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This checklist is a high-level roadmap for organizations, ensuring they navigate AI legal adoption effectively. By systematically addressing each aspect of AI integration, organizations can maximize benefits, minimize risks, and ensure they remain at the forefront of compliance. Determining AI Policy Necessity: Assess the requirement for a distinct AI policy. Evaluate if updating existing policies is a more feasible route, especially if limiting or banning AI. Defining AI Policy Boundaries: Clearly outline the policy's reach, whether all-encompassing or focused on specific AI uses. Highlight ethical, legal, and risk considerations as reasons for the policy. Ensure the "scope and purpose" section is succinct. AI Tool Selection & Regulation: Investigate and potentially seek staff input on current or prospective AI tool applications. Catalogue prohibited AI tools. Enumerate approved AI tools and their designated uses. Detail protocols for using AI tools not on the approved list or for diverse functions. Guidance on Approved AI Tools Usage: Ensure acknowledgment of the AI policy and completion of AI tool training before use. Implement a reporting mechanism for AI policy breaches or related incidents. Regularly review third-party terms when using AI tools, ensuring specific conditions are met. Provide illustrative, role-based examples for optimal AI tool application. Mandate transparency about AI tool use in specific tasks or outputs. Set forth restrictions concerning specific data input into AI tools. AI Governance Protocols: Pinpoint and define roles, ensuring transparent accountability. Emphasize the significance of continuous AI policy awareness among staff. Elaborate on action steps post AI policy breaches. Specify potential repercussions of AI policy non-compliance. Continuous Engagement & AI Training: Ensure consistent communication and awareness of the AI policy. Mandate foundational and periodic refresher training sessions on the AI policy and tools. AI Policy Review & Update Protocols: Recognize the need for regular AI policy reviews given the rapid AI evolution. Facilitate feedback channels for staff to contribute to AI policy relevancy. Designate responsibility for communicating AI policy updates. Ensure staff always has access to the most recent AI policy version and is informed about significant changes. The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.

In our extensive Knowledge Base, we have frequently discussed various aspects of Decentralized Autonomous Organizations (DAOs). This article encapsulates the essential legal aid for a DAO's success. What is a Decentralized Autonomous Organization (DAO)? A DAO represents a paradigm shift in the way collective decision-making and business operations are conducted. At its core, a DAO is an entity that operates through rules encoded as smart contracts on a blockchain. These smart contracts strive to be self-executing and do not require an intermediary to function, hence the term 'autonomous.' The 'decentralized' aspect comes from the fact that control over the DAO is typically spread across a wide array of members rather than being concentrated in the hands of a few individuals or a single central authority. Key Characteristics of DAOs Blockchain-Based: DAOs mostly rely on blockchain technology, which ensures transparency and immutability of records. Every transaction and decision is verifiable and permanently recorded on the blockchain. Smart Contract Driven: The rules governing a DAO are embedded in smart contracts. These are programmed instructions that execute automatically when predefined conditions are met, eliminating the need for manual intervention. Member-Controlled: Unlike traditional organizations, DAOs are usually governed by a group of stakeholders rather than a centralized leadership. Decision-making powers are often distributed among token holders, who can propose and vote on governance decisions. Legal Status and Recognition The legal status of DAOs varies across jurisdictions. Traditionally, they do not fit neatly into existing legal frameworks due to their decentralized and digital nature. This challenges defining legal liability, governance structure, and regulatory compliance. Main Legal Challenges Facing DAOs DAOs encounter a myriad of legal challenges that may be critical to addressing their successful operation and legitimacy. Here are the main legal hurdles DAOs face: Defining Legal Status: As was mentioned, DAOs do not fit conventional legal categories, creating ambiguity in their legal recognition. This poses challenges in establishing a DAO's legal personality, which is essential for entering contracts, owning property, and being held liable. Liability Issues: Traditional legal frameworks may default a DAO to a general partnership, potentially exposing its members to unlimited liability. Governance and Regulation Compliance: DAO governance structures hardly comply with existing laws and regulations. This includes the enforceability of token-based voting systems and adherence to securities, tax, and corporate laws. Smart Contract Legalities: While smart contracts automate decision-making and operational processes, they also raise questions about legal enforceability, especially when disputes arise or if the contract contains flaws. Asset Management and Protection: This is about legal frameworks for managing collective assets controlled by smart contracts. Intellectual Property Rights: DAOs, often collaborative and open-source entities, face unique challenges in managing intellectual property rights within their decentralized structure. Jurisdictional Issues: Since DAOs typically operate globally, they must navigate varying legal jurisdictions, which can be complex due to differing regulations and enforcement mechanisms across countries. Data Privacy and Security: Compliance with data protection and privacy laws, such as GDPR, is vital, especially considering the transparent nature of blockchain technology. Fundraising and Securities Regulations: DAOs must be cautious in their fundraising activities to ensure compliance with securities laws, particularly when issuing tokens that may be classified as securities. Dispute Resolution Mechanisms: Establishing clear and legally sound procedures for internal dispute resolution is necessary, considering the decentralized nature of DAOs. Incorporation of DAOs Due to their novel structure and operation, incorporating Decentralized Autonomous Organizations (DAOs) presents a legal challenge. The main possible options are: Traditional Corporate Entities: Some DAOs choose to incorporate as traditional legal entities, such as Limited Liability Companies (LLCs), to gain legal recognition. This approach provides a legal framework for liability protection, taxation, and contractual relations but may conflict with the decentralized ethos of DAOs. Hybrid Structures: Several jurisdictions have introduced legal frameworks that attempt to merge traditional corporate structures with the decentralized nature of DAOs. For example, Marshall Islands or Wyoming's DAO LLCs offer models that provide the legal status of DAOs. Foundations Stewarding DAO Operations: In the context of DAOs, a foundation can act as a steward, managing the DAO's operations and assets. Foundations provide a more centralized governance structure, which can be beneficial for managing legal and regulatory compliance. Trusts: Trusts provide a legal mechanism for asset protection and can be tailored to suit the specific needs of a DAO. They offer flexibility in how assets are managed and distributed. The use of trusts involves appointing reliable trustees and clearly defining their duties and responsibilities. Companies Limited by Guarantee: Members of companies limited by guarantee do not hold shares; instead, they guarantee to contribute a nominal amount. It can be a viable option for DAOs, particularly those with non-profit objectives. Our previous articles explored the legal frameworks and incorporation options for Decentralized Autonomous Organizations (DAOs) across various jurisdictions. These include, for example, Jersey, Guernsey, Switzerland, Cayman Islands, Cook Islands, and Panama. Each of these jurisdictions offers unique legal perspectives and structures that can be leveraged for DAO incorporation and operation, reflecting the diverse global landscape of DAO legal considerations. Our Legal Support for DAOs Our firm specializes in providing legal support to DAOs, addressing their complex challenges. Our services ensure that DAOs operate within legal frameworks, mitigating risks and enhancing operational efficiency. We offer counsel on structuring DAOs to clarify participant liabilities, ensuring token-based governance complies with legal standards, and crafting legal frameworks for asset management. Additionally, we assist in forming enforceable community agreements, defining the legal status of DAOs, and establishing dispute resolution mechanisms. Our approach is tailored to the unique needs of each DAO, providing them with the legal foundations necessary for success in the dynamic and evolving landscape of digital and decentralized entities. Please visit Prokopiev Law Group Services for DAOs for detailed information on our services. The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.

