Should ICOs be regulated?

SEC compliance could be the future of successful ICOs

This is a contributed piece by Tiana Laurence, investor, founder and author of Blockchain For Dummies. [Read an interview with Laurence and extract from Blockchain For Dummies here.]

Is now the time for your startup to have an Initial Coin Offering (ICO)? ICOs are the latest trend in fundraising, thanks to blockchain technology and cryptocurrency. It is possible to raise millions of dollars overnight without selling equity or indebting your company. It is almost too good to be true, but it is our reality. To be fair, many entrepreneurs put a lot of work and effort into creating their initial coin offering (ICO), and they are going to change the world with the innovations they build. But, there is a catch.

Right now, ICOs come and go without any regulation. That means there can be a legit startup behind it or it can be driven by fraudsters waiting to take the money and run. Thus, the onus is on the potential investor to research for validity. Unfortunately, there aren’t many foolproof ways to verify this, and in fact, ICO fraud is particularly easy to execute because the swift nature of cryptocurrency transactions.


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Governments, venture capitalists, regulators, and entrepreneurs are rushing in to plant their flag. But entrepreneurs that went through the early days are scared and for a good reason. The CEO of the bitcoin exchange, BitInstant spent two years in jail and Ross Ulbricht, the man who created Silk Road, was sentenced to life in prison. Many people that broke new ground for Bitcoin went to jail, and the ICOs of 2017 have raised the stakes significantly.

Now again, we are looking at an industry that is breaking new ground and is difficult to navigate. One of the many challenges that regulators are facing is how to categorise these new assets. In regards to ICOs, it could be a currency, security, commodity, or all of the above at one point in its lifetime and depending on the intent of the investor and the development stage of the platform. This means creating laws for them is complicated and confusing.

The SEC has sprung into action however to protect investors. They are putting out warnings regarding ICOs and cryptocurrency to investors. Then with a warning shot to the blockchain community, "sales of digital assets by ‘virtual’ organizations are subject to the requirements of the federal securities laws" . But these warnings from earlier in the year have been mostly ignored. The SEC has now charged a businessman and two companies with defrauding investors. And regulators are just getting started, mega raises like Tezos have Switzerland’s Financial Market Supervisory Authority (FINMA)  investigating them.

Fortunately, compliance doesn't have to be a trial-and-error journey for everyone. Industry veterans are already looking ahead at how to best efficiently and safely bring ICOs into the financial mainstream. t0, a subsidiary of Overstock has crates Alternative Trading System (ATS) for ICO that they claim complies with SEC and FINRA. This platform will open the gates for traditional investors into this new asset class.

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The ultimate solution to ensuring the stability and acceptance of ICOs is to run towards regulation, not away from it. To achieve that, blockchain veterans are examining how their own technology can be used to help would-be innovators conduct an ICO and stay in compliance. Two such examples of this type of innovation are:

●      CoinCart: CoinCart by BTC labs presents itself as a turnkey ICO issuance platform. CoinCart’s goal is to allow users to raise capital and issue tokens securely without a third-party custodian. Through bank-grade infrastructure, users can sign investor documents, approve investors based on Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols, collect funds in multiple cryptocurrencies, and distribute ERC20 tokens of purchaser information through a single platform.

●      Polymath: Canadian-based Polymath is designed to help ICOs expedite across an end-to-end process -- creating, issuing, and raising funds. Polymath projects going beyond handling the process to becoming a guide for organisations. With the complicated nature of ICOs -- both functionally and legally -- successfully going from start to finish can be frustrating, difficult, and confusing. Polymath’s services enable a smooth token launch that ensure compliance.

It is clear that ICOs are here to stay, yet there remains a danger of the entire industry being pushed underground by government regulations designed to protect investors from fraudsters. The only way to move forward successfully and safely is to take appropriate measures. By considering all of the legal implications of compliance, ICOs can help usher in a new era of investing, one that is faster and more efficient than ever before, all while delivering the same sense of security guaranteed by the United States government.