Blockchain and ICOs
We are specialized in implementing blockchain in companies and in launching ICO as a means of financing companies.
ICO, the new way of financing the company
ICOs are a new model of attracting capital for companies and startups. This new financing model makes it possible to raise capital more quickly and efficiently..
To launch an effective ICO, it is necessary to follow several phases:
1.- Development of a business idea and its economic model
Among them the publication of a “White paper” reflecting a previous study that includes:
- Viability of a business or idea.
- Protection of investors against fraud.
- Use of reliable technology and equipment.
- Establishment of a justifiable minimum and maximum funding requirement.
- Establishment of a regulatory framework that will be observed in any case.
- Principles of transparency.
- Management of expenses and financing.
- Liquidity that will be destined to the creators of the project.
- Presence of experienced people in the team.
From our experience, we consider that some projects do not meet the minimum viability required to qualify for an ICO. In other words, not every business and not every company can apply for an ICO as a viable business or idea.
2.- Legal development of the business
3.- Marketing campaign through an appropriate medium, fundamentally through the Internet
4.- Technical development of the project
5.- Generation and distribution of tokens
Tokens are a new digital asset that can carry rights, obligations, etc.
The tokens can be programmed for different purposes, for instance, we can refer to these types of tokens:
- Tokens-Shares, considered as crypto-shares of the company.
- Credit tokens: considered as short-term credits in exchange for an interest rate.
Ico y blockchain
The key that distinguishes ICOs is the Blockchain technology behind it. It is a technology consisting of a chain database, published and with time stamps to avoid modification. These data are transmitted in a decentralized manner between users. In addition, its correction is automatically verified with the set of users who receive the information. This prevents such data from being falsified.
Regulation of ICOs in Spain
Initial Coin Offering (ICO) is not expressly regulated in Spain. However, the following rules would apply:
- Royal Legislative Decree 4/2015, of 23 October (Securities Market Act).
- Royal Decree 217/2008, of 15 February (Investment Services Act).
The CNMV and the ICOs
The ICO could be found in the concept of negotiable security of the Securities Market Act as stated in article 2.1 which establishes that:
“Any right of patrimonial content, whatever its denomination, which by its own legal configuration and transmission regime, is susceptible to generalized and impersonal traffic in a financial market, shall be considered a negotiable security.”
The CNMV, in its document published in February 2018 “Considerations of the CNMV on “cryptocurrency” and “ICOs” addressed to professionals in the financial sector”, highlighted the conditions to be taken into account when considering a cryptocurrency issued through an ICO as a negotiable security.
Securities issued through ICOs that may be considered negotiable securities are subject to the Securities Market Act and other regulations, such as MiFID II and the Prospectus Directive.
The cases in which an ICO in Spain may not be subject to administrative control are very limited. For example, it could be an ICO in which tokens are offered in exchange for a certain product; that does not meet the requirements to be a public offering; and that it is not offered as a way of obtaining an asset that is going to be revalued or that can be traded in a secondary market.
Legal treatment of Cryptocurrency
- Is a “virtual currency with bidirectional flow”.
- Is exchanged for traditional currencies in currency exchange operations.
- “Cannot be classified as tangible asset” because its sole purpose is to be “a means of payment” (paragraph 24).
- Is a direct “means of payment” between the operators who accept it (paragraph 42).
- Is categorized as a “non-traditional currency”, which differentiates it from currencies which are “legal means of payment” in one or more countries, and it is indicated that its operations may constitute as “financial transactions” if they have been accepted by the parties as alternatives to legal means of payment (paragraph 49).
What is cryptocurrency in the European Union from a legal perspective?
The Fifth Directive introduces point 18) to Article 3 of Directive (EU) 2015/849 of the European Parliament and of the Council on 20 May 2015 where it establishes the definition of cryptocurrency in the following manner:
“Virtual currencies: means a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically”.