How to Classify and Regulate Crypto in Vietnam ?
A. Blockchain in Vietnam
Interest in blockchain (chuỗi khối) technology in general, and crypto in particular, has grown exponentially. A number of business and professional groups have formed to propel blockchain forward, including (i) the Vietnam Blockchain Union, a unit under the Vietnam Digital Communications Association to promote blockchain technology; (ii) the Digital Asset Management Center, a unit under the Vietnam Entrepreneurs Scientific Union with the mission of helping Vietnamese businesses digitize assets on the blockchain platform; and (iii) the Vietnam Blockchain Association which was established by the Ministry of Home Affairs in order to diversify the application of blockchain technology and promote research and development of blockchain technology in Vietnam.
In March 2022, AEX Exchange, a cryptocurrency exchange operated by Bit World Investments Limited, launched a US$100 million fund to support Vietnam’s blockchain ecosystem. In June 2022, the Vietnam Blockchain Association and Binance, the world’s leading crypto exchange, started a cooperation focusing on the research and application of blockchain technology and human resource training. Vietnam is now ranked number 1 in Chainanalysis’s The 2021 Global Crypto Adoption Index, indicating a very high level of adoption by users in Vietnam.
The Government has taken initial but important steps to adopt blockchain technology. Of note, the Prime Minister approved a comprehensive proposal to build a legal framework for virtual assets and virtual currencies. He specifically assigned (i) the Ministry of Justice (“MOJ”), the Ministry of Finance (“MOF”), the State Bank of Vietnam (“SBV”) and other relevant ministries to research and develop the legal framework for virtual assets and virtual currencies, (ii) the SBV to research, develop and test the use of blockchain-based virtual currencies from 2021 to 2023 and (ii) the Ministry of Science and Technology and the Ministry of Information and Communications to prioritize research on certain core technologies including blockchain, from 2021 to 2025, among other initiatives. The State Securities Commission (the “SSC”) is also studying the possibility of applying blockchain to some segments of the securities markets.
Blockchain is already being used in Vietnam. The Ministry of Education and Training last year instructed all provincial Departments of Education and Training, universities and academies to store and secure all Vietnam’s diplomas and certificates on the National Qualifications Archive system, which is a public blockchain developed and operated by TomoChain Lab Pte. Ltd. to prevent fraudulent diplomas and certificates. Other prominent blockchain applications on the market include: (i) Agridential, which is designed to record, trace, and authenticate information at every stage of the agricultural process, from farming and harvesting to production, supplying and transporting to retailers, then selling to customers and checking the quality of the food on the table; and (ii) Covid Pass, which is a simple-to-use system that lets users store their COVID-19 test data such as personal information, SARS-CoV-2 virus test results, and certificates in a mobile app with anti-counterfeit mechanisms. Techcom Securities is also planning to implement blockchain technology and smart contracts in bond transactions. However, the biggest use case of blockchain technology is crypto tokens which we will discuss next.
B. Vietnamese Legal Issues with Crypto
Generally, blockchain technology does not have major legal issues; it is merely a data encryption, storage, and distributed ledger (sổ cái phân tán) technology. How the technology is used is where Vietnamese legal issues may arise. Therefore, it is not critical for ordinary people to understand the underlying technology; they can still use blockchain without knowing its code and programming interfaces. This is also the case with many other types of technological innovations such as computers or the Internet. It is however important to understand blockchain uses and how they should be classified within the current regulatory framework.
For the time being, the biggest use case of blockchain technology is crypto tokens and as a result of globalization, crypto tokens developed offshore and domestically are both used in Vietnam. There are four main types of crypto tokens, including payment tokens, utility tokens, security tokens, and non-fungible tokens (“NFTs”). Payment tokens (e.g., Bitcoin, VNDC, VNDT) serve as a medium of exchange, store of value, and unit of account. Utility tokens (e.g., AXS, BNB, BAT) give the holder access to a blockchain-based product or service. Security tokens (e.g., Blockstack and Metain real estate tokens) give the holder ownership rights. NFTs (e.g., Bored Ape and Hoi An arts, Eminem’s Shady Con and Suboi music videos) are digital representation of unique assets. The rights of holders as well as requirements applicable to their related transaction will depend on what the crypto tokens are.
