In more recent times, many start-ups have started building their entire businesses on blockchain technology as it continues to evolve. However, instead of relying on public stock markets or venture capital to raise funds for their company, several businesses are now looking to cryptocurrencies, which have been on the rise substantially.
In the past two years, the number initial coin offerings (ICOs) appearing on the market scene have equally been on the rise astronomically as it has become a recent technique of funding start-ups or blockchain-based development plans. This process is otherwise known as tokenization, whereby new digital tokens or coins are issued.
While new ICO projects keep popping up, with the potential of raising hundreds of millions of dollars—if not billions; only those that will be able to provide their investors with tangible financial results will be able to remain on the market this year. How can this be achieved?
If you are legitimately seeking to conduct your own ICOs, it is important to understand the guidelines issued to ICO creators by regulators of crypto projects so as to avoid problems with launching ICOs in 2019.
While cryptocurrencies and blockchain offer many solutions that are likely to disrupt numerous industries with some profound implications, there have been some problems associated with them, such as a lack of efficiency and scalability, the complexity of management and compatibility, as well as security vulnerability.
Therefore, a majority of experts have agreed on the need to reform the market and then introduce new regulations so as to help projects realize their full potential and also attract investors to the ICO industry.
However, regulation seems to be one of the major challenges militating against the proper launch of ICO, because if you accidentally break any of the established rules, depending on the jurisdiction, you may face punishment or even a total shutdown.
Still, if the laws are correctly applied, you may still be required to remit over half your earnings in taxes, especially if you are operating in a country like Japan. So when it comes to ICOs or the use of tokens and crypto assets, which countries are known to have the most lenient laws? Which jurisdictions are tough on them? Read on!
5 ICO-Friendly Countries
Below, are the lists of best countries to hold an ICO project:
Without a doubt, Switzerland is one of the main hubs for an ICO launch as it is considered legal once the company registers with the Swiss Financial Market Supervisory Authority (FINMA). Known also as the Crypto Valley, it offers regulation security, investor protection, reasonable tax rates, as well as ICO-friendly policies.
All of these have attracted several successful ICO campaigns. In 2017, the four largest ICOs hosted in this country were, Tezos, Bancor, Status, and the DAO. In 2018, SwissBorg, a Lausanne-based FinTech startup raised US$54 million in its ICO.
Singapore is leading the way with a high number of prosperous ICOs, hence this Asian country is hard to ignore. Why is Singapore considered the most friendly jurisdictions for an ICO?
The Monetary Authority of Singapore (MAS), although it has warned investors of possible risks, issued a clarifying guide for the regulation of token sales as well as ICOs, explaining when ICOs are to be considered as securities and when not.
Their aim is to look for ways to make operations safer for investors rather than instituting outright bans on crypto-related activities.
As of November 2017, the Baltic States, Latvia, Lithuania, and Estonia have all committed themselves to supporting blockchain development technologies, following one another in ICO regulations.
As per a Memorandum of Understanding (MoU), local governments wish to comply in order to enhance regional capital markets. With continuous support from the government for ICOs, as well as competitive tax rates, (tax rate for corporations is 15 percent) Lihuania is at the forefront of an ideal jurisdiction.
Organizing an ICO does not require regulation, however, it is advised for startups to consult the Bank of Lithuania/Estonia and register their company before launching an ICO.
Another beautiful and advantageous place for hosting an ICO! This country has positioned itself as ICO-friendly. Back in May 2017, the country’s Prime Minister, Joseph Muscat, announced that Malta would become one of the first nations in the world to fully embrace blockchain technology.
Today, Malta offers an attractive ICO-hosting platform encompassing all steps of an ICO launch, starting from the token formation and ICO development plan to investment security. While the launch process can take some time and effort, the advantages are obvious.
Startups can especially benefit from the taxation policy of 5 percent for foreign entrepreneurs, with 0% on certain token models, office space, and above all, all ICOs are legally protected.
As an advocator of cryptocurrency, Russia appears to be another option for ICO launches as the country allows blockchain activities. For startups, getting their operations running isn’t hard or expensive as it requires less than $200 USD. Additionally, the tax rate for corporations is 20 percent although Russia charges crypto investors only 13 percent.