In the context of the ratification and adoption of the Markets in Crypto-Asset (MiCA) Regulation by the European Union in April 2023, an aspect that has garnered substantial discourse is its application to decentralized finance (DeFi) projects. Central to this debate is the interpretation of Recital 22 within the MiCA framework, specifically its efforts to delineate and potentially exclude projects deemed "fully decentralized." This term, however, remains legally and conceptually nebulous, lacking a universally accepted definition. Under Recital 22 of MiCA, it applies "including when part of such activities or services is performed in a decentralised manner." However, "Where crypto-asset services are provided in a fully decentralised manner without any intermediary, they should not fall within the scope of this Regulation" [emphasis added]. Obviously, disintermediation and decentralization are what MiCA requires from DeFi to be excluded from the Regulation, but what does it mean? We tried to answer this question in our article published after MiCA was ratified and adopted. Now, with its second Consultation Paper (link below), the European Security Markets Authority (ESMA) will help us by adding a bit more clarity (emphasis added): "98. Alongside CEXs, Decentralized Exchanges (DEXs) present a different way to trade crypto-assets. On DEXs, there is no central operator and, as a consequence, no central control over users' assets. Instead, users keep control of their assets by interacting with the distributed ledger (i.e. blockchain) using a self-custody wallet. With DEXs, the blockchain takes the place of the intermediary. DEXs use autonomous code (often referred to as a 'smart contracts'), to execute trades directly on the settlement layer of the blockchain (with differing degrees of decentralisation). 99. DEXs may run an order book but also less traditional models such as Automated Market Makers (AMMs). These decentralised models are increasingly becoming important in particular in decentralised finance (DeFi). Under these AMM models, contrary to CLOBs [author's note: central limit order books] where market makers post bid and offer prices on the order book, the liquidity provision process is decentralised, relying on aggregated pools of liquidity (often comprised of a token pair, e.g., Ethereum (ETH) to USD Coin (USDC)) and on a mathematical formula (e.g., a constant product function) to price assets. The execution price is generally determined based on how many assets an order would consume in the concerned pool of liquidity and the resulting unbalanced quantities of asset between the related pools." In summary, ESMA's criteria for understanding a "fully decentralised" manner under MiCA focus on: the absence of a central operator, the use of autonomous code in executing trades, and the decentralization of liquidity provision processes. Also, we can see the following in ESMA's Consultation paper: "108. Finally, regarding DEXs, ESMA acknowledges Recital 22 of MiCA that “(…) Where crypto-asset services are provided in a fully decentralised manner without any intermediary” should fall outside the scope of MiCA but also notes that the exact scope of this exemption remains uncertain. ESMA considers that an assessment of each system should be made on a case-by-case basis considering the features of the system. In this context, ESMA considers it useful to clarify how pre-trade transparency should apply to such protocols. This is without prejudice to any possible clarification that can be published in the future regarding the scope of the exemption for fully decentralised systems." Taking this into account, we can summarize the following key points: Ambiguity in Regulatory Exemption Boundaries. ESMA acknowledges that while Recital 22 suggests such services should ideally be outside the MiCA scope, the precise boundaries of this exemption remain indeterminate. Individualized System Assessment Approach. ESMA proposes a nuanced, case-by-case evaluation of each system to address these ambiguities. Clarifying Pre-Trade Transparency in Decentralized Protocols. ESMA highlights the need for clarity on how pre-trade transparency regulations should apply to decentralized protocols. Pre-trade transparency is a cornerstone of financial regulation to ensure fair and efficient markets. However, applying such regulations to decentralized protocols is challenging, given the absence of traditional intermediaries and centralized control mechanisms. Evolution of Regulatory Interpretations. Current interpretations are not final and may evolve. ESMA leaves open the possibility of future clarifications or adjustments to the regulatory approach for fully decentralized systems. Also, according to ESMA [emphasis added]: "‘permissionless distributed ledger technology’ means a technology that enables the operation and use of distributed ledgers in which no entity controls the distributed ledger or its use or provides core services for the use of such distributed ledger, and DLT network nodes can be set up by any persons complying with the technical requirements and the protocols." Key characteristics we can derive from the definition: No Central Control: No single entity shall exercise control over the ledger, extending not only to its operation but also to its usage. A single entity must not be in a position where its provision of core services is deemed vital for the operation of the ledger. Open Participation: Any individual or entity can set up nodes in the DLT network, provided they meet the technical requirements and adhere to the network's protocols. Absence of Core Service Providers: In a permissionless DLT, no designated entities provide core services essential for the operation of the distributed ledger. Obviously, the concept of decentralization within the context of distributed ledger technology (DLT) and Decentralized Finance (DeFi) does not possess a definitive endpoint or universally agreed upon criteria. However, three subsequent points can be distilled to minimize the risk of MiCA application: Identification and Evaluation within MiCA Scope: To ascertain exclusion from MiCA application, the first requisite is evaluating whether an individual or entity meets the definition of a Crypto-Asset Service Provider (CASP) as outlined in Article 3(1)(15) of MiCA. Subsequent to this identification, the next step is to assess if the individual or entity is engaged in providing any of the specific crypto-asset services as listed in Article 3(1)(16). Decentralization in Functional Roles: A higher degree of decentralization should be achieved with more participants involved in various functions, like development, consensus mechanism, and node operation. No threshold should be set for decentralization, as this would imply permissioned control. Multiplicity of Access Points: For DeFi technologies, having multiple front-ends for accessing smart contracts is crucial. This minimizes the reliance on a single entity for access and operation, promoting decentralization. ESMA Consultation Paper: Technical Standards specifying certain requirements of Markets in Crypto Assets Regulation (MiCA). * * * At Prokopiev Law Group, we specialize in navigating the complex terrain of MiCA Regulation and its implications for Decentralized Finance (DeFi) and blockchain technologies. With our extensive global network of partners, we offer comprehensive legal support, from DAO governance and Web3 compliance strategies to cryptocurrency legal risk assessments and smart contract analysis. Whether you're dealing with crypto regulation advisory, NFT intellectual property rights, or developing Web3 anti-money laundering policies, our team is equipped to ensure your compliance in the EU and worldwide. For expert guidance in this rapidly evolving digital landscape, reach out to us and secure the future of your innovative projects. The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.

