment chain share only the token
                                                                                                                                                                with each other, so as to not distribute
                                                                                                                                                                                                              the Blockchain architecture.

              AND THE IP MARKET                                                                                                                                 the data on an individual basis and to        The assets to be converted into tokens
                                                                                                                                                                guarantee an additional level of security     can be numerous: works of art, company
              Within the universe of intellectual property, these contracts could be used to quickly fulfill the
                                                                                                                                                                for the cardholder. Even if a security        shares and part of a property are just
              assignment or licensing of a certain asset between the parties, when negotiated in a simplified
                                                                                                                                                                incident occurs, the attacker will not be     some examples that can be converted
              manner. The moment any of the established conditions are met, the obligation corresponding
                                                                                                                                                                able to revert the token to bank details,     into one or multiple tokens and traded
              to the other party is automatically fulfilled.
                                                                                                                                                                which could potentially cause great           around the world. In this way, the
                                                                                                                                                                damage to the cardholder.                     token digitally represents a fraction of
              An example of a smart contract used in the music industry came with the emergence of the
                                                                                                                                                                                                              the value of that asset in the market
              Choon streaming platform2 in May 2018. The idea behind the launch was to enable independent
                                                                                                                                                                There are also utility tokens, a kind of      and can be traded. This negotiation
              artists to launch their productions on the market and directly manage their copyright and
                                                                                                                                                                unregulated digital asset that enables        is commonly associated with smart
              receive payment (via cryptocurrency) for the reproduction of their music. However, the artists’
                                                                                                                                                                transactions in an online environment.        contracts.
              remuneration varied significantly due to the fluctuating cryptocurrency financial market. From
                                                                                                                                                                Via this instrument, interested parties
              the analysis of cases like this, new platforms have already been launched on the market with
                                                                                                                                                                can exchange tokens for products or           So, how does this work in practice?
              different guarantees and the tendency is that more and more players are fighting for space in
                                                                                                                                                                services in a limited context.                Imagine that a property owner intends to
              the entertainment industry3, already known by some as “Industry 4.0”4. The tokenization of IP
                                                                                                                                                                                                              sell such property. The owner can either
              assets has already been discussed by the World Intellectual Property Organization (WIPO) and
                                                                                                                                                                It is possible to make a comparison           carry out the sale in the traditional way
              its applicability may be directly connected with the enforcement of smart contracts, further
                                                                                                                                                                between utility tokens and tokens             – negotiating with a single buyer – or
              accelerating transactions and favoring automation.
                                                                                                                                                                from an amusement park – the tokens           he/she can tokenize such property. In
                                                                                                                                                                from a park are issued and can only           this case, the owner will be able to issue
                                                                                                                                                                be used within that park, and it is not       numerous tokens for a given unit value
                                                                                                                                                                possible to use them at a competitor’s        (at the owner’s sole discretion), in an
2   Choon - A Music and Digital Content Ecosystem Utilizing Smart Record Contracts, Choon White Paper. Available at:                                            park or anywhere else. Likewise, issued       environment linked to the Blockchain’s Source:
    Accessed on: June 1, 2020.                                                                                                                                  utility tokens will only work for the         structure. Once issued, the tokens and
3   As an example, there was the launch of the Mycelia platform by Imogen Heap, Grammy winner in categories such as best singer and best lyrics.                specific purposes determined by a             the fractions they represent can be sold
    According to the British singer, the goal behind the development of this project is to empower a fair, sustainable, and digital environment for the music
    industry through the blockchain. TAPSCOTT, Don; TAPSCOTT, Alex. Blockchain Could Help Artists Profit More from Their Creative Works. Available at:          particular company or entity. This guide      to several individuals at the same time,
    Accessed on: May 28, 2020.

4   ROSSOW, Andrew. How Can We Make Intellectual Property Rights ‘Smarter’ With The Blockchain? 2018. Available at: the-blockchain/#579e785785ec.
    Accessed on: May 29, 2020.

