ICOs have taken the world by storm, and are now by some distance the most efficient method of funding the development of new Blockchain start-ups. Since Ripple became the first cryptocurrency to be distributed by an ICO in early 2013, the Blockchain technology and the accompanying cryptocurrencies have gone from strength to strength, and the Ethereum platform has risen to prominence as the mainstream platform of choice for the development of new ICOs.

The process bears similarities both to crowdfunding and the Initial Public Offering (IPO) mechanism, whereby a newly listed company sells its stock to the public.

Essentially, organisers of an ICO attempt to sell an idea to the public. They do so by offering up their own token, which generally represents future benefits or access into the services being developed by the organisers.

Typically, an ICO occurs as an event over a period of time, during which the public is allowed to purchase newly issued tokens in return for cryptocurrencies with higher degrees of liquidity, such as Bitcoin. Participants in the ICO will transfer their cryptocurrency to a smart contract which will manage the funds, and depending on whether the fundraising event reaches its pre-established goal or limit for funding, the funds will automatically be transferred to the organisers of the ICO.

If, however, the ICO fails to reach the target amount of funding, the smart-contract regulated by the standard ERC-20 procedures of the Ethereum network will immediately self-execute – with no human intervention required whatsoever – to return the funding to the participants. This completely reliable and efficient mechanism is emblematic of the trustworthiness of the Blockchain technology which underpins ICOs.

The question we often get asked by entrepreneurs looking to set up their own ICO is, where do I start?

The short answer is: get a lawyer.

It is a common belief that ICOs are not regulated at all and exist beyond the reaches of present legislation. This could not be further from the truth.

While ICOs are a relatively new phenomenon and thus have not been directly legislated for, there are certainly many rules, laws and directives on a local and European level which can in certain circumstances apply. If carried out without the correct legal guidance, ICOs can attract the application of legislation intended to cast a wide net, such as the Maltese Investment Services Act. This will