The rapid advancement of artificial intelligence (AI) has led to the development of generative AI tools, transforming the software development landscape. As businesses increasingly rely on these cutting-edge tools to write software code, understanding and managing copyright risks becomes crucial. The use of generative AI raises potential legal concerns, as the outputs generated may inadvertently infringe on the copyrights of the underlying works used to train the AI. This guide aims to provide businesses with a better understanding of the copyright risks associated with using generative AI tools in software development. Defining Derivative Works A derivative work is a work that is based on or incorporates one or more pre-existing works. In the context of AI-generated code, a derivative work may occur when the AI system uses copyrighted materials from its training data to create a new work that retains substantial similarities to the original source. A work does not have to be an exact replica to be considered a derivative work; it just needs to contain significant elements from the original copyrighted material. To illustrate potential copyright infringement in AI-generated code, let's consider a hypothetical scenario: a generative AI tool is trained on a dataset containing copyrighted software code. Suppose the AI system subsequently creates new code that bears striking similarities to the original copyrighted code. In that case, there is a risk that the AI-generated code could be deemed a derivative work, thereby infringing on the original work's copyright. Another example is using an AI system to generate a new story, article, or novel based on copyrighted works. If the AI-generated content includes key elements, such as characters or themes, from the original copyrighted materials, the new work may be considered a derivative work and infringe on the copyright of the original content. Mitigating Copyright Risks in AI-Generated Software One way to address potential copyright risks when using AI-generated software is to secure a license or obtain representations and warranties from the AI tool provider. These assurances should confirm that the source materials used for training the AI system are appropriately licensed and that the license extends to the end users. By ensuring proper licensing agreements are in place, businesses can reduce the likelihood of inadvertently infringing on copyrighted materials when using AI-generated code. Another proactive measure to mitigate copyright risks in AI-generated software involves running a source code audit program. This process analyzes the code produced by generative AI tools to identify similarities with other code, whether it is open source or proprietary. If the audit reveals any potential issues, businesses can take appropriate action, such as complying with the relevant open-source license or removing the problematic code. Conducting a source code audit can also serve as evidence against a claim of willful infringement in a copyright lawsuit. Lastly, performing due diligence on AI tool providers and the source materials they use for training their systems is another important step in mitigating copyright risks. This process may involve researching the AI tool provider's background, understanding their data collection and training methods, and verifying the legal status of the training materials. In some cases, AI tools allow users to choose or influence the materials used for training, which can help businesses ensure that they are working with legally compliant data sources. Existing Legal Framework for AI-Generated Works The legal landscape surrounding AI-generated works, including software code, is evolving and largely uncharted. Most copyright laws were established before the emergence of AI technologies and primarily address human-created works. As a result, the existing legal framework for AI-generated works may need to be revised or clarified to address the unique challenges and questions that arise from AI-generated content, such as the issue of authorship and ownership. Some courts and jurisdictions have begun to grapple with these questions, but legal precedents remain limited. The outcome of future cases involving AI-generated works will likely shape the legal landscape and inform best practices for businesses using generative AI tools to create software code. As AI technologies emerge, copyright laws will be reevaluated and updated to address better the unique challenges posed by AI-generated works. Lawmakers and legal experts may consider new frameworks for determining authorship, ownership, and liability in the context of AI-generated content. Potential changes in copyright law could include: Extending protection to AI-generated works. Clarifying the legal status of derivative works created with the help of AI tools. Even creating a separate category of protection for AI-generated content. In the meantime, businesses can take proactive measures to mitigate potential copyright risks when using AI-generated software code, as discussed earlier in this article. Best Practices for Businesses Using Generative AI Tools Businesses should develop a comprehensive risk management strategy to minimize the risk of copyright infringement when using generative AI tools. This strategy should outline the processes and procedures for identifying potential copyright risks, taking appropriate steps to mitigate them, and staying informed of any changes in copyright laws that may affect AI-generated works. A well-defined strategy can help businesses effectively navigate the evolving legal landscape and protect their interests in the long term. Businesses must educate their development teams on the potential copyright risks of AI-generated software code. By ensuring developers know the legal implications of generative AI tools, companies can foster a culture of copyright compliance and reduce the likelihood of infringement. Training sessions, workshops, and regular communication can keep developers informed and engaged in understanding and addressing copyright risks in their work. Given the complexities and uncertainties surrounding copyright law in the context of AI-generated works, it is wise for businesses to seek expert guidance in intellectual property (IP) law. Engaging with IP lawyers and specialists can help businesses better understand the nuances of copyright law, navigate legal challenges, and ensure compliance with existing and emerging regulations. By leveraging the expertise of IP professionals, businesses can more confidently utilize generative AI tools while minimizing potential legal risks. The Importance of Addressing Copyright Risks in AI-Generated Code As generative AI tools continue to gain traction in software development, businesses must prioritize addressing the copyright risks associated with AI-generated code. Failing to manage these risks properly could result in costly legal disputes and damage to a company's reputation. By taking a proactive approach to identifying potential infringements, implementing risk mitigation strategies, and staying informed of changes in copyright law, businesses can harness the full potential of generative AI tools while minimizing legal exposure. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The world of cryptocurrencies and blockchain projects is a vast, complex, and ever-evolving landscape. As new projects emerge and existing ones continue to innovate, it becomes increasingly important for users and investors to ask the right questions to understand these ventures' intricacies truly. Legal regulations, token prices, investment concerns, and many other factors can significantly impact a project's success and an individual's involvement. In this blog post, we've curated a list of 45 thought-provoking questions designed to delve deeper into the world of blockchain projects and uncover the hidden aspects that often go undiscussed. These questions will help you make informed decisions and challenge your understanding of the crypto industry. Whether you're a seasoned investor or just starting to explore the world of digital currencies, this comprehensive list will be invaluable in your journey through the crypto maze. While some of the questions in the list may intersect, this overlap only makes the exploration even more interesting, as it highlights the interconnectedness of various aspects within the crypto and blockchain space. How does a project ensure compliance with different countries' legal regulations? Are there any plans to deal with potential regulatory crackdowns on your project? How does a project protect itself from the consequences of being classified as a security? What measures have been taken to prevent money laundering within a platform? Can a project explain the tax implications for users trading or investing in tokens? How does a project handle the risk of insider trading or market manipulation? What is a project's stance on listing its tokens on decentralized exchanges? Are there any geographical restrictions for users participating in a project? What is a project's approach to maintaining data privacy and compliance? Has a project undergone any third-party security audits or evaluations? Can a project provide details on any legal disputes or challenges it has faced? Are there any lock-up periods or vesting schedules for team members' tokens? What steps has a project taken to prevent phishing or scam attempts? Can a project provide a detailed breakdown of token allocation? What measures are in place to prevent the concentration of token ownership? How does a project handle potential conflicts of interest among team members or investors? What is a project's contingency plan in case of a major security breach or hack? Can a project explain the token's utility within its ecosystem? What is a project's approach to managing legal risks associated with intellectual property rights? How does a project handle user complaints and legal disputes? Are there any plans for a project to acquire licenses or permits for operating in certain jurisdictions? What is a project's strategy for dealing with potential forks or network upgrades? How does a project ensure transparency in its governance and decision-making processes? Are there any ongoing or planned partnerships with other companies or regulators? What is a project's plan to tackle issues related to token liquidity? How does a project ensure compliance with international sanctions and export controls? What steps has a project taken to protect users from potential rug pulls or exit scams? How does a project address concerns about centralization within its network? Are there any mechanisms to prevent the abuse of a project's governance system? How does a project plan to compete with similar projects in the market? What measures are in place to ensure the long-term viability of a project? How does a project handle potential regulatory changes in the crypto industry? Are there any limitations on the total supply of a project's tokens? What are the potential risks associated with investing in a project's tokens? How does a project plan to maintain consistent communication with its community? What steps has a project taken to ensure compliance with anti-discrimination laws? How does a project address