      26       Blockchain Guide        Main applications                                                                                                                                                      Main applications          Blockchain Guide   27
and each of these individuals will hold
     a percentage of the ownership of the
                                                  •   Despite these advantages (as
                                                      well as those derived from other
                                                                                                                   TOKENIZATION AND
     property.                                        common applications of Blockchain                            INSURANCE MARKET
                                                      technology) tokenization faces
     In the same vein, some companies are             several legal challenges, especially in
                                                                                                                   Tokens could be used by the insurance market in a diverse array of forms.
     issuing debt securities using Blockchain         highly regulated markets that have
                                                                                                                   The use of cryptocurrencies and security tokens in the insurance market
     technology, with each token representing         rules for negotiating and formalizing
                                                                                                                   depends on their regulation by the Brazilian Central Bank and the Brazilian
     an issued security. Considering that             the transfer of assets and goods.
                                                                                                                   Securities and Exchange Commission, as these are matters under their
     Blockchain is an immutable technology,
                                                                                                                   jurisdiction. On the other hand, there is no impediment for the insurance market
     the tokenization of the property or debt
                                                                                                                   to make use of utility tokens right now. Utility tokens can be sold to finance
     security will be permanently registered.
                                                                                                                   certain projects, giving their holders the right to use a certain product or service
                                                                                                                   in the future. For example, an insurance marketplace could sell utility tokens for
     Some advantages of tokenization in
                                                                                                                   a certain price and guarantee acceptance of that utility token in the future as
     Blockchain are described below:
                                                                                                                   payment for an insurance premium greater than the original cost of acquiring
                                                                                                                   the token.
     •   Enables the opening of the market:
         considering that tokenization allows
         an asset to be divided up into
         millions of tokens, a greater number
         of people can acquire or invest in it.
         For example, traditional marketing of
         artworks regularly reaches a limited
         audience, since only individuals
         with a large purchasing power have
                                                                                                TOKENIZATION OF REAL ESTATE
         access to this market. However, if
         a painting is divided into several                                                     Tokenization of real estate is recent and with no specific legislation in Brazil.
         tokens, several people can acquire                                                     Depending on the real estate tokens’ form of issuance and the rights granted to
         fractions of ownership rights over                                                     investors, they may be characterized as securities. They would thus be regulated
         the painting at the same time, for                                                     by the Brazilian Securities and Exchange Commission, which has already been
         drastically less than the total value                                                  analyzing the matter more closely. Tokenization would reduce intermediaries and
         of the asset;                                                                          the costs involved in real estate transactions by reducing inconsistent information
                                                                                                and increasing transparency in regard to third-party actions. To make tokenization
     •   Cutting Red Tape: as in other                                                          public and ensure its legal validity and effectiveness, it must be carried out by
         applications of Blockchain                                                             splitting the rights as established in a public deed and filed at a relevant real
         technology, tokenization is yet                                                        estate registry. Notary services are also still essential for providing legal certainty
         another example of optimizing                                                          to property as an investment asset, as these notaries act as custodians of the
         a process by cutting red tape                                                          goods or rights that are divided up and transformed into digital assets (tokens).
         considering that all issuance,
         negotiation, and registration
         is carried out on Blockchain
         technology, without intermediaries.

28   Blockchain Guide    Main applications                                                                                                                 Main applications         Blockchain Guide   29