While there is no regulation currently in place, ICOs and crypto-related activities are subject to future regulations. However, token registration, taxation, and security compliance are already in place according to orders issued by the Kremlin.
Russia has hosted a high number of successful ICOs that have raised more than $10 million in the token sale. The country continues to be a hotspot for ICOs and blockchain innovations.
Meanwhile, the chart below shows a list of other ICO-friendly countries where ICOs have raised over $10 million.
10 ICO-Unfriendly Countries
Below, is a list of countries that have cracked down on ICO and crypto-related activities. Knowing these countries is an essential part of doing due diligence on any business with cryptocurrencies.
Algeria: Banned: Algerian Law, as of December 28, 2017 prohibits the purchase, sale, use, and holding of virtual currency.
China: Banned. Crypto trading and ICOs banned for all businesses and individuals by order of the People’s Bank of China (PBoC).
Ecuador: Banned: However, Ecuador is currently developing a national altcoin so that it would become independent of the American dollar.
Macedonia: Banned. Use of altcoins as payment may incur imprisonment.
South Korea: Banned
However, choosing the most suitable country for the launch of an ICO is not sufficient for a successful campaign, since external regulators such as the SEC and CFTC play a major role in influencing the ICO.
Other Important Factors to Consider
In the meantime, blockchain developers in 2019 need to put a few more factors into consideration since they are influenced by the decisions made back in 2018 by the US Security Exchange Commission (SEC).
The first factor is that the US regulator has decided to treat any issued token of the decentralized network as security. The second factor is the fact that many people are still waiting for the decision of the SEC regarding Bitcoin Exchange Traded Fund (ETF) as many applications for ETFs have been rejected by them.
The third important factor to keep in mind is the compliance of the blockchain technology with a number of provisions of the new EU data protection and privacy laws, the General Regulations for the Protection of Personal Data (GDPR), which was implemented May 25, 2018.
As required by the EU’s GDPR, companies holding personal information, such as a person’s name, address and religion, should inform the authorities when they suffer a breach – or face stiff penalties and fines.
2019 Innovations to Expect From Regulators
As a result, 2019 is likely to be a year of action in which a collaboration of regulators from different parts of the world is expected. Therefore, you can expect anonymous cryptocurrencies to be banned, some of which are Dash, Monero, ZCoin, and ZCash.
What is more, decentralized crypto exchanges that allow trading any tokens and coins without reporting to the authorities are expected to come under intense pressure in 2019. Earlier in 2018, some regulators have even proposed criminalization of authors of incorrect operation of the smart contract code.
On the bright side, however, ICO campaign will be successful in 2019 if the project should have the following five major components:
- Excellent tokenomics
- Legitimate business model
- Thoughtful and popular product
- Good marketing
- Set a clear market entry strategy.
Last year, regulators were proactive in matters of ICO, as well as reforming existing laws or creating new ones in most countries. Meanwhile, there is a high risk of investing in ICOs and crypto projects and this has been agreed upon by all financial supervisory authorities.
While they are actively talking about this along with regulatory measures, this trend has given rise to the downturn in the ICO market as well as the decline in cryptocurrency rates. Hence, launching an effective ICO in 2019 calls for the consideration of changes and the future direction of global regulation.
For example, while Malta and Switzerland are making plans to reduce barriers when participating in investment projects, Russia and China are in looking to apply national regulatory policies in order to protect state influence. The United States and Britain are in talks regarding compliance with laws that are generally accepted as well as practices for the protection of consumer rights and the maintenance of financial stability.
The United States and Britain are in talks regarding compliance with laws that are generally accepted as well as practices for the protection of consumer rights and the maintenance of financial stability. In addition, all market participants should expect strengthening regulatory requirements for Know Your Customer (KYC) procedures at the national level.
Further innovations that should be expected from regulators in 2019 also include the following:
- Emergence of local regulation hubs
- Development of new financial cryptocurrency tools
- Development of the coin supply methods, such as STO
- Tokenization of securities
- Synchronization of services
- Licensing of STO activities
- Global creation of crypto regulation mechanism for international and regional levels