When Bitcoin and other cryptocurrencies first appeared, Vietnamese authorities were not equipped with any specific regulations on how to classify and treat cryptocurrencies. Accordingly, based on the silence in the law, Vietnamese authorities prohibited transactions with cryptocurrencies. For example, in 2014, a local company named Bitcoin Viet Nam Company Limited submitted a notification application to the e-Commerce and Digital Economy Agency (“iDEA”) under the Ministry of Industry and Trade (“MOIT”) as an e-commerce sales website in Vietnam, but was rejected because Bitcoin is not regulated as a good or service under Vietnamese law. The iDEA website published a warning that it would not accept applications for notification of e-commerce sales websites or registration of e-commerce trading platforms from any Bitcoin trading websites. On the other hand, Vietnamese tax authorities showed an interest in taxing income from trading cryptocurrencies. More specifically, the MOF in one instance guided the Department of Tax of Ben Tre Province that Bitcoin was a good, the trading of which was subject to Vietnamese taxes. In this landmark case, the First-instance Court of Ben Tre Province took the view that the MOF was only authorized by the Prime Minister to research and establish a legal framework regarding virtual currency and it did not have authority to determine that cryptocurrency was taxable unless and until the Prime Minister or the National Assembly promulgated legal documents indicating such. It also took into consideration the fact that Vietnamese law is silent on virtual currency.
In its report to the Government on the proposed regulatory framework, the MOJ has considered crypto tokens based on their uses. According to the MOJ, it is possible to broadly classify them as (i) payment means (phương tiện thanh toán), (ii) goods (hàng hóa), or (iii) securities (chứng khoán). The MOJ has also taken the view that rights in respect of virtual assets (e.g., crypto tokens) are a type of property rights (quyền tài sản). The last classification is important as it helps clarify the status of crypto tokens to the extent they do not squarely fit in the respective laws and regulations governing payment means, goods, or securities. Property in general and property rights in particular are comprehensively regulated under Vietnamese law, including the Civil Code.
We discuss below various legal issues relating to certain types of crypto tokens based on their classification as payment means, goods, securities, and property rights. These categories are based on use cases and corresponding concepts under Vietnamese law.
- Payment means
Payment means, as currently classified under Vietnamese law, include lawful currencies (including local currency and foreign currency) and non-cash payment means. The unit of currency of Vietnam is the “Đồng” with its national symbol being “đ” and international symbol being “VND”: one “đồng” is equal to ten “hào” and one “hào” is equal to ten “xu.” Only the SBV is entitled to issue VND paper money and coins, which are considered as a lawful payment means. Further, foreign currencies that are recognized by Vietnam for foreign exchange transactions are foreign cash currencies, which include currencies of other countries or the European common currency and other common currencies that are used in international and regional payments. Currently, only two countries (i.e., Central African Republic and El Salvador) have recognized Bitcoin as legal tender (i.e., lawful payment means) and China is testing a pilot digital yuan (i.e., e-CNY). There is no concept of virtual currency under Vietnamese law for payment transactions, and for the time being, crypto tokens would not be viewed as currencies (whether local or foreign). It is unlikely that Vietnam would accept Bitcoin as foreign currencies for foreign exchange transactions in the near future.
Non-cash payment means used in payment transactions include checks, payment orders, collection orders, bank cards, and other payment means permitted by the SBV. Other payment means not permitted by the SBV are illegal payment means. Further, the SBV prohibited credit institutions and intermediary payment service providers from providing payment services, including cross-border money transfers involving virtual currency. Hence, crypto tokens (even stable coins that are pegged to VND cash) would not be recognized by the SBV and cannot be used as a payment means.
The SBV has been recently requested by the Government to research and test the use of blockchain-based virtual currencies. It remains to be seen if Vietnam will develop a digital VND like e-CNY or otherwise allow crypto tokens as payment means in the next few years.
Goods include all types of movable properties, including those to be formed in the future, and objects attached to land. Movable property is property that is not immovable property (i.e., land, houses and construction works attached to land, other property attached to land and construction works, and other property prescribed by law), and may be existing or future property.
