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New study highlights major country differences in the regulation of bitcoin, blockchain and initial coin offerings

A new study has highlighted major differences in the way bitcoin and initial coin offerings (ICOs) are regulated across the world.16 Nov 2017

The study, carried out by Pinsent Masons, the law firm behind Out-Law.com, found that financial regulators differ over how best to address risks in the use of digital currencies, particularly bitcoin, and ICO investments.

According to the report, 'Bitcoin, blockchain and initial coin offerings: a global review', countries, such as Japan are looking to require cryptocurrency exchanges and remittance operators to be licensed and subject to annual audits, while other countries, like Russia, have announced their interest in issuing their own national cryptocurrency – the 'cryptoruble' – which will be issued, controlled and taxed by the state.

With regard to ICOs, while some prominent economies such as China and South Korea have moved to ban them, other countries have positively embraced what has become the hottest way for businesses to raise funds, the report said.

Charlie Clarence-Smith, a solicitor who specialises in financial products, payment services and financial technology said: "In October, Taiwan’s Financial Supervisory Commission expressed its support for mainstream ICO adoption as well as cryptocurrencies and blockchain. The Taiwanese parliament is expected to pass the Financial Technology Innovation Experimentation Act to support the government’s action. Under this new legislation, all financial technology activities and blockchain start-up companies will be allowed to freely operate in the country’s deregulated industry."

Regulators in major financial markets such as the US, Hong Kong, Singapore and the UK outlined their views on ICOs earlier this year, some in more detail than others, while some of the most recent statements have come from New Zealand's Financial Markets Authority (FMA) and the Financial Market Supervisory Authority (FINMA) in Switzerland. On 14 November, the Monetary Authority of Singapore (MAS) released a new guide to digital token offerings which sets out its new ICO regulatory framework.

Businesses have been raising money through ICOs. Businesses will develop a digital token, which could represent any digital asset or digital currency, and look to sell those tokens to investors in a bid to raise capital in return for existing cryptocurrency, such as bitcoin, ether or litecoin rather than fiat currency such as dollars, euros or pounds. The trade of these tokens is recorded using blockchain.

Investors may be further incentivised into buying the tokens by being given the opportunity to share in profits generated from the business ventures that benefit from their investment. 

Clarence-Smith said the latest developments with bitcoin, which recently reached a record high value of $7,800, and the growth in interest in ICOs, show that cryptocurrencies have potential to be more than just a fad.

"Bitcoin and ICOs have stood firmly in the public eye for the last nine months," Clarence-Smith said. "Like other innovative ideas, even if they lose relevance, cryptocurrencies and ICOs have made an indisputable statement: there are achievable substitutes to institutionally backed digital transactions and alternative ways to raise funds. Their broader acceptance and legitimacy, however, will depend on what form of relationship they forge with such institutions and more importantly financial regulators, going forward."

Clarence-Smith's report, which features analysis of the regulatory positions on bitcoin, blockchain and ICOs in 65 jurisdictions, is available to download.

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