TECH

Blockchain is promising technology but ICOs are a major challenge for regulators

The popularity of digital currency is something that has been growing exponentially, and this was proven in last year's edition of the Web Summit when journalist Joon Ian Wong, moderator of the panel "Cryptocurrencies 101: Bitcoin, Ethereum and everything you need to know" started for asking who of the gifts had bitcoins and ethereum, the more known crypto-coins.And if crypto-coins and blockchain technology generate excitement, they are also the target of some mistrust and confusion between investors, entrepreneurs and even regulators who, given the volatility and lack of consumer protection, have issued a number of warnings about the risks of " digital coins ".

Also the great financial phenomenon that the Initial Coin Offering (ICOs) have deserved special attention from several companies that see in this format an interesting financing option and the regulators, whose reaction to the ICOs are very different.

"The ICOs present a major challenge for regulators, and there is no global consensus on what the legal qualification of tokens and, consequently, what legal requirements the ICOs should be subject to," explains lawyer Ana Nunes Teixeira in an interview with SAPO.The PLMJ law firm associates that there have been very different reactions from regulators to the phenomenon that has become one of "a means of obtaining funding from the public through the creation and issuance of digital value representations "tokens" or "coins") using decentralized data logging technology called "blockchain"...said Ana.

Ana Nunes Teixeira points to the disparate examples of China and South Korea, where there was an "absolute ban on the launching of ICOs and the realization of criptomoedas transactions due to their disruptive effects on the economy" and the United States of America where there is " that certain tokens, depending on their characteristics, can be considered as transferable securities, thus passing the ICOs that issue those tokens to be considered activities subject to financial legislation. "There is also a "Bitcoin-friendly" stance, through the "creation of legal monitoring mechanisms for ICO issuers (as in Switzerland and Singapore)," he concluded.

However, regardless of the diversity of rights and features conferred by tokens and leading to the existence of ICOs with very different characteristics from each other, or from the continuous evolution of blockchain technology underlying them, the lawyer reveals that there is a common point to follow.

"Investor protection should be one of the main guidelines for the regulation of ICOs and the adaptation of existing legal institutes to these new realities, and it is essential that legislation accompany technological innovation in industry in order to allow companies to benefit from these new means of financing, boosting its competitiveness "...said Ana.

But what are the biggest fears and precautions investors should have? In addition to extreme volatility and market bubble risk, the absence of specific regulation of the activity and its vulnerability to fraud or illegal activity is also one of the risks identified by regulators for investors who wish to invest in ICOs.Ana Nunes Teixeira also points out the lack of information available to investors in the white papers (a document that contains a technical description of the product or service to be developed, an indication of the minimum amount to be raised and the period in which the tokens can be subscribed ), the risk of loss of the total capital invested by virtue of the initial state of the project financed and the potential for failures in blockchain technology, which is still under development as factors of concern.Notwithstanding all these points, the PLMJ associate highlights the potential of blockchain technology in the financial sector, whose operation through the ICOs can function as an alternative for companies at a time when it is more difficult to access other means of financing."The ICOs can contribute to filling a gap in the funding gap (the so-called funding gap), which consists in limiting the funding available to companies that are between the initial phase of seedfunding and the next phase, of early stage, and therefore did not have sufficient income to be attractive to investments "series A".



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