30   Blockchain Guide              Blockchain Guide   31
Addressing complex environmental                                  system can track the extraction of raw                                  Blockchain technology can even be           implementation of the technology,
     problems has become increasingly                                  materials, management of suppliers                                      used in the context of carbon credit        ensuring high-quality information
     necessary in Brazil, and at a domestic                            and branches, production control and                                    tokenization. It is possible to create      checks for data that will be sent to
     level there are the legal guidelines that                         transportation of associated waste                                      a network platform for companies to         the Blockchain system, as well as an
     govern activities on Brazilian soil. More                         to its final destination, along with a                                  easily and efficiently compensate their     excellent and thorough implementation
     importantly, however, is the international                        potential reverse logistics system,                                     carbon emissions, as the tokenization       throughout all stages, considering
     system that demands transformation                                bringing greater transparency to waste                                  of carbon credits allows them to be sold    any necessary procedures and any
     in governance structures, models                                  management6. Companies can therefore                                    or exchanged, similar to the idea of a      applicable regulations.
     of investment and socioeconomic                                   increase control over their environmental                               digital currency. Carbon-neutral products
     engagement in adopting a more                                     management and consumers are able                                       and services are thus encouraged by the     In this sense, we can assist in (i)
     sustainable way of life.                                          to validate the information that the                                    facilitation of these operations8.          identifying opportunities for the use of
                                                                       company provides regarding the product                                                                              Blockchain in a company’s environmental
     The possibilities of applying Blockchain                          life cycle.                                                             In other countries this technology          management; (ii) verification of the
     in environmental matters are growing as                                                                                                   has already been used to ensure that        environmental information that must
     the world continues to search for more                            Brazil has examples of platforms that                                   energy supplied to certain locations is     be included in the Blockchain system
     sustainable development models. Tools                             use Blockchain and machine learning                                     100% renewable. Blockchain facilitates      under the terms of the applicable
     found in Blockchain technology provide                            to track environmental assets, such                                     compliance with contractual clauses that    environmental legislation; (iii) legal
     possibilities for the proper traceability,                        as maintaining and preserving forests,                                  require proof of the 100% sustainable       advice on the programming of smart
     security, transparency and the allocation                         water resources and biodiversity7. In                                   origin of the electricity supplied.         contracts, in order to reflect the
     of environmental responsibilities derived                         the case of products originating from                                                                               application of environmental regulation;
     from economic activity and operations.                            Brazilian biodiversity, Blockchain is able                                                                          and (iv) environmental auditing
                                                                       to provide traceability, transparency,                                                                              of projects capable of generating
                                                                       and security along the supply chain.
                                                                                                                                               HOW                                         tokenizable assets, as well as providing

     Common uses                                                       This is because the species subject to
                                                                       technological research and development,                                 CAN WE
                                                                                                                                                                                           legal advice on the transactions
     of Blockchain in                                                  derived products and their associated
     environmental matters:                                            commercial value are all included in a
                                                                       digital platform by suppliers. Together
                                                                       with the implementation of smart                                        In light of the growing demand for more
     Given its intrinsic characteristics of                            contracts, this type of technology                                      sustainable organizations, products
     transparency and traceability, Blockchain                         guarantees to the interested parties                                    and services, Blockchain technology has
     has already been used in the supply                               that they are compensated fairly and                                    arrived at the environmental universe
     chain5 to track food and provide the                              equitably, as it also provides information                              ready to revolutionize sustainability-
     population with information on its origin,                        related to the proper sharing of benefits.                              related legal transparency and security
     production control and quality. The                                                                                                       in business. Therefore, it is essential
                                                                                                                                               entities to be advised about the

     5    Within a company’s monitoring system, suppliers include information about the products and services provided,
     information that 		              is validated in the subsequent stages of the chain, up to the final stage, in which information
     about the final destination of the 		                  waste and eventual reverse logistics system are included. Information on
     the regularity of suppliers, such as the indication 		           of which licenses and environmental authorizations they have,
     can also be included to facilitate environmental management by 		                     the company.
     6 QAvD_BwE


32    Blockchain Guide        Ambiental                                                                                                                                                                  Ambiental     Blockchain Guide   33
                        AND CORPORATE

