International Regulations Regarding ICO (Initial Coin Offering) 27 December 2018
Initial Coin Offering (“ICO”) or the system that entered our legislation as Crowd Funding is drawing attention as a system that is becoming increasingly spreading as economies become more digitalized and globalized with technological advancements. Although it is similar to the existing Initial Public Offer (“IPO”) system, ICO is giving virtual currency to the investors for their investment to provide the fund that project or a venture company needs rather than stock certificate as used in Public Offering.
ICO basically begins with preparing a detailed report describing the projects and investor commitments of those who want to provide the funds needed by their projects or venture companies. In this report; advantages offered to the investor, the object aimed with the funded project and how the system works to the investor should be explained in a detailed and clear manner in order to arouse interest of investors. Afterwards, the potential earnings of the investors, if the project is successful, are coded with smart contracts created by entrepreneur. Subsequently, a virtual currency is created by the entrepreneur and his virtual currency is fixed to one of the commonly used virtual currencies to form a certain exchange rate like Bitcoin, Ethereum etc. The investors have the promised earnings in the event that sufficient funding is provided by the investors and the project succeeds. In this sense; since ICO is still a very new and developing system, it is considered to be a system that brings success in proportion to the experience and promise of those who wants to provide the needed funds for their projects or their venture companies. Since the entrepreneur has a full freedom on the promise offered to the investors, the project has a greater chance of being preferred by the investors and to become successful if the entrepreneur prepares a unique and remarkable project to attract the investors.
ICO has advantages like being unmediated, transparent, 24 hour continuous operation and easy accessibility, as well as risks such as being unreliable and fraud risk since it is not controlled by a central organization. Moreover, ICO is a very new system and its legitimacy is still debatable because of the lack of legislative regulations in countries. Within that respect, the countries such as China, USA and Russia make declarations against the ICO’s while some countries declared that each ICO can be evaluated according to the existing regulations regarding the nature of promised virtual currency. In this sense; it is accepted that if the promised virtual currency is a security, it will be treated within the scope of existing Public Offering provisions whereas if the virtual currency is not a security, it will not be considered as an electronic currency but will be regarded as a “good” since it has a certain material value.
On the other hand; ICO has taken its place in our legislation under the name of Crowd Funding with an amendment on the Capital Market Law. With the enactment of the said regulation, it is considered that ICO will be regulated in detailed together with the possible secondary regulations issued by the Capital Market Board.