ICO regulation has become one of the main financial topics of 2017. Despite the fact that more than 12 years have passed since the development of Bitcoin, the governments of the countries of the world were in no hurry to pay attention to the cryptocurrency market. The USA became a pioneer.
In July 2017, the U.S. Securities and Exchange Commission officially equated virtual investments with stocks and bonds. This gave rise to attempts by many countries to introduce digital assets into official circulation.
What is an ICO?
Initial coin offering (ICO), or “crowdsale” — is the newest type of investment attraction. A token is a conventional unit that can be equated with the concept of a “security”.
ICO is often confused with crypto money. But unlike Bitcoin or Etherium, tokens themselves are not a currency. Their issue can be called the sale of shares of the company — only in the digital version.
Relatively speaking, a group of people wants to attract investments to launch a startup to generate another cryptocurrency. To do this, they conduct an ICO. In return for the money invested, each investor gets the rights to a certain share of the future digital currency and can earn on its growth. This is not exactly the same as the initial issue and sale of “live” shares (Initial Public Offering, IPO), but the analogy is clear.
Until recently, crowdsale helped the organizers of the release of cryptocurrencies to do without an official procedure for raising funds for the project, controlled by the authorities. But now the control bodies of many states have finally “got their hands on” the digital world.
Crowdsale procedure
Preparation for the ICO takes several months. The procedure itself is from 2 to 8 weeks. Although everything depends on the project here — there have been cases when the sale of tokens took place in 20 minutes.
Any crowdsale consists of several stages.
- Development and discussion of the project. Based on market analysis, the idea of a future startup is selected. This is usually followed by a discussion on the Internet platform. If the idea is approved by the crypto community, you can proceed to further steps.
- Gathering a team and creating a company. To implement the project, you will need an SMM specialist, a designer, a content manager, an editor, etc. Employees must know English. It is better to register a company not in the Russian Federation, but in places more loyal to cryptocurrencies.
- The next step is to create a business plan – the so—called White paper. The document is intended to explain to future investors the implementation scheme and the advantages of a startup.
- Launch of a website where everyone can get acquainted with the project. It is on this resource that tokens will then be sold.
- Promotion and promotion of the idea. Unlike the issue of “live” shares, where the emphasis is on several large investors, ICO is intended for a wide range of people. Therefore, much attention is paid to promotion on the Internet, social networks and the media.
- The issue of tokens. You can create “digital shares” yourself, having the right specialists in the team, or use existing platforms for generation. Such services are provided, for example, by Ethereum, Waves or NEM.
If the project preparation was successful, when launching the token sale, site specialists should be ready. A massive influx of buyers can “put” a resource.
To further stimulate demand, the first investors can be financially encouraged. For example, to sell them tokens on the principle of “three for the price of two”. The issue should be limited — which attracts investors even further.
What are the advantages of crowdsale?
The most striking example of a successful crowdsale can be called Ethereum. The ICO of the project was held from July 20 to September 2, 2014.
For 3 years, the price of one token (originally $2) has increased 694.5 times! The possibility of such earnings is the main advantage of ICO. But there are other positive factors:
- By participating in crowdsales, investors shape the future appearance of the digital currency space. Each project brings something new, and by investing money, a person becomes an accomplice in the development of the crypto world;
- participation in the ICO is much more accessible to most people than financing “live” projects. Crowdsale requires much smaller investments, and with luck it can bring mountains of gold;
- For the organizers, an undoubted plus is the simplicity of the event. The sale of tokens does not require the preparation of a pile of papers and eliminates communication with regulatory authorities. At least, that was the case until recently.
Crowdsale allows investors to remain anonymous.
Disadvantages of crowdsale
Ironically, many of the advantages of ICO are also disadvantages. For example:
- the absence of state regulation of ICO creates the widest scope for fraud;
- simplicity and accessibility — the teams conducting the token sale may often be inexperienced and will not be able to implement the project, which will lead to losses. Not to mention outright fraud;
- Since all the action takes place via the Internet, there is always the possibility of a hacker attack that will ruin the project and lead to a loss of investment.
