Will countries or self regulation lead the Blockchain ICO game?
As ICOs become more prevalent in the realm of Blockchain ecosystem, and as the risk factor increases given the number of ICOs that has been created in 2017 alone, countries across the globe have taken different stances on the topic. First and foremost, the fact that ICOs have garnered double the investments of traditional VC markets shows that investors are willing to invest in any company anywhere in the world. According to Ernst and Young’s report, more than 372 ICOS raised $3.7 billion in funds.
At the moment, USA leads the ICO race with $1 billion raised in 2017, followed by Russia and China with $300 million. Overall spending on Blockchain is expected to reach $2.1 billion in 2018, which is double that of 2017 and according to IDC report, by 2021 spending on Blockchain is expected to reach $9.2 billion.
ICOs although a benefit to the Blockchain ecosystem as it provides funding for startups are still in the idea phase. ICOs are creating complexities and these complexities are now being reviewed by countries and regulators in a bid to ensure that markets don’t crash given that on average investors are pumping in $300,000 per second. Today, more than 10% of ICO funds are lost or stolen due to hacking which amounts to $400 million according to EY.
So what is happening today and which country will attract the most ICOs in the years to come?
If we take a look at the regulations, we quickly find that Europe for example allows ICOs as long as they adhere to the Anti Money Laundry and KYC regulations. Many countries which allow ICOs have also created regulatory ICO sandboxes such as in Canada, UK, Australia and others. Estonia for example allows ICOs as does Japan as long as again they follow AML/KYC.
In USA the situation is more complicated as there are 50 states but for the most part, ICOs need to be compliant to SEC regulations. In New York and Delaware for example, there is the Bitlicense where both have introduced a lot of Blockchain legislation.
Today it is agreed that both Switzerland and Singapore lead when it comes to ICO regulations. Most recently the Swiss Financial Market Supervisory Authority FINMA published set of legislation for the regulation of Initial Coin offering. FINMA is breaking ICO tokens into three categories: payment tokens, utility tokens, and asset tokens.
Recently, Gibraltar Financial Services Commission GFSC, came out with DLT regulation framework on Jan 1st 2018 which meant that any company using DLT to store and transmit value belonging to others now have to apply for a license at GFSC and adhere to 9 principles. According to a press release issued by the Ministry of Commerce Gibraltar, the government of Gibraltar and GFSC are now developing legislation relating to tokenized digital assets and draft legislation is being worked on and a bill is expected to come out in Q2 2018.
Following suite, Malta has established the Malta Digital Innovation Authority to create a framework for the certification of Distributed Ledger Technology platforms and related service providers as well as Virtual Currency Act. Maltese MP Silvio Schembri, discussed the establishment of regulatory framework for DLT to create a Blockchain economy. This is further supported by Malta Prime Minister Joseph Muscat whose desire is to the make the country a trailblazer in Blockchain technology. In April 2017, the Maltese cabinet approved a draft bill on the national Blockchain strategy and the creation of a new regulator for Blockchain technology. This is a first as no country has looked at Blockchain as a separate field and thought of creating a totally new regulatory body for it.
In recent week, the Maltese Parliament secretary for Financial services Digital Economy and Innovation invited responses to a consultation document on the establishment of an authority to be known as the Malta Digital Innovation Authority and the framework for the certification of DLT platforms and related services providers. Responses are expected no later than March 9th 2018.
In the forward by Parliamentary Secretary Silvio Schembri, he states, “We see great opportunities in DLT and digital technologies are keen to position Malta as the natural destination for businesses that operate in this space. Making changes in our legislative and administrative framework for Malta to become a leading jurisdiction in this area. We are proposing a framework that conceptualizes the creation of a new Digital Innovation Authority, the voluntary registration of Technology Service Providers and the certification DLT Platforms and related smart contracts such as Technology Arrangements. The framework also includes a regime, developed by the MFSA, for the approval of ICOs and the regulation of certain service providers dealing in VCs including brokers, exchanges, wallet providers, asset managers, investment advisors and market makers. The Discussion Paper on Initial Coin Offerings, Virtual Currencies and related Service Providers issued by the MFSA on the 30th November 2017.”
It would seem that Malta is taking a more wholistic approach in its regulation of DLT ICOs and is unlike others establishing not only legislation on the topic but also a new regime to handle DLT and any other future technologies.
However, it is not only governments and countries who are looking into the regulatory aspect but also Blockchain companies who are seeking what they call self-regulation. In December 2017, the Blockchain platform Waves launched a self regulatory body to set standards for ICOs Initial Coin offerings and Blockchain industry. Set to launch in early 2018, the association has participants including Deloitte CIS, ICO Governance Foundation, and Ethereum Competencies center. The body aims to set legal, tax, and accounting KYC and business due-diligence standards for the industry. Alexandre Ivanov, CEO and Founder of Waves Platform stated, “Regulations are clearly an emerging concern in the industry, we want a seat at the table to be able to shape the future of regulation in the ICO and Blockchain space.”
Others have created the Simple Agreement for Future Tokens SAFT project to streamline and verify investor accreditation process. It is an open source movement to converge a framework that gives rise to self regulated crypto currency market.
Whatever the form of regulation, it seems that 2018 will be the year that countries and the Blockchain community take on the issue of regulation seriously.