Most of us at some point in our lives have participated in a rewards programme either at our favourite coffee shop or restaurant.

You may have had your fair share of free coffees over the years. Who doesn’t love being credited for being a loyal customer?

Now, with the rise in technology and innovation, international business has taken rewards programmes to the next level by utilising digital platforms.

For example, PepsiCo, Inc started its first cash back rewards programme called PepCoin - a digital programme that’s suited for the “on the go consumer”.

PepCoin rewards consumers for purchasing Frito-Lay snacks and PepsiCo beverages together by depositing money into their Venmo or PayPal accounts.

The question is whether PepCoin is a digital asset; it may simply be the name of a rewards programme rather than a coin/digital asset.

Given the increasing interest in all things digital in Bermuda, that might not always be the case for businesses here.

So, what is the position locally?

Under Bermuda law, digital assets are defined in the Digital Asset Business Act 2018 as anything that exists in binary format, comes with the right to use it and includes a digital representation of value that includes one or more characteristics.

Of most relevance here is whether it is used as a medium of exchange, unit of account, or store of value and is not legal tender, amongst other things.

Of key importance is that it does not include a transaction in which a person grants value as part of an affinity or rewards programme, whereby value cannot be taken from, or exchanged for, legal tender, bank credit or any digital asset, amongst other things.

This means that digital rewards programmes where the value of the reward cannot be taken from or exchanged is not a digital asset.

For example, if your favourite lunch spot created a digital rewards programme that could only be used at that location for future purchases it is not a digital asset. I could not take that reward and redeem it, say, for dollars, bank credit or a crypto currency.

However, if one company within a group of companies is operating a rewards programme that allows for its customers to accrue value and ultimately withdraw Bitcoin into their own wallets then the programme may well fall within the definition of digital asset.

We do see us moving towards a future where digital assets and the implementation of blockchain technology will be visualised as technology not only for the biggest companies and the most complicated business/finance operations.

In some ways, the future is already here. For instance, companies have launched Visa cards that allow digital asset payments by converting digital assets into US dollars -- and we have seen digital assets that derive their value from a corresponding fiat currency or a valuable commodity such as gold.

In Bermuda, persons may wish to differentiate their business with a rewards programme like PepCoin.

The Digital Asset Issuance Act 2020 governs digital asset issuances and is the primary legislation for such issuances in Bermuda.

Under the Act, a digital asset issuance is defined as an offer by a company to the public to purchase or otherwise acquire “digital assets” including entering into an agreement to acquire digital assets at a future date.

The Act regulates persons who are creating, promoting, investing in and conducting digital asset issuances and digital assets as well as companies that are seeking to raise capital through digital asset issuances.

However, the Act and related regulations do not seek to regulate persons or companies that are concerned solely with private sales or whose ordinary business involves the acquisition, disposal or holding of digital assets.

The Act, however, does not automatically permit anyone to conduct a digital asset offering in or from Bermuda. The Act must apply to you and you must be permitted.

Under the Act, only companies registered under the Companies Act 1981 or the Limited Liability Company Act 2016 and who have the consent of the Bermuda Monetary Authority and Minister of Finance are permitted to conduct a digital asset offering in, or from, Bermuda.

A person conducts an offer of digital assets in, or from, Bermuda if they are incorporated or formed in Bermuda and carry on any digital asset offering; or are incorporated or formed outside of Bermuda and carry on any digital asset offering in, or from within, Bermuda.

Under the digital asset issuances regime, such issuances are treated as restricted business activity requiring prior consent from the Minister of Finance. Upon a successful application to the BMA, the Minister of Finance will issue consent to carry on the restricted business activity of a digital asset offering.

There could be a future where our salaries are paid in digital assets and we can then spend digital assets using our credit cards.

Rewards programmes crossing over into rewarding digital assets may be on the horizon.

The future is closer than we think.

Trainee Kaisha Wilson, and partner Jerome Wilson, work in the corporate department at Appleby. A copy of this column can be obtained on the Appleby website at www.applebyglobal.com.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.