Startups often end in failure. In this case, no one guarantees the return of the invested funds. In 2017, the Matchpool online communication platform was launched, raised almost $ 6 million with the help of a crowdsale.
But even before the start of the project, disagreements and mutual accusations of embezzlement of the collected funds began within the team, which put the future of the project under a big question.
As a result, everything was resolved successfully and now Matchpool is successfully operating, but it could have happened in another way. If we assume that one of the participants really would have stolen the money and disappeared – officially nothing could have been done.
ICO Regulation in Russia
For the first time, Russian legislators paid at least some attention to the world of cryptocurrencies only in 2019. Federal Law No. 34 of 18.03.2019 was issued, which amended the Civil Code and introduced the concept of “digital rights” and “information system” within which these rights can be implemented.
Of course, these are just general words, but they were the first sign. Following this, legislators began to prepare more “heavy artillery”.
Federal Law on Digital Assets
Since January 1, 2021, Federal Law No. 259-FZ of 31.07.2020 has been in force on the territory of the Russian Federation, which legalized tokens and gave them an official status. Legislators have replaced the term “cryptocurrency” with the concept of “digital assets”, and the blockchain technology is called a “distributed registry”.
In addition to the regulatory function, the Federal Law has also made appropriate changes to other regulations:
- joint-stock companies can now issue securities in digital form and maintain a register of owners of such assets;
- cryptocurrency is officially recognized as property for the purposes of implementing the law “On Combating Corruption” and Federal Law No. 115 of 07.08.2001, which prevents money laundering;
- digital assets will be taken into account during the bankruptcy procedure;
- Federal Law No. 38 of 13.03.2006 has been amended regarding cryptocurrency advertising. A list of information required to be indicated in such ads is given. A ban has been imposed on baseless promises of high profits and forecasts of a frenzied growth of the exchange rate;
- digital finance will now be taken into account when controlling the income and expenses of government officials, including the acquisition of foreign assets.
Federal Law No. 259 also amended the Federal Law “On Attracting Investments using Investment Platforms” concerning crowdsales. The humor is that these regulations have the same number.
Read the full review of the law “On Digital Financial Assets” at the link.
Opinions of crypto Market Experts on the law
The law also guarantees judicial protection of property rights to cryptocurrency, but only on condition that taxes have been paid from it. From the point of view of the state, this is logical.
However, lawyers have some questions — how does non-payment of tax affect the recognition of the fact of ownership? How does this statement relate to Article 35 of the Constitution of the Russian Federation? After all, according to it, the right of private property is protected by law, regardless of the fulfillment of fiscal duties by a citizen.
In general, according to lawyers and the crypto community, the law is very “crude” and insufficiently clear, including in terms of ICO regulation. The concept of investment platforms for crowdsales has been introduced, but lawyers have many questions about the implementation of their work scheme.
The wording in Federal Law No. 259 is very vague, and the concepts are blurred. Therefore, it will be possible to talk about the effectiveness of the document only after time has passed and a certain practice of its application has developed.
ICO regulation in some other countries
In most foreign countries, legislators began to show interest in crypto technologies in 2015-2017. There were various initiatives — from a complete ban to the transfer of national banks to blockchain technology. But in general, now most countries are loyal to the digital currency. Although there are exceptions.
ICO regulation in Belarus
The nearest neighbors are very active in regulating the turnover of cryptocurrencies. A High-tech Park has been operating in the republic since 2005, recognized by Western states as the “Silicon Valley of Eastern Europe”. Most of the enterprises registered there work in the field of crypto technology.
Decree No. 8, signed in December 2017 and aimed at the development of the digital economy in the country, contributed to the formation of the Park. The document, in addition to regulating ICO, sets goals:
- create conditions for the integration of blockchain technology and its derivatives (coins, tokens) into the economy and civil legislation of Belarus;
- establish a special legal regime and provide benefits to residents of the Hi-Tech Park;
- strengthen the security of participants in cryptocurrency transactions.
In October 2019, Vnesheconombank of Belarus launched an investment platform for holding crowdsales — finstore.by . Almost immediately, three industrial giants — MAZ, Belvest and Clean Coast put their tokens up for sale.