If crypto tokens are considered as goods (i.e., movable properties) (which is contrary to the positions of iDEA and the Ben Tre Court), then the purchase and sale of crypto tokens would be governed by the Commercial Law (and, if applicable, the Vienna Convention on International Sale of Goods) and crypto tokens can be traded on the e-commerce platforms (such as Lazada, Tiki and Shopee) or a separate platform on which the crypto tokens are traded, either way becoming subject to the e-commerce regulations including notifications of e-commerce website or registration of e-commerce service website. For the time being, it is not settled whether crypto tokens would be considered as goods under Vietnamese law.
Securities include (i) shares, bonds, fund certificates, (ii) warrants, secured warrants, call options, depository receipts and (iii) derivatives and other kinds of securities prescribed by the Government. Crypto tokens can only be classified as derivatives and other kinds of securities unless they are prescribed by the Government.
The current legal framework does not support the above proposition as the Government does not specify in any regulations whether crypto tokens are derivatives and other kinds of securities even if such tokens are correlated to typical securities like shares or bonds. On the contrary, the SSC prohibited public companies, securities companies, fund management companies, and securities investment funds from issuing, trading, and brokering transactions of virtual currencies. The MOF has also rejected a company’s application as a digital asset trading market and explained that the company cannot carry out initial blockchain offerings.
The status for crypto tokens that are not correlated to securities (e.g., tokens of real estate assets, NFTs of artwork) is even less clear. There is no regulation on how trading of such crypto tokens can be made on a stock exchange and how the securities requirements will apply to such trading. Even if the trading of crypto tokens that are correlated to an underlying asset other than shares or bonds (e.g., real estate) is allowed, it faces certain legal obstacles (such as form of contract, execution formalities, title transfer requirements) that will need to be resolved. For example, the Law on Electronic Transactions does not apply to the grant of certificates of land use rights, ownership of houses and other immovable properties. Therefore, there is no clear legal basis for rights to real estate to be digitized. Accordingly security tokens being real estate tokens cannot be viewed as equivalent to certificates of land use rights, ownership of houses and other immovable properties, but something else.
- Property rights
Reports from the MOJ have indicated that, based on their characteristics, virtual assets (including crypto assets) can be classified as property rights under the Civil Code. Property rights are defined as rights which can be valued in money, including property rights in respect of subjects of intellectual property rights, right to use land, and other property rights (e.g., rights to payment under contracts, rights to dividend and other equity interests and other rights arising from assets). Even though not every right is capable of being valued with a certainty, the MOJ described virtual assets as products of human creativity, used to serve needs of the owners within a specific community of accepting persons (e.g., real estate token and NFT). Therefore, virtual assets can fall within the category of property rights under the Civil Code (i.e., they may be possessed, used, and transferred).
If crypto tokens are considered as property rights, then general regulations under the Civil Code apply. Under those regulations, the property rights and obligations can be agreed among the members of the community using that crypto token and evidence of ownership of the crypto tokens can be publicly recorded in the blockchain (i.e., distributed ledger) via automatic mechanisms. The classification of property rights allows crypto tokens to maintain much of their flexibility and characteristics.
Blockchain is a technology and like any other new technology, it is difficult to understand technically by ordinary people. Blockchain is already being used in e-government services such as storage and security of all Vietnam’s diplomas and certificates on the National Qualifications Archive system. The technology by itself does not raise Vietnamese legal issues. It is only the uses of this technology as different types of crypto tokens that raise Vietnamese legal issues.
It is important to understand their uses and how they should be classified within the current regulatory framework and regulated to protect public interests. For the time being, there is some difficulty in classifying crypto tokens as payment means, goods, or securities as the laws and regulations are not settled in these respects. However, it is clear that crypto tokens can represent property rights and this classification helps clarify the status of crypto tokens to the extent they are not treated as payment means, goods, or securities. Having said that, those tokens continue to be regulated by different regulators including the SBV (in relation to payment means), the SSC (in relation to securities) and the MOIT (in relation to goods), among other regulators. The approach taken by regulators so far tends to be prohibitive or at best not encouraging.
The fact that blockchain technology is new, and the law is silent on specific use cases for crypto tokens should not be the reason to prohibit them. From a policy perspective, the regulators should recognize the already widespread use of payment tokens, security tokens, and NFTs and try to regulate them because, without regulation, many Vietnamese investors, consumers, and users are left unprotected (e.g., investment scams, infringing IP, hackers). Providing a legal means to use crypto tokens would not only protect Vietnamese parties but also drive further technological innovation and open up for new sources of tax revenue for the Government.
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