34   Blockchain Guide             Blockchain Guide   35
Blockchain’s versatility has been used in            for automatic measuring of the
     the corporate environment in different               efficiency of companies’ compliance
     ways, including as a tool for structuring,           management.
     implementing, and monitoring compliance
     programs, such as:                             •     Efficiency gains: companies can
                                                          experience significant efficiency
     •   Audits: With the automation                      gains. As all changes made to the
         of companies’ internal risk                      information block are permanently
         management controls, Blockchain                  registered, the resulting traceability
         can facilitate the creation of audit             means that the technology
         trails for internal compliance                   can be used for the validation
         verification and create risk maps                and certification of documents,
         broadly and securely.                            contracts, which places it as a future
                                                          substitute for traditional notaries.
     •   Internal investigations and
         supervisory administrative                 In spite of the lack of regulation in
         procedures: as the information in          most countries, the characteristics and
         the Blockchain chain is immutable,         versatility of Blockchain technology
         all changes to the history of a digital    make it an important tool for companies
         asset are recorded.                        looking to maintain their integrity. Be
                                                    that as it may, companies must have an
     •   More efficient management:                 effective and pre-existing compliance
         Blockchain’s automation and                program for Blockchain to make a
         synchronization capacity allows            difference. After all, Blockchain does

36   Blockchain Guide   Compliance and Corporate ethics                                            Compliance and Corporate ethics   Blockchain Guide   37
not replace integrity standards. Instead,
     it facilitates the measurement and
     implementation of monitoring controls                 CAN WE
     for those standards. In this sense, it is
     essential that companies adopt integrity
     policies, codes of ethics and conduct,
                                                     •     Elaborating codes of conduct and
     undertake employee training, create
                                                           integrity policies that consider the
     reporting channels and other control and
                                                           use and storage of information in
     disciplinary measures.

     The use of Blockchain technology has
                                                     •     Review of companies’ compliance
     an enormous potential to strengthen
                                                           programs if they intend to benefit
     and refine internal procedures for
                                                           from Blockchain through smart
     integrity, for auditing, for encouraging
     the report of misconduct and for the
     effective application of codes of ethics
                                                     •     Advice on internal investigations
     and conduct within companies. All of
                                                           whose results are stored in
     these factors are mentioned by the
     Anti-Corruption Law as indicative of an
     effective compliance program.
                                                     •     Advice on the implementation of
                                                           Blockchain as a tool for monitoring
     Thus, the use of Blockchain technology
                                                           risk maps;
     in companies may prove to be a very
     positive element in the event of an
                                                     •     Advice on the implementation of
     evaluation of compliance programs, either
                                                           Blockchain as a tool for reputational
     to attest to the credibility and efficiency
                                                           analysis of clients and business
     in programs such as Pró Ética, or in the
     event of an administrative proceeding or
     leniency negotiation.
                                                     •     Advice on administrative
                                                           proceedings that require analysis
                                                           of documents encrypted with
                                                           Blockchain technology;

                                                     •     Drafting reports and risk mapping
                                                           about the implementation of
                                                           Blockchain in companies in their
                                                           integrity policies.

38   Blockchain Guide    Compliance and Corporate ethics                                           Compliance and Corporate ethics   Blockchain Guide   39

