ICO Law 101
Blockchain Guide

ICO Law 101

Initial coin offering (ICO) is a way of raising funds using virtual currencies such as Ethereum and Bitcoin has only been around for a few years. Nevertheless, it has become a popular method of funding, especially among blockchain-based startups. In the same period, various changes have taken place with the regulation of the sector with new laws being created regularly.

Launching an ICO involves spending a significant amount of time and resources on designing a product, searching for the right team, and marketing the entire idea among other essential things. Nevertheless, there it’s also important to consider the legal aspect of the project before launching it. Due to the newness of ICOs, different countries are at different stages of creating a legal framework. Consequently, the location of your project determines the laws you have to abide by.

ICO Regulation in the US

ICO Regulation In The US

ICOs have previously been abused by scammers forcing governments to find ways to regulate the sector. In the U.S., the Securities and Exchange Commission (SEC) regulates the financial markets. When an ICO is used as an investment product sold to the locals, it has to meet to conditions set by the regulator. The agency uses the Howey Test to determine in the ICO should be treated as a security with those failing being categorized together with the public stocks. It must meet strict securities law and be registered.

Given the new challenges that project leaders face whenever an ICO is categorized as a security, many try to avoid this classification. Some projects say that their coin is a utility token that will be used as a currency on the platform. This helps them to equate the virtual currency to a gift card or license. Others design it as a donation initiative to a non-profit group. Sometimes, these two options may fail to protect an ICO from being categorized as a security. Consequently, some people are excluding U.S. investors from participating in their ICO.

ICO Regulation In Other Regions

Regulations in the European Union are somehow similar to U.S.’s as they also closely consider the Howey Test’s guidelines. In Asia, there are different requirements in different countries. In Thailand, all ICOs must meet the conditions set by the country’s SEC which includes waiting for up to 90 days to get approval. It’s always advisable you operate within the laws where the project is based.

Lawyers Specializing In ICOs

As mentioned, more countries are coming up with new Crypto guidelines every day. Given the challenges of keeping yourself up to date while you are still engaged in the other aspects of your project, you should consider hiring lawyers specializing in ICOs. Such lawyers will ensure that you are always on the right side of the law.

AML and KYC laws

AML And KYC laws

In almost all jurisdictions, there are Anti-Money Laundering (AML) and Know Your Customer (KYC) laws. Under these laws, you should have your customers’ official ID and verify their identity by asking for proof of address. You should ensure the information is safely stored and should be provided to the authorities when necessary.

Patenting Your ICO

Sometimes you may consider patenting your ICO, especially if it’s revolutionary. Many blockchain based companies are not going this route. However, various legal experts are of the opinion that ICO white papers can be treated as an Intellectual Property Disclosure.

December 13, 2018

About Author

Samantha Mitchell

Samantha Mitchell Sam Mitchell is a ICO Reign contributor from South Africa. She lived in the UK and is now living in Australia. She comes to the team with extensive VA, Writing, and Social Media experience covering a wide variety of genres from book reviews, Whitepapers, blogs, guides to news pieces...and more. Sam has been a full time Freelance Writer for the past 14 years, working with many different clients.


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