We have a Facebook group for entrepreneurs, investors and professional supporters of blockchain business ventures. This includes ventures implementing Bitcoin, other cryptocurrencies, ICO token offerings (such as Ethereum ERC20 tokens), other token platforms (such as Waves) or old-school stand-alone coin ICOs.
Legal issues of ICOs are discussed, among other topics.
Entrepreneurs, investors: cryptocurrency, blockchain, ICO business/startups
In years after Bitcoin was released, people developed other cryptocurrencies (called “altcoins”, because they’re not Bitcoin), usually based partially on the Bitcoin software, which is essentially open source and free to copy and modify. It wasn’t long before some altcoin developers realized they could raise startup funds by “pre-mining” (generating many coins, cheap or free, for the founders to retain) their coins before offering them to the public. Eventually, more generic platforms like Ethereum developed, which allowed much more flexible “contracts” to be developed without having to create an entirely new stand-alone altcoin (which involves a separate network of nodes running the altcoin’s software). The Ethereum ERC20-compliant token was born. You could think of it like a standard or template that works well for most token creations on Ethereum. So many startups are creating ERC20-compliant tokens to raise funds.
There’s just one problem. Most of these are seen by the law as securities, to some degree, and there are many laws strictly regulating the promotion, sale and trading of securities – not only on the US federal level, but in each US state also. Fleeing overseas to do business may not even save them, since the SEC (Securities and Exchange Commission) has a very “long arm” and finds ways to prosecute securities sellers outside the US too.
So what are entrepreneurs seeking crypto funding to do? Cryptocurrencies and tokens can function very efficiently and justly as securities or security-like things, but government seems to say “no”. There appears to be several legal options for conducting an ICO. We discuss some of them in the group, and feel free to correct or question us! We’re all here to learn and understand this complexity better.
Keywords: ICO law, ERC20, Howey Test, Initial Coin Offering