The platform does not charge any fees for operations with cryptocurrency. Information about all transactions is stored in the blockchain of the Belarusian National Bank, so depositors can not fear for their funds even if the platform is closed.
ICO Regulation in the USA
ICO regulation in America began in 2015. It was then that the Exchange Futures Commission first called cryptocurrency a commodity.
Due to the specifics of the US state structure, legislative acts on the same issue in two neighboring states may differ greatly – it is enough to recall the situation with the death penalty.
Therefore, the Uniform Regulation of Virtual-Currency Business Act (URVCBA) has been issued at the federal level. The act is intended to unify the approach to the regulation of the crypto market throughout the country, so that states do not go “who goes into the woods, who goes for firewood” in legislative initiatives.
To control token sales, the American Securities and Exchange Commission created a cyber unit in December 2017, which successfully combats fraud in the field of crowdsale.
ICO Regulation in China
The government of this republic has taken a pretty tough approach to crowdsales. Back in 2013, the People’s Bank of the country banned legal entities from conducting operations with cryptocurrency. In 2014, it was ordered to close the accounts of 15 companies engaged in token trading.
In 2017, the People’s Bank banned crowdsales on the territory of the country, arguing that a large proportion of procedures are fraud and financial pyramids. The Chinese government is systematically squeezing the crypto industry out of the country, and a ban on mining has been introduced.
The purpose of these repressions is to clear the way for their own national cryptocurrency. Since 2019, the introduction of the “digital yuan ” has been launched. Work on which has been underway for several years.
Testing of the currency is planned to be carried out during the 2022 Winter Olympics, which will be held in China. According to some estimates, Chinese bitcoins will even be able to compete with the dollar. However, experts of the digital community consider the actions of the authorities on repressive regulation of ICO a big mistake.
ICO Regulation in Japan
The Land of the Rising Sun is a high—tech state. In addition, it was their citizens who invented bitcoin. Therefore, the regulation of crowdsales in this country is now set well, despite the fact that the law legalizing cryptocurrency was adopted only in 2017.
Now the necessary mechanisms are prescribed in the financial legislation of Japan, and the turnover of bitcoins is clearly regulated. The control is carried out by JFSA, the national financial regulator.
Japanese legislation considers bitcoin not a commodity or property, yet a means of payment. Quite official, but different from ordinary money.
To conduct an ICO, you need to register a company in Japan and comply with the requirements of the legislation on exchanges and securities.
If the company plans to constantly engage in operations with cryptocurrency, additional registration with the financial bureau is required.
The situation with crowdsales in the whole world
If you describe in detail the situation with ICO regulation in all 195 countries of the world, you will get a real encyclopedia. In general, experts divide all states into three types — “bears”, “penguins” and “bulls”. The latter category includes the countries most loyal to token sales:
- Japan,
- Australia,
- Singapore,
- Switzerland,
- Luxembourg,
- Cayman Islands,
- The overseas Territories of Great Britain are the Isle of Man and Gibraltar.
The “bears” include states that are in the process of developing legislation on the regulation of ICO. Some impose a complete ban on crowdsale, others try to control these processes by making them transparent. These countries include:
- USA,
- Great Britain,
- Canada,
- Hong Kong,
- Malaysia,
- South Korea.
The last two states are the most irreconcilable of the “bears”. The governments of China and South Korea, instead of regulating ICOs, prohibit them in principle, considering them fraudulent schemes. So it’s not worth doing crowdsale in these states.
Especially in China, where the death penalty is imposed for 69 types of crimes, including fraud with financial instruments.
Penguins include states that have not yet decided on their attitude to the release of new cryptocurrencies. These are Russia, India, the UAE and the EU countries. Of course, the classification is conditional. Some of the “bears” have a fairly loyal policy of regulating ICO. But there will be no problems with the bulls for sure.
For example, in the Cayman Islands or Maine, you can do crowdsale quietly. Since these territories are world famous offshore companies, the ICO is quite possibly the least criminal activity that is conducted there.
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