concerns about the use of its platform for illegal activities? What measures are in place to protect users from price manipulation or pump-and-dump schemes? Can a project provide information on upcoming token burn events or deflationary mechanisms? What are the potential consequences of a project's token being deemed a security by regulators? Are there any restrictions or limitations on using a project's tokens for certain activities? What steps is a project taking to promote diversity and inclusion within its team and community? How does a project handle potential scalability issues and ensure it can grow without compromising performance? Are there any plans for a project to introduce additional utility or use cases for its tokens? How does a project remain agile and adaptable in rapidly changing market conditions and technological advancements? Cryptocurrencies and blockchain projects are filled with opportunities, challenges, and complexities. By asking these 45 questions, you can better understand the projects you are interested in, make more informed decisions, and confidently navigate the crypto maze. However, even with all the knowledge and preparation, sometimes the best course of action is to consult with experts who understand the intricacies of this rapidly evolving industry. Prokopiev Law Group specializes in helping clients and companies navigate the world of cryptocurrencies and blockchain projects. With our expertise in legal regulation, investment-related concerns, and many other pressing issues, our team is well-equipped to guide you through the challenges and opportunities the crypto industry presents. Don't hesitate to contact us for assistance with any questions, concerns, or other interesting issues you may encounter in your journey through the world of cryptocurrencies and blockchain projects. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Decentralized Autonomous Organizations (DAOs), similar to traditional organizations, consist of individuals pooling resources to achieve a collective goal. Unlike traditional setups with hierarchical leadership like CEOs, DAOs can operate democratically, with each member having equal rights in governance and control of assets, primarily via cryptocurrency. What is a Multisig Wallet? A multi-signature (multisig) wallet represents a type of digital wallet designed to require multiple signatures, or approvals, from different users before executing a transaction. For instance, in a 10-member multisig wallet with a 70% signature requirement, a transaction executes upon obtaining seven signatures. This structure enhances security compared to traditional single-signature wallets, where only one private key is needed for access and transaction authorization. In a multisig wallet, each user possesses a unique private key, and a predefined number of these keys must collectively authorize a transaction before execution. The underlying principle of a multisig wallet is to distribute control among several parties, thereby reducing the risk associated with a single point of failure. DAO vs. Multisig Wallet Fundamentally, DAOs are structured around two main elements: Collective Decision-Making: This involves engaging all members in a democratic voting process. Management of Digital Assets: Focused on the secure storage and communal distribution of assets. A simple governance model of a DAO can be compared to the operation of a multisig wallet. Consider, for example, a multisig wallet utilized by a couple to manage their shared savings. Both individuals possess equal decision-making power in this setup and must jointly consent to any financial transactions, mirroring a basic DAO setup for managing funds. At a minimum, several individuals should hold the keys to the DAO's wallet. Optimal security is achieved when fund transfers require the consent of a governing body, ensuring checks and balances in decisions. DAOs generally feature more complex governance structures than multisig wallets, especially regarding voting and administrative control. The governance in DAOs often revolves around specific, non-transferable tokens, which require a collective agreement for any transfer of ownership. In DAOs, decision-making is contingent upon achieving a quorum, which is a minimum level of participation needed to validate decisions. This contrasts with multisig wallets, where the quorum is based on a defined number of participant signatures. In the context of DAOs, this quorum is typically a proportion of the total governance tokens issued, allowing for a flexible and adaptable decision-making process that can be aligned with the organization's strategic objectives. The rules for distributing governance tokens are custom-tailored to each DAO's specific nature and goals, providing a dynamic and broad-ranging governance model. This system enables the integration of both off-chain and on-chain voting processes. While governance tokens in DAOs serve a protective function similar to multisig wallets, the broader participation base in DAOs introduces additional complexity in achieving consensus, especially for decisions requiring a high quorum. DAO Legal Wrapper Utilizing a Multisig Wallet A DAO legal wrapper refers to the legal structure encompassing a Decentralized Autonomous Organization, providing it with a formal and recognized legal status. This legal framework is crucial in bridging the gap between the digital, decentralized nature of DAOs and the traditional legal system. In this context, a multisig wallet can be instrumental in manifesting consent among a legal entity's officials. For instance, when a foundation is established to steward DAO operations, it typically has a council or board. This council may be responsible for managing the foundation's assets and executing decisions made by the DAO. For on-chain activities, such as amending smart contracts or initiating transactions, the council can employ a multisig wallet. The foundation might also appoint an official protector, chosen by the DAO, to supervise the council's activities and authorize significant transactions. In this setup, the protector could also be one of the signatories in the multisig wallet arrangement. Alternatively, the DAO might opt to assign multisig signatories from its membership who are not formal officials of an entity designed as a DAO legal wrapper. Global legal regulations surrounding DAOs are still developing. As a result, documenting decision-making processes can pose challenges but remains necessary. This documentation is essential for legitimizing the actions of all participants within the protective shield of DAO legal structures rather than treating their actions as independent individuals without a corporate veil. The prevailing legal perspective currently suggests that authorization via a multisig wallet does not entirely replace, for example, the need for a traditional general meeting. Despite this, integrating a multisig wallet within a DAO's legal framework offers a novel approach to ensuring accountability and transparency in decision-making, aligning the decentralized ethos of DAOs with the requisites of the legal domain. Challenges in Utilizing Multisig Wallets in DAOs One significant issue is the possibility of multisigs acting contrary to the will of the DAO community or voters. In cases where tokens are used primarily for signaling purposes without providing actual executive control, there is a risk that the actions of multisigs may gradually deviate from the community's interests. Multisig wallets, typically having a limited number of identifiable signatories, can become conspicuous targets for government regulation and legal actions. The clarity in the identity of these signers makes it easier for regulatory bodies to enforce compliance or for legal entities to initiate actions against them. Additionally, the discretion exercised by multisig signers in executing their authority could give rise to liability issues. The concentrated authority in a small group of multisig signers can also present challenges in terms of censorship resistance. In contrast, a more distributed set of token holders could offer a higher degree of resistance to censorship. This distribution dilutes the concentration of decision-making power, reducing the likelihood of any single point of control becoming a target for external pressures or attacks. Case Study: Transitioning from Multisig Governance to Smart Contract-Based DAO In DAOs, it is imperative to avoid situations where a single person or a small group has exclusive control over the DAO's resources, as this could lead to unauthorized fund usage. Ideally, DAO funds should be secured in a smart contract, endorsed by the community, and governed by rules that prevent centralization of control. A DAO-specific smart contract can be developed and implemented to address the discussed challenges. This contract, an adaptation of an existing model but customized to meet unique needs, may include an innovative mechanism for asset voting. It also features a guardian as a temporary control measure that can veto proposals or modify governance parameters during the initial phase for added security. In a new governance structure, any member can propose changes for community review. Once a proposal secures adequate community backing, it is set for execution, contingent on meeting the quorum and supermajority criteria. The evolution to an advanced governance model can be executed in several stages: Initial Deployment: The DAO contract should be launched on the mainnet without administrative control over associated contracts. Administrative Transition: This step entails configuring the DAO as the administrator for all current contracts. This process involves adding the DAO contract as a co-administrator and progressively diminishing the administrative role of the multisig contract. Acceptance of DAO as Administrator: For contracts requiring the proposed administrator to affirmatively accept the respective DAO role. Multisig Contract Removal as Administrator: Following a sequence of successful proposals, the multisig contract relinquishes its administrative responsibilities, positioning the DAO contract as the sole administrator. Final Phase – Elimination of the guardian: The concluding stage is the community vote to remove the guardian functionality, solidifying the DAO's complete autonomy. * * * For expert guidance in the dynamic world of DAOs and Web3, Prokopiev Law Group is your legal partner. With a broad global network, we ensure your compliance both in the EU and internationally. Our services include DAO Legal Support, Crypto Token Sale Legal Advice, Web3 Terms of Service, and Intellectual Property Protection in blockchain and NFTs. We specialize in Smart Contract Legal Analysis, Crypto Regulation Advisory, and Web3 Compliance Strategies. Our team is adept at handling Blockchain Data Protection Laws and providing Decentralized Finance (DeFi) Legal Consulting. Prokopiev Law Group is committed to guiding you through the legal intricacies of the blockchain and cryptocurrency sectors, ensuring your project thrives in a compliant and secure legal environment. Contact us for bespoke legal solutions tailored to the unique needs of your Web3 venture. The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.