40   Blockchain Guide         Blockchain Guide   41
technical standards applicable               that they are in compliance with
                                                                                                      to platforms. Such agreements                antitrust law, and recommendation
                                                                                                      can be pro-competitive because               of mechanisms for mitigating
                                                                                                      they create compatibility/                   associated risks;
                                                                                                      interoperability between systems
                                                                                                      of different companies, but they         •   Representing companies in regard to
                                                                                                      can also prevent the entry of new            administrative proceedings before
                                                                                                      competitors and consequently                 CADE, when investigating alleged
                                                                                                      have the potential to close off the          anti-competitive behavior related to
                                                                                                      affected markets.                            the use of Blockchain technology;
                                                                                                  •   Facilitation of market and
                                                                                                      remedy monitoring: Competition           •   Acting in relation to antitrust
                                                                                                      authorities can use Blockchain               matters before the Brazilian Central
                                                                                                      platforms to identify suspicious             Bank and other authorities that
                                                                                                      activities in markets and ensure             may be created to regulate markets
                                                                                                      that they are able to monitor any            that use platforms with Blockchain
                                                                                                      imposed remedies in relation to              technology.
     When considering the possible                  •   Risk of collusion/cartels: If all
                                                                                                      conduct and structure control – for
     interactions between antitrust law and             companies in the same market
                                                                                                      example, through “memorization”
     Blockchain technology, the following               use the same Blockchain platform/
                                                                                                      and automatic execution of smart
     aspects stand out:                                 technology, there is a risk of
                                                        competitively sensitive information
     •   Constitution of a consortium                   flow between competitors (such
         or joint ventures to explore                   as costs and prices of products or
         Blockchain technology may be                   services). This can not only facilitate   HOW
         subject to mandatory filing to CADE
         (Administrative Council for Economic
                                                        collusive behavior among the
                                                        competitors in question, but also
                                                                                                  CAN WE
         Defense): the formation of consortia           monitoring of deviations from cartel      HELP?
         or joint ventures, and the signing             participants.
         of associative contracts for the
                                                                                                  Our Antitrust practice area can assist
         implementation and exploration of          •   Risk of abuse of a dominant
                                                                                                  clients throughout the technology
         Blockchain platforms/technology                position by refusing access: If
                                                                                                  creation, implementation and granting of
         that satisfy the following criteria            a Blockchain platform becomes
                                                                                                  access to Blockchain technology stages,
         will be mandatory for CADE: (i)                essential for activities in a certain
         the consortium or joint venture is             market, the unwarranted refusal of
         constituted or has activities in Brazil;       access to that platform may have
                                                                                                  •   Representing companies in regard
         and (ii) if the groups involved in the         the potential to exclude or prevent
                                                                                                      to merger control filingsinvolving the
         operation fulfill revenue criteria             the entry of new competitors.
                                                                                                      formation of consortia for the use of
         in the year prior to the formation
                                                                                                      Blockchain technology;
         of the consortium (i.e. one of the         •   Risk of market closure through
         groups registered a minimum of                 technical standardization: The
                                                                                                  •   Advice on the creation and
         BRL$750 million, and the other group           use of Blockchain technology
                                                                                                      implementation of Blockchain
         registered a minimum of BRL$75                 can facilitate agreements on
                                                                                                      platforms/technology to ensure
         million in gross revenues).

42   Blockchain Guide   Antitrust                                                                                                                        Antitrust        Blockchain Guide   43

44   Blockchain Guide          Blockchain Guide   45

                                     JUDICIALIZATION                                         FASE DE IMPLEMENTAÇÃO                               FASE DE REGULAÇÃO                           FASE DE CONSOLIDAÇÃO

