Regulating Initial Coin Offerings and Cryptocurrencies: A Comparison of Different Approaches in Nine Jurisdictions Worldwide

Abstract

Initial Coin Offerings (ICOs) and cryptocurrencies are applications of blockchain technology that offer many benefits. ICOs are increasingly used by companies for crowdfunding, allowing start-ups to find investors. Cryptocurrencies allow cheap, fast and straightforward international money transfers. However, along with such benefits also come risks, like volatility of cryptocurrency rates, abuse by (cyber)criminals, and other risks and uncertainties for investors. Governments across the globe are struggling with the question whether and how to regulate cryptocurrencies and ICOs. The technologies and applications are similar in different jurisdictions, but the responses of legislators, regulators and supervisory authorities widely differ. In this article, we investigate the regulatory responses to cryptocurrencies and ICOs in nine jurisdictions worldwide. The aim of investigating different approaches towards regulating cryptocurrencies and ICOs is to identify different approaches, to make a comparison between jurisdictions, and to identify potential good or best practices. The nine jurisdictions that are compared in this paper are Australia, Belgium, China, Estonia, Japan, Switzerland, The Netherlands, the United States, and the European Union.

It is concluded that all the jurisdictions investigated do have legislation that is applicable to ICOs and cryptocurrencies. However, big differences exist in the extent to which the legislation applies and is regulated by the national supervising authorities. Generally speaking, most legislation of the investigated jurisdictions consists of financial markets legislation (including that of securities), anti-money laundering legislation, and consumer law. The approaches of the countries investigated differ from a negative, forbidding approach (such as in China, which has launched an ICO-ban and is obstructing trade in cryptocurrencies) to a positive and facilitating approach (such as in Australia and Switzerland, where the aim is to promote innovation). Although this paper does not assess which method of regulation of ICOs and cryptocurrencies can ultimately be qualified as best strategy, we conclude that a positive and facilitating approach offers more opportunities for investors and innovative companies. However, this approach requires a clear and detailed legislative and regulatory framework for all parties involved in the establishment, issuing, storing or trading of cryptocurrencies and ICOs. Such a framework should at least provide boundaries with regard to money laundering and other common forms of cybercrime. Moreover, it should provide some sort of consumer/investor protection and clarity when it comes to tax liability. A legislative and regulatory framework that provides all these aspects will prevent abuse and may enable governments to intervene when issues occur.