Digital Assets Flashcards
What are digital assets?
Digital assets are intangible assets stored and transferred electronically. Examples include cryptocurrencies, tokens, digital art (NFTs), and virtual real estate.
How are digital assets classified?
Digital assets are classified as cryptocurrencies, utility tokens, security tokens, and non-fungible tokens (NFTs).
What role does the Financial Services and Markets Act 2000 (FSMA) play in regulating digital assets?
FSMA regulates financial activities, including digital assets resembling securities. Part 4A covers authorization requirements for digital asset platforms.
How does GDPR affect digital asset management?
GDPR enforces lawful and secure processing of data and imposes strict security measures for platforms handling sensitive financial data.
How do AML regulations apply to digital assets?
AML regulations mandate customer due diligence (CDD) for digital asset transactions and require enhanced due diligence (EDD) for high-risk clients or transactions.
What challenges are associated with digital asset ownership?
Ownership depends on private keys stored in digital wallets. Loss of private keys results in irreversible loss of assets.
What is the significance of AA v Persons Unknown (2019)?
Established cryptocurrencies as property under English law and enabled freezing orders for fraud or criminal cases involving Bitcoin.
What were the key outcomes of Re Mt. Gox (2014)?
Recognized digital currencies as property during insolvency proceedings and highlighted security vulnerabilities in cryptocurrency exchanges.
How did AA v Persons Unknown (2019) impact digital asset regulation?
Confirmed Bitcoin as property, making it subject to freezing orders and strengthened the legal framework for tracking and recovering stolen crypto assets.
What is blockchain technology?
A decentralized ledger that records transactions across multiple nodes, offering transparency, immutability, and security.
What are smart contracts, and how are they used?
Smart contracts are self-executing contracts with terms encoded on the blockchain, enabling automated transactions without intermediaries.
What legal challenges arise with smart contracts?
Errors in contract code can lead to disputes, and jurisdictional issues complicate enforcement.
What security risks are associated with digital assets?
Vulnerability to hacking and phishing attacks, and the irreversible nature of transactions increases fraud risk.
What lessons were learned from the Mt. Gox hack (2014)?
Emphasized the need for robust cybersecurity in crypto exchanges and highlighted the risk of centralized storage for private keys.
What are the key requirements for digital asset platforms under FSMA?
Digital asset platforms must obtain authorization for offering securities-like tokens and comply with consumer protection and transparency standards.
How do AML regulations apply to digital asset platforms?
Platforms must conduct regular KYC checks for customers and report suspicious activities to financial authorities.
What legal precedents confirm cryptocurrencies as property?
AA v Persons Unknown (2019) recognized Bitcoin as property under English law.
What are Non-Fungible Tokens (NFTs)?
Unique digital assets representing ownership of digital art, music, or collectibles, stored on blockchains like Ethereum for transparency.
What legal challenges do NFTs present?
NFTs present intellectual property disputes over ownership rights and a lack of standardization in NFT contracts.
How does tokenization impact traditional assets?
Tokenization converts physical assets into digital tokens for fractional ownership, increasing liquidity for illiquid assets.
What is an example of a smart contract in real estate?
Automates property transfers once payment conditions are met, reducing reliance on intermediaries like banks or lawyers.
How do smart contracts benefit supply chain management?
They track product provenance and authenticity, automate payments upon delivery verification, and enhance transparency.
What consumer protection issues arise with digital assets?
Issues include lack of recourse for lost or stolen private keys, high volatility in cryptocurrency markets, and insufficient disclosures about platform risks.
How can regulators enhance consumer protection in digital assets?
Regulators can mandate clear risk disclosures for crypto investments and impose security standards for digital wallets and exchanges.