                                     OF TECHNOLOGY
                                     IN BRAZIL:                                               • Little or no standardization;                                                               • Once the legality of services has
                                                                                                                                             • Attempts to regulate by the
                                     THE INTERPRETATION                                                                                                                                     been established, with a final decision
                                                                                                                                             Legislative Branch or sectoral bodies;
                                                                                              • Little or no interpretation by the                                                          or regulation of the topic, the litigation is
                                     OF TECHNOLOGICAL
                                                                                              Courts regarding the application                                                              no longer about the regulation process
                                                                                                                                             • Conflict of case law of the Brazilian
                                     INNOVATION BY THE                                        of the new technology;                                                                        and focuses on the use of innovation by
                                                                                                                                                                                            consumers and users;
                                     JUDICIARY AND POSSIBLE
                                                                                              • Economic agent with greater
                                                                                                                                             • Faced with an eventual conflict of
                                     IMPACTS ON SMART                                         freedom for development, but                                                                  • In the case of smart contracts, the
                                                                                                                                             case law or excessive regulation, the
                                                                                              with greater inherent risks;                                                                  solution to issues between parties can
                                     CONTRACTS AND                                                                                           debate can be taken to the Supreme
                                                                                                                                                                                            be defined;
                                                                                                                                             Federal Court, such as in regard to:
                                     CRYPTOCURRENCIES                                         • Strategic moment for the                                                                    		 - Brazilian Civil Code:
                                                                                                                                             		 - Illegality of laws restricting
                                                                                              definition of understanding                                                                   immutability and self-enforcement
                                                                                                                                             individual transport applications10;
                                                                                              by the courts: few cases                                                                      of the contract with coding errors or
                                                                                                                                             		 - Illegality of decisions that
                                     Technological innovations change living                  become a paradigm for future                                                                  problems of expression of will.
                                                                                                                                             block messaging applications11.
                                     standards and raise new social and economic              understandings;
                                     dilemmas. Naturally, differences between users,                                                                                                        • In the case of cryptocurrencies,
                                     suppliers, and control and inspection bodies             • The responsibility of internet                                                              solutions can be defined for issues such
                                     arise during this process.                               platforms for third-party content9,                                                           as:
                                                                                              for example, was first established                                                            		         - Responsibility of brokers
                                     Brazil is a country with a highly litigious tradition    by precedents and later                                                                       and Blockchain platforms;
                                     and these debates are invariably taken to                standardized by the “Marco Civil                                                                         - Legal nature and which
                                     the Judiciary. This has happened with private            da Internet” (Brazilian Civil Rights                                                          bodies are responsible for inspection
                                     transport applications, cryptography, internet           Framework for the Internet).                                                                  and regulation.
                                     service providers’ liability for third-party content,
                                     and even with electric scooters. It could
                                     therefore happen with smart contracts and
                                     cryptocurrencies too.

                                     Below, we present the general characteristics
                                     of three distinct phases of this litigious process
                                     resulting from technological innovation, and how
                                     it can impact the use of smart contracts and
                                     cryptocurrencies in Brazil:

                                                                                                            9      Marco Civil da Internet (Lei n. 12.965/2014), art. 19, caput.
                                                                                                            10     STF, RE 1054110 RG, Justice Roberto Barroso, judged on Dec.12, 2017.
                                                                                                            11     STF, ADI 5527, Justice Rosa Weber, judgment pending.

46   Blockchain Guide   Litigation                                                                                                                                                     Litigation         Blockchain Guide       47
How have the courts                                               HOW
      PRECEDENT OF                                                                 •     In the case of fraud in a digital           ruled in Brazil?                                                  CAN WE
      THE STATE OF SÃO                                                                   account leading to the loss of
                                                                                         bitcoins, the Brazilian Consumer
                                                                                                                                     Brazilian precedents on smart                                     HELP?
                                                                                                                                     contracts and cryptocurrencies are
      PAULO COURT OF                                                                     Protection Code was applied to the
                                                                                         relationship between the broker
                                                                                                                                     scarce and limited to matters that have
                                                                                                                                                                                                       As there is no specific legislation and
                                                                                                                                     little to do with technological innovation
      APPEAL                                                                             and the contracting party15.
                                                                                                                                                                                                       there are only few decisions, sensitivity
                                                                                                                                                                                                       and legal precision are required in the
                                                                                                                                                                                                       use and creation of these tools. Mattos
      After having an online purchase
      frustrated twice, the marketplace                                                                                              Smart contracts                                                   Filho’s Litigation and Arbitration practice