What is XLA? Experience Level Agreements (XLAs) represent a shift from traditional Service Level Agreements (SLAs) in IT service management. Fundamentally, XLAs are structured around the end-user experience, emphasizing IT services' perceived quality and effectiveness rather than just operational metrics. They prioritize outcome-based metrics and key performance indicators directly related to the user's interaction with IT services. XLAs offer a more holistic approach to IT service delivery, focusing on the satisfaction and productivity of the end-user. This contrasts with the traditional SLA framework, which often centers on meeting predefined operational targets without necessarily reflecting the real-world impact on service users. Furthermore, implementing XLAs entails a shift, promoting a more responsive and adaptive approach to service delivery, which involves regularly revising XLA targets and metrics in response to changing user expectations and needs. Therefore, the primary distinction between these two types of agreements lies in their orientation: SLAs concentrate on the objective aspects of service performance, whereas XLAs are attuned to the subjective perceptions of service quality from a customer's standpoint. The Interplay of SLAs and XLAs The web3 sector, characterized by its rapid evolution, is increasingly adopting a client-focused approach. This shift is reflected in the parallel usage of Experience Level Agreements (XLAs) alongside the conventional Service Level Agreements (SLAs). While an SLA might quantify aspects like service resolution times from a provider's lens, an XLA evaluates the level of customer satisfaction following the receipt of services. XLAs are not intended to replace SLAs but to enhance them or operate as independent agreements in situations where SLAs do not fully encapsulate the essence of service success. Incorporating XLAs introduces additional considerations, including the assessment of new risks by procurers and providers, especially in ensuring adequate insurance for these risks. Service Level Agreements (SLAs) The core purpose of an SLA is to delineate specific standards and benchmarks for service delivery. An effective SLA serves as an intermediary mechanism for addressing breaches, thus helping to prevent the escalation to contract termination due to significant non-compliance. Essential elements to be factored into an SLA include: Defining Critical Events and Criteria: It is imperative to clearly specify what constitutes a significant or critical event within the scope of the SLA. It involves setting precise definitions and criteria that identify situations warranting special attention or immediate action. Establishing Reporting Systems and Monitoring Tools: Implementing and managing monitoring systems and tools are essential. These systems should be capable of accurately tracking service performance and facilitating regular reporting, ensuring that both parties clearly understand service standards. Setting Service Credit Parameters: A critical aspect of an SLA is establishing the parameters for service credits. It involves determining the fair and proportionate values of the services provided, ensuring that they effectively incentivize maintaining service standards. Outlining Acceptable Timeframes for Responses and Resolutions: The SLA must clearly define the acceptable timeframes for responding to and resolving service issues. These timeframes should be reasonable, reflecting a balance between prompt service and the complexity of potential problems. Designating Primary Contacts and Escalation Points: Identifying primary contacts and establishing escalation points for all parties involved in the SLA ensures efficient communication and swift resolution of issues, providing a clear pathway for escalation when necessary. Detailing Exceptional Circumstances: The SLA should explicitly state any exceptions to the standard service provisions, such as scheduled maintenance periods. Developing Structured Processes for Claiming Service Credits: An agreement should include a straightforward, transparent process for claiming service credits. Experience Level Agreements (XLAs) XLAs serve as a critical tool where traditional Service Level Agreements (SLAs), with their quantitative emphasis, may not adequately capture the essence of customer satisfaction. The following elements are key in the formulation of an XLA: Comprehensive Key Performance Indicators (KPIs): A core component of XLAs is the integration of KPIs that are specifically targeted at measuring customer satisfaction. Mechanisms for Customer Feedback and Engagement: Besides SLA communication flow, such mechanisms should facilitate an open dialogue between the service provider and the customer, allowing for continual improvement and adaptation of services based on customer input. Evaluation Metrics for Customer Endorsement: It is essential to incorporate metrics that assess how likely customers are to recommend the service. Checklist for Crafting SLAs and XLAs in Web3 Integration of Customer Feedback in SLA/XLA Development: Actively involve customers in creating SLAs and XLAs, focusing on customer satisfaction and experience. Adaptation of Contracts to Value-Oriented Models: Shift from time-based to value-based contracts, emphasizing outcomes such as incident resolution efficiency or revenue generation. Implementation of Customer Effort Score (CES) Tracking: Employ CES to gauge the effort customers require to use a service or resolve issues, providing deeper insights than traditional metrics. Customizable Service Experiences for Clients: Offer flexible "pick your path" service options, allowing customers to tailor their SLAs/XLAs. Establishment of Higher Internal SLA Standards: Set internal SLAs that are more stringent than those communicated to clients. Transformation of SLAs into Objectives and Key Results (OKRs): Evolve traditional SLAs into OKRs, fostering a partnership-centric approach in customer-vendor relationships, aligning well with the collaborative and outcome-focused nature of Web3 and DAO entities. DAO-Specific Considerations for Service Level and Experience Level Agreements In the unique ecosystem of Decentralized Autonomous Organizations (DAOs), the concept of Service Level Agreements (SLAs) and Experience Level Agreements (XLAs) takes on a new dimension. DAOs, known for their decentralized governance structures, may provide web3 services both internally to their members and externally to third parties. As such, they face the dual challenge of maintaining service quality and user experience without the traditional framework. Given the inherent nature of DAOs, where formal contract signing may not be feasible, alternative approaches are needed. One such approach is adopting a publicly declared document outlining the service level the DAO commits to uphold. This document, while not a contract in the traditional sense, serves as a statement of intent or a pledge to maintain specific standards of service and user experience. The development of this document should be a collaborative process involving thorough discussions among DAO members. It necessitates going through the DAO's governance procedures, which may vary from one DAO to another but typically involve voting or consensus mechanisms. This process ensures that the service standards set forth are not only realistic but also align with the collective vision and capabilities of the DAO community. Furthermore, despite lacking a conventional corporate structure, DAOs must still assign responsibility for essential functions related to SLAs and XLAs. This includes designating individuals or groups responsible for client communication and integrating customer and member feedback into service enhancements. * * * At Prokopiev Law Group, we understand the intricacies of navigating the evolving landscape of Web3, DAOs, and the broader blockchain ecosystem. Our expertise encompasses various vital legal areas, including DAO Legal Support, Web3 Compliance Strategies, Crypto Token Sale Legal Advice, and more. Our global network of partners ensures comprehensive legal compliance in the EU and worldwide. Reach out to us for a thorough legal risk assessment and compliance strategies or to understand the complex legal landscape of your Web3 Startup. Let us help you navigate these waters with confidence and compliance. The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.

