The legal landscape for crypto assets in Norway – A brief overview as of March 2023
Crypto assets are assets that exist on a blockchain and are represented through a token, where the keys to the token are held in a crypto wallet. The characteristics of different crypto assets vary, depending on the code of the blockchain they operate on. Bitcoins, stablecoins that keep their value as close as possible to real-world currencies, NFTs that represent ownership of digital art or other non-fungible digital items, and tokens that give their holders membership rights to specific crypto groups, are all examples of different types of crypto assets. Because these assets exist on blockchains, everyone with access to their keys and the internet can access the assets. But what does in fact take place, in legal terms, when someone owns keys to or engages in transactions with crypto assets in Norway?
The legal landscape and level of regulation of crypto assets vary quite a bit between different jurisdictions. Some jurisdictions, like Hong Kong and Switzerland, have adopted fairly liberal policies and practices regarding crypto (in the canton of Zug it is as an example possible to pay one’s taxes with Bitcoin or Ether). Other jurisdictions, for example China, have taken a restrictive approach, even banning Bitcoin mining. Some argue that crypto assets are inherently unregulated because of their decentralized nature and border-crossing properties and argue that they are in fact only regulated through the code they operate on, i.e., “code is law”. Yet others, both inside the crypto industry, as well as external crypto critics, argue that more regulation is required in order to address concerns like crypto assets being used for money laundering and criminal activity.
General Norwegian statutory law is applicable and regulate crypto assets in most instances
Apart from KYC regulation, there is no Norwegian law specifically targeting the regulation of crypto assets. There is also little, or no precedence set by the Norwegian supreme court on legal consequences of owning keys to crypto assets. However, this does not mean that crypto assets are “unregulated” under Norwegian law. On the contrary, the general principles set out in Norwegian law, like in contract law, company law or criminal law, apply to everyone holding crypto assets. This means that actions taken involving crypto assets actually to a high degree are regulated by Norwegian law.
If a contract between person A and person B, using crypto assets as settlement for buying goods, is invalid according to Norwegian contract law, both parties will have an obligation to restitute to each other any performance under the contract. The use of crypto assets as a settlement method does not mean that the contract is “unregulated”, and that the contracting parties will be unable to file a claim against each other in the Norwegian court system. The same is also the case for criminal acts that are breach Norwegian criminal law (e.g. fraud and money laundering), or any other imaginable example of actions involving crypto assets that are in breach of general principles of Norwegian law.
One particularly interesting question pertaining to the application of Norwegian law to crypto assets, is the legal status of DAOs (Decentralized Autonomous Organizations), and individual holders of tokens in such DAOs, under Norwegian company law. Such organizations operate on a blockchain and are owned and managed by their members (the token holders). If the actions of a DAO are deemed to be commercial under Norwegian law, the token holders will very likely be running a business with joint and several liability for all token holders, even if the individual token holder may not be aware of the fact that he or she is part of a larger group. This means that there is a high legal risk involved in owning tokens that represent membership in DAOs. For example, the holders of the UNI token (that represents ownership in Uniswap, a so-called decentralized exchange that lets its users swap crypto assets through code without intermediaries), run a high risk of the token owners being jointly and severally liable for the actions of the trading platform, under general Norwegian company law.
Norwegian tax law applies to crypto assets
Different types of crypto assets are taxable objects under Norwegian law. This means that legal entities tax resident in Norway that own keys to crypto assets through crypto wallets, are obligated to report their crypto asset portfolio to the Norwegian tax authorities.
Currently, there is no “Howey test” or debate on crypto assets being securities in Norway
Internationally, and especially in the US, there is an interesting debate going on as to whether or not different crypto assets represent securities. In the US, the SEC (Securities and Exchange Commission) have deemed particular crypto assets to be securities, pursuant to the so-called “Howey-test”. This refers to the U.S. Supreme Court case for determining whether a transaction qualifies as an “investment contract.” If so, it’s considered a security and subject to registration and reporting requirements and other legal implications after US securities law. As of now, there are no such cases that are about to be brought before the courts in Norway.
The road ahead: the EU-Mica directive and other regulations
In the EU, the European Council, the European Commission and the European Parliament has reached an agreement on the proposal for a directive on Markets in Crypto-assets (the MiCa-directive).
Once (and if) the directive is ratified in the EU, the MiCa-directive will most likely be incorporated into the EEA-agreement, and thus change the legal landscape in Norway regarding crypto assets. The directive seeks to regulate the issuers of crypto assets, and set requirements regarding transparency and KYC, among other things, before a crypto asset can be issued to the public within the EU (EEA-area). The EU-commission has also proposed a directive that will uniformly regulate taxation of crypto assets (the DAC8-directive) within the EU.
While it is hard to predict the future of crypto regulation, it seems likely that directives like the MiCa- and DAC8 directives to some extent will harmonize crypto asset regulation across jurisdictions, and hopefully help develop certain “common rules of the game” regarding crypto assets across borders. Because blockchains and crypto tokens are non-jurisdictional and decentralized in nature, there is little doubt that the need for a common set of rules and cooperation between jurisdictions is needed in order to regulate crypto assets in a way that works (both for the crypto industry and for regulators).
Even though there is currently (March 2023) almost no Norwegian laws or regulations that specifically target crypto assets, a vast amount of Norwegian laws apply to ownership and actions related to crypto assets. It also seems a safe bet to predict more legislative focus on crypto assets and a further development of the regulatory and legal landscape pertaining to crypto assets going forward.