      platform blocked the plaintiff’s                                             PRECEDENTS OF                                     As this technology is not widespread in
                                                                                                                                                                                                       area works on the most complex
                                                                                                                                                                                                       national and international cases with
      account because it understood there                                                                                            Brazil and lacks specific regulation, the
      were signs of fraud12. According to the                                      THE SUPERIOR                                      courts have interpreted smart contracts
                                                                                                                                                                                                       clients in the technology sector. Our
                                                                                                                                                                                                       professionals remain up to date with the
      court, despite being a smart purchase                                                                                          using basic contractual concepts
      and sales contract, the “fundamental                                         COURT OF JUSTICE                                  provided for in the Brazilian Civil Code:
                                                                                                                                                                                                       most current debates in the sector and
                                                                                                                                                                                                       their legal implications, in order to offer
      notions and categories to Private                                                                                              good faith between parties, respect for
                                                                                                                                                                                                       adequate and safe solutions to issues
      Law” apply. So, the plaintiff cannot                                                                                           the terms of the contract, respect for
                                                                                   •     In the case of contracting                                                                                    arising from innovation processes.
      claim for damages due to emotional                                                                                             the allocation of business risks, social
                                                                                         bank account services, it was
      distress for the blockade, as it agreed                                                                                        function of contracts and civil liability.                        Cybersecurity relates to the need to
                                                                                         considered possible for banks to
      to this possibility by agreeing to the                                                                                                                                                           ensure the continuity and protect the
                                                                                         unilaterally terminate the contract
      terms of use of the platform.
                                                                                         with prior notification16, given

      •    In the case of fraud in a digital
                                                                                         that the purchase and sale of               Cryptocurrencies
                                                                                         cryptocurrencies is not a regulated
           account that caused a loss                                                                                                There is a tendency to protect investors
                                                                                         service in Brazil.
           of bitcoins, the court decided                                                                                            in cases where brokerage contracts
                                                                                   •     In the case of an analysis of
           that the brokers were liable for                                                                                          are breached, with the awarding of
                                                                                         which court (Federal or State)
           supervening causes that go                                                                                                damages due to the mismanagement of
                                                                                         should have jurisdiction over
           beyond the natural risk of the                                                                                            assets, the non-transfer of dividends or
                                                                                         crimes related to the public
           investment13.                                                                                                             the security flaws within the platform.
                                                                                         offer of collective investment
      •    In the case of non-compliance
                                                                                         contracts in cryptocurrency, it was
           with clauses in trading contracts,
                                                                                         acknowledged that the transaction
           it determined the payment of
                                                                                         involving the purchase or sale of
           moral damages for the non-
                                                                                         cryptocurrencies is not regulated in
           fulfillment of the brokerage
           contract by the broker14.

     12   The purchase and sale contract, in this case, is a simple smart contract - the interested party pays the value 		     15   It was considered to be the broker’s liability to protect the user from fraud in his digital account, either on the
          of the product and the enforcement of the contract is automated by the platform. TJSP, Apelação n. 1017332-		              internal network or that of on its computers; TJSP, Apelação n. 1035890-47.2018.8.26.0100, Appellate judge.
          26.2018.8.26.0068, Appellate judge. Artur Marques, judged on Jan. 28, 2016.                                                Flavio Abramovici judged on Jan. 28, 2016.

     13   For cryptocurrencies, there is no need for a third intermediary for transactions. Thus, the service would be 		       16   TJSP, Apelação n. 1006504-35.2018.8.26.0176, Appellate judge. Morais Pucci, judged on Feb. 11, 2020.
          used to increase financial transactions, with the Brazilian Consumer Protection Code (CDC) not being applied.
          STJ, Resp n. 1.696.214-SP, Justice Marco Aurélio Bellizze, judged on Oct. 09, 2018.                                   17   TJSP, Apelação n. 1030080-87.2018.8.26.0554, Appellate judge. Jonize Sacchi de Oliveira, judged on Oct. 24, 2019.

     14   This is because “virtual currencies are not considered by the Central Bank of Brazil (BCB) as currency, nor are
          they considered as securities by the Brazilian Securities and Exchange Commission (CVM) ”. STJ, HC n.
          530.563-RS, Justice Sebastião Reis Júnior, judged on Mar. 5, 2020.

48   Blockchain Guide        Litigation                                                                                                                                                                              Litigation            Blockchain Guide   49
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