The crypto-asset landscape has experienced rapid growth and increased adoption worldwide in recent years. With this growth comes the need for regulatory frameworks that can effectively address the unique challenges posed by these digital assets. The European Commission has recognized this need and proposed new tax transparency rules for service providers facilitating crypto-asset transactions for consumers residing in the European Union. The Background: MiCA Regulations and Anti-Money Laundering Rules Before diving into the new tax transparency rules, it's essential to understand the background of the regulatory environment surrounding crypto-assets in the European Union. The Markets in Crypto-Assets (MiCA) Regulations serve as the primary foundation for crypto-asset regulations in the EU. MiCA aims to create a comprehensive framework for issuing, custody, and trading crypto-assets, ensuring a consistent approach across all member states. This regulation will replace the current national rules governing crypto-assets, laying the groundwork for a more unified EU crypto-asset market. In addition to the MiCA Regulations, the EU has also been working to strengthen its anti-money laundering (AML) rules to address the potential risks associated with crypto-asset transactions. These AML rules aim to prevent using the crypto-asset market for illegal activities such as money laundering, terrorist financing, and tax evasion. With this background in mind, the European Commission's recent proposal for new tax transparency rules is a significant step towards further regulating the crypto-asset industry, ensuring it remains compliant with tax requirements and AML policies. The Proposal: DAC8 and Crypto-Asset Reporting Framework The European Commission's new tax transparency rules proposal is the seventh amendment to the Directive for Administration Cooperation (DAC). Known as DAC8, the proposal aligns with the OECD initiative on the Crypto-Asset Reporting Framework (CARF) and the amendments to the OECD Common Reporting Standard (CRS). The primary objective of DAC8 is to address the challenges that crypto-assets pose regarding traceability and detection of taxable events by tax authorities. To achieve this goal, DAC8 aims to enhance cooperation between EU Member States and facilitate the efficient collection of taxes by requiring crypto-asset service providers to report specific information related to crypto-asset transactions. The proposed rules will introduce the following key requirements: All crypto-asset service providers, regardless of their location or size, must report domestic and cross-border transactions, and in some cases, non-fungible tokens (NFTs), for clients residing in the European Union. Financial institutions will be required to report on central bank digital currencies and e-money transactions. The automatic exchange of advance cross-border rulings will be extended for individuals with a minimum of €1 million in investable or financial wealth or assets under management. A minimum level of penalties, up to €500,000, will be introduced for infringements of reporting requirements. DAC8 will work harmoniously with MiCA Regulations, ensuring that the new tax transparency rules don't impose additional administrative burdens on crypto-service providers. By relying on the authorization requirements introduced by MiCA, DAC8 will create a cohesive regulatory environment for crypto-assets in the European Union. The European Commission aims for these proposed reporting requirements to enter into force on 1 January 2026. As Europe progresses with its digital transition, these rules will play a crucial role in ensuring fair taxation and addressing challenges posed by alternative means of payment, such as crypto-assets. At Prokopiev Law Group, we understand the complexities of the emerging crypto-asset legal environment. Our experienced team is dedicated to helping our web3 clients navigate these evolving regulations, ensuring compliance and providing expert guidance throughout the process. DISCLAIMER: Information on this site is for general educational purposes only, not legal, tax, or accounting advice. Consult professionals for guidance. The author's opinions don't represent others. No guarantees or warranties for content accuracy/completeness. The author is not liable for losses from using this information.

Regulatory Insight for Blockchain Protocols In the realm of blockchain and distributed ledger technology (DLT) protocol governance, Taiwan's regulatory landscape is yet in its formative stages, absent of a comprehensive legal structure. Despite this regulatory vacuum, the prevalence of blockchain demands anticipation of forthcoming legislation. Developers venturing into this field must tread carefully across several critical domains: Securities in the Digital Age: The Financial Supervisory Commission (FSC) parallels tokens birthed from initial coin offerings with conventional securities. Under the Securities and Exchange Act, such tokens, if acknowledged as securities due to their investability and marketability, subject issuers to regulatory compliance and licensing requisites. Digital Defense Protocols: In the event of a compromise within a blockchain network, developers may find themselves liable for damages, as mandated by the Civil Code, given the expectation to fortify their networks against cyber threats. Data Privacy Concerns: The integration of user data within blockchain platforms mandates adherence to the Personal Data Protection Law, safeguarding user privacy throughout the collection, processing, and utilization phases. Combatting Financial Crimes: The global crusade against money laundering extends into the digital realm, with Taiwan adhering to the Financial Action Task Force's guidance and enforcing stringent regulations on cryptocurrency exchanges to thwart such activities. Variations in Public and Private Blockchain Oversight The surveillance for public and private blockchains deviates markedly, with the former shouldering heightened scrutiny due to the expansiveness and anonymity of participants: Anonymity vs. Privacy: The immutable nature of public blockchains contrasts starkly with the regulated node environment of private blockchains, complicating the alteration or erasure of private data. Money Laundering Preventions: The 'know your customer' (KYC) protocols are more seamlessly woven into the fabric of private blockchains, facilitating user identification. Public blockchains, with their non-identifiable wallet addresses, present formidable challenges to upholding KYC standards, necessitating extra diligence from developers to mitigate privacy and anti-money laundering (AML) risks. Enforcement Agencies and Their Domains Taiwan's enforcement of applicable laws spans multiple administrative bodies, each vested with oversight relevant to their sector: Financial Supervisory Commission (FSC): As the appointed authority on March 30, 2023, the FSC oversees virtual asset platforms, emphasizing customer protection through comprehensive guidelines that include transparency, AML efforts, and asset management. Ministry of Justice: This body extends its regulatory arm to virtual currency platforms under the Money Laundering Control Act, equipped with the authority to confiscate proceeds from criminal activity. Executive Yuan: Reflecting the varied applications of blockchain, the Executive Yuan ensures consumer protection across diverse industry uses, from traceability systems to tourism. Regulatory Definition and Oversight of Digital Currencies The framework for overseeing digital currencies is provided by the Financial Supervisory Commission (FSC), particularly under the guidelines introduced on June 30, 2021. Digital currencies are characterized under these guidelines as cryptographic representations of value, which are digitally tradable and can serve as a medium for payment or investment but are distinct from certain financial assets and government-issued currencies. Entities that facilitate digital currency transactions are mandated to adhere to stringent regulations aimed at preventing money laundering and terrorism financing. This adherence extends to cryptocurrencies that fulfill specific criteria indicative of securities, which are then regulated under the Securities and Exchange Act. Further, political figures and high-ranking officials must disclose their digital currency holdings, underscoring the transparency required in public service. Anti-Money Laundering Measures for Digital Currencies The national Ministry of Justice, tasked with anti-money laundering (AML) and counter-financing of terrorism (CFT) efforts, has categorized digital currency exchanges and related businesses as financial institutions within the scope of the Money Laundering Control Act. These entities must undertake identity verification and transaction monitoring processes, a directive that challenges the inherently anonymous nature of cryptocurrency transactions. Consumer Safeguards in Cryptocurrency Transactions Cryptocurrency is regarded as a 'virtual commodity' rather than a financial product, thus evading the protection mechanisms typically available to financial consumers. This classification is subject to exceptions, such as security-type digital currencies, which fall under securities regulations. Taxation Stance on Cryptocurrency Tax implications for cryptocurrency transactions are complex and contingent on the nature and location of the transaction and the parties involved. Business-related cryptocurrency transactions are taxable as business income, while individual transactions may be taxed differently. Notwithstanding, challenges persist in enforcing tax compliance due to the anonymity inherent in cryptocurrency dealings. Operating Standards for Cryptocurrency Traders and Exchanges Please refer to the above discussions under sections concerning regulatory oversight and anti-money laundering measures. Delineation and Regulation of Cryptocurrency Offerings The FSC delineates virtual currencies as securities based on the Howey Test, thereby subjecting them to relevant securities legislation. Initial coin offerings (ICOs), unless falling under specific financial product characteristics, remain unregulated by the Securities and Exchange Act. Legal Contract Fulfillment through Smart Contracts No specific legislation governs smart contracts; their regulation is inferred from their applications in various sectors. Government-funded research explores the potential of smart contracts in areas like insurance and shared vehicle services, which indicates a growing interest in and validation of blockchain technology. The Civil Code specifies core requisites for contract formation which smart contracts are capable of satisfying under certain conditions. These include the contracting parties' legal capacity, mutual consent, and the legality of the contract's subject matter. Nevertheless, smart contracts introduce complexities regarding the parties' continuous capacity and the validation of consent, which are challenging to address post-execution. Smart contracts are particularly adept at automating straightforward transactional aspects of traditional contracts, such as payments, based on unambiguous conditions. However, they cannot replace elements requiring nuanced human judgment, such as confidentiality clauses or definitions of breach. The enforceability of smart contracts through judicial systems poses significant challenges, given the technical nature of blockchain and the difficulty in establishing jurisdiction and interpreting 'intent' in code form. Blockchain and Data Protection When data is stored on a public blockchain, it becomes accessible to anyone, posing significant risks when personal data is involved. This is especially problematic when considering the following aspects: Immutable Data versus Personal Data Rights: The immutable nature of blockchain stands in conflict with personal data rights enshrined in the Personal Data Protection Act (PDPA), notably: The right to halt data collection, processing, or use; The right to demand the erasure of personal data. Modification of blockchain data can only be achieved through disproportionately challenging means, such as commandeering over half of the network’s computational power, which is practically unfeasible. Cross-Border Data Transfers: The PDPA’s framework for international data transfers includes potential exceptions enforceable by the pertinent authority. A problem arises when data traverses through the blockchain to jurisdictions lacking robust data protection regulations, raising questions on how authorities can monitor such transfers and apply necessary restrictions. As a solution, some experts have suggested 'off-chain' data storage, whereby personal data is stored on a separate platform and only linked to the blockchain. Yet, this introduces additional concerns about ensuring off-chain data security, maintaining privacy, and achieving data consistency with the blockchain. Benefits of Blockchain in Data Protection: On the flip side, blockchain technology can enhance data integrity and availability through its decentralized architecture, which distributes data across numerous points, mitigating the risks of single-point failures. Its inherent transparency and synchronous updating can serve as an asset for instances where data authenticity is critical and a shared, unalterable ledger offers a secure method for data sharing. Intellectual Property and Blockchain Blockchain's borderless nature and decentralized applications (DApps) span multiple jurisdictions, leading to complex legal landscapes. For instance, the determination of international legal jurisdiction in intellectual property (IP) disputes over blockchain creations hinges on the domestic legislation of the country in question. Taiwanese law, specifically, does not delineate international jurisdiction. Nonetheless, Taiwanese jurisprudence may invoke the Code of Civil Procedure to establish jurisdiction, particularly when infringement activities or their effects manifest within Taiwan. The scope and duration of intellectual property rights associated with blockchain and DApps are contingent upon the legal system the claimant operates under. The utilization of open-source resources in developing blockchain and DApps presents a conundrum for IP protection since such resources are accessible to the public. The innovation and uniqueness required for patentability and copyright under Taiwanese law might be deemed insufficient in open-source-based developments. Nevertheless, when original contributions are integrated, such blockchain constructs may qualify as derivative works, thereby securing copyright protection. With the proliferation of NFTs, the replication and dissemination of digital works via these platforms may impinge on copyright statutes, especially when physical copies are associated. This raises significant concerns for copyright holders when their works are traded without consent. Global Web3 Legal Expertise at Prokopiev Law Group Prokopiev Law Group stands at the forefront of legal innovation, embracing the complexities of the evolving digital landscape. As a dedicated blockchain law firm, we possess a robust partnership network that spans across borders, allowing us to offer comprehensive Web3 legal advice and solutions on a global scale. Whether our clients are navigating cryptocurrency legal issues, NFT legal matters, or the foundational DAO legal structure, our expertise ensures their ventures are built on solid legal ground. With a keen understanding of Web3 intellectual property rights and a meticulous approach to DeFi legal consultancy, we empower our clients to forge ahead with confidence. Prokopiev Law Group is adept in addressing the nuances of Web3 compliance and provides token sale legal guidance. Our practice is a nexus of knowledge for entities operating in the metaverse law arena and those seeking Web3 startup legal support. We are committed to safeguarding Web3 data privacy and protection and stand as a staunch advocate for those seeking a crypto exchange regulation lawyer. The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.

On 17 October 2023, the Council of the EU announced the adoption of a crucial directive to further administrative cooperation within the realm of taxation. This directive primarily targets the reporting and exchange of information relating to transactions in crypto-assets and advance tax rulings for high-net-worth individuals. Key Provisions of the Directive: Enhanced Scope of Registration and Reporting: The directive aims to fortify the prevailing legislative architecture. It expands the breadth of registration and reporting duties, ensuring a more robust collaboration among tax authorities. Inclusion of Crypto-assets: Previously, the decentralized character of crypto-assets presented challenges for member states' tax departments to maintain tax adherence. With the cross-border nature of crypto-assets, international administrative collaboration becomes vital. This directive encompasses: A wide variety of crypto-assets, with foundations on definitions from the MiCA (regulation on markets in crypto-assets). Decentralized issued crypto-assets. Stablecoins, e-money tokens, and select NFTs (non-fungible tokens). Automatic Information Exchange: Reporting entities handling crypto-assets will now have to engage in obligatory automatic sharing of details with tax bodies. This initiative addresses the past hurdles caused by crypto-assets' decentralized nature. Historical Context and the Path Forward: In December 2021, the Council emphasized the expectation of a legislative proposal for 2022. This proposal would focus on the directive 2011/16/EU on administrative cooperation regarding taxation. The emphasis would be on information exchange about crypto-assets and tax rulings for affluent individuals. By December 2022, the Commission proposed amending the aforementioned directive (now referred to as DAC8). Noteworthy objectives of DAC8 include: Expanding Information Exchange: The idea is to increase the domain of automatic info-sharing under DAC to cover reports from crypto-asset service entities about crypto-asset and e-money transactions. This move hopes to aid member nations in tackling the challenges ushered in by the digital transformation of the economy. Moreover, DAC8’s provisions on due diligence, reporting obligations, and related rules for crypto-asset reporting will echo the CARF (Crypto-Asset Reporting Framework) and modifications to the CRS (Common Reporting Standard). Both these standards received an endorsement from the G20. Broadening of Tax-Relevant Information Exchange: This encompasses sharing details on advance cross-border rulings for wealthy persons and information exchange on non-custodial dividends. The goal is to diminish tax evasion, avoidance, and fraud risks. The existing DAC provisions didn’t cater to such income types. Refinements to DAC’s Existing Provisions: This entails enhancements to rules about Tax Identification Number (TIN) reporting and communication. Such improvements simplify the tasks for tax departments in identifying pertinent taxpayers and tax assessment. Additionally, there will be changes to DAC stipulations concerning penalties applied by member states for non-compliance with national reporting legislation aligned with DAC. In May 2023, the Council agreed upon its position about the directive's amendments. Subsequently, in September 2023, the European Parliament delivered its views on the directive. Concluding this chapter, the directive received unanimous approval by member states in the Council. Its publication in the Official Journal is forthcoming, with the directive coming into effect on the 20th day post-publication. Council directive amending directive 2011/16/EU on administrative cooperation in the field of taxation (DAC8) The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.

1. The Dawn of the Data-Driven European Epoch Origins: Stemming from the European data strategy unveiled in February 2020, the European Data Act aims to position the EU as a pivotal player in the data-centric society. Motivation: The rapid growth of the Internet of Things (IoT) has generated a colossal amount of data, but a significant chunk remains unexplored. Recommendation: Stakeholders, from consumers to researchers, should embrace the emerging data-rich landscape by keeping themselves updated about its evolution. 2. Revitalizing the EU Data Economy Objective: The core ambition is to rejuvenate the EU’s data environment by ensuring streamlined access and effective use of industrial data, thus bolstering a reliable and competitive European cloud marketplace. Impact: Facilitates robust intra-European Union data circulation across varied sectors, benefiting a vast array of stakeholders. Recommendation: For business entities, remain aligned with the Act's provisions to ensure compliance and maximize benefits. 3. Access, Control, and Sharing of Data User Privileges: Those utilizing connected gadgets are entitled to access data generated by these devices and associated services. Third-Party Collaboration: The Act promotes data sharing with third parties, spurring innovations and aftermarket services, all while motivating manufacturers to focus on top-tier data production. Recommendation: Consumers should be informed about their data rights, ensuring they can fully harness the power and potential of their devices. 4. Defending Against Contractual Pitfalls Protection for SMEs: With an emphasis on preserving freedom of contract, small and medium-sized enterprises are shielded from one-sided and prejudiced agreements. This aims to fortify them in the digital realm and offer a platform for fair negotiations. Recommendation: SMEs should routinely audit contracts for alignment with the Data Act and engage with the Expert Group for insights into non-binding model contractual terms. 5. Wider Public Sector Data Reach Emergency and Legal Access: The Act authorizes public sector bodies to access private sector data during emergencies or as mandated by the law. Recommendation: Public sector entities should establish a clear understanding of the circumstances that qualify as emergencies, ensuring timely and appropriate data access. 6. Cloud Ecosystem Dynamics Flexibility and Integrity: The Act paves the way for consumers to smoothly transition between cloud data-processing service providers, emphasizing competition and market diversity. It also emphasizes safeguarding against unauthorized data transfers. Recommendation: Cloud service providers should incorporate European interoperability standards and offer consumers a hassle-free switching experience. 7. Driving Interoperability Across Borders Interconnection: The Data Act fervently promotes establishing interoperability standards for data exchange and processing, aligning with the broader EU Standardisation Strategy. Recommendation: Businesses should prioritize participating in initiatives that bolster interoperability, ensuring seamless data exchange. 8. Synergy with Preceding Frameworks Data Strategy Alignment: The Data Act is harmoniously in line with the EU’s vision from February 2020. It also synergizes with the GDPR, emphasizing data portability for connected products and revises aspects of the Database Directive for unhindered access. Recommendation: Legal professionals should stay updated on the Act’s intricate interplay with other legal frameworks to provide accurate guidance to stakeholders. 9. A Unified European Data Space Scope: The Act accentuates the importance of data availability across sectors, aligning with the European Data Spaces introduced in key strategic areas. Recommendation: Researchers and innovators should tap into this consolidated data space, unlocking avenues for collaboration and novel solutions. The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.

1. Identifying Roles in Data Processing AI User's Role: It is crucial to recognize the facets of personal data processing in GenAI models where a company, known as the AI user, is seen as the controller. AI Provider's Role: At a glance, it may seem the AI provider is responsible for training the AI model. However, a more in-depth look is required to understand specific scenarios. An AI user deploying GenAI might have an impact on the AI's training, especially related to its conversational capabilities. This becomes especially evident when settings enable the reuse of training data to enhance the general AI. While this suits the AI provider's objectives, benefiting all AI users, it brings forth the question of shared responsibility during the training process. 2. Insights on “Joint Controllership” Definition: For an entity to be considered a joint controller, it must define both the purpose and means of processing personal data. Case Studies: Jehovah's Witnesses Case: This case highlighted the community directing its members as a joint controller. Facebook-Related Cases (Wirtschaftsakademie and FashionID): These revolved around deriving commercial advantages from Facebook ads (establishing purpose) and deciding on data categories or using Facebook's code for AI user data transmission (means of processing). Key Takeaway: The idea of joint controllership is widely interpreted and doesn’t mandate equal responsibility among involved parties. 3. AI Provider and Data Processing AI Provider's Role: The AI provider dictates how data obtained from end-users will be processed for refining GenAI. AI User's Involvement: When settings are adjusted to allow the reuse of training data for AI enhancement, AI users provide their end users' data. This data is knowingly used by the AI provider for training to further enhance GenAI services. Both parties aim for high-quality GenAI services. Potential Risk: Given the shared commercial benefits, there exists a danger that organizations employing these AI solutions might have joint responsibilities with the AI provider as per Art. 26 GDPR. This joint responsibility would increase risk exposure. Though a vast interpretation may surpass the directives of Art. 26 GDPR, due to existing case law, it's advised to: Avoid using settings that let the AI provider reuse input data (if viable commercially). Deliberately evaluate and brace for possible outcomes of joint controllership. A Trend to Watch: More GenAI solutions, especially enterprise versions, are acknowledging this potential risk and proposing alternatives to AI users to reduce such concerns. 4. Delving into Data Responsibility Responsibility for Data: The AI user holds the responsibility for processing data. AI Provider's Position: The AI provider is a processor in the context of Art. 28 GDPR, processing data based on the AI user's directives. Required Agreement: It's imperative to finalize a data processing agreement in line with Art. 28 GDPR with the AI provider. This pact outlines the stipulations and duties of the provider to guarantee GDPR-compliant data handling. 5. The Framework for Lawful Processing: Foundation Principle: Based on Article 6 GDPR, ensuring the lawful processing of input and output data, overseen by the AI user, is contingent upon alignment with the precepts outlined in Article 6 and Article 9 GDPR. Recommendation: Before initiating any data processing activities, it's prudent to confirm alignment with these Articles. 6. Key Contexts of Data Processing and Associated Legal Considerations: Processing of Non-sensitive Data: Internal Deployment: When AI users handle standard non-sensitive personal data for internal purposes, they may find guidance in Article 6(1)(f) of the GDPR, provided sensitive personal data isn't implicated. Recommendation: When dealing with non-sensitive data, ensure that AI functionalities align seamlessly with the criteria specified under Article 6. In simple terms: Article 6(1)(f) allows businesses (or third parties) to process personal data if they have a good, valid reason to do so, unless doing that processing would harm the rights of the individual whose data is being processed. And when it comes to children, there's an added layer of caution to ensure their utmost protection. Handling of Sensitive Data: Complex Scenarios: Environments where AI is used necessitate adherence to Article 9 of GDPR. This is especially true when dealing with distinct data types like health records, genetic data, or biometric identifiers. Establishing a Legitimate Basis: When navigating this space, it's crucial to validate that the grounds for processing resonate with the standards set by Article 9 GDPR. This might involve obtaining clear and explicit consent from the data subject or confirming the indispensable nature of processing for medical interventions. In essence: while Article 9 of the GDPR highlights that sensitive personal data should be treated with utmost care and generally not processed, there are well-defined exceptions and circumstances where such processing can take place, always under specific conditions and safeguards. Recommendation: In instances involving sensitive data, AI users must conduct a rigorous assessment. This ensures that data processing is underpinned either by unequivocal consent or by its essentiality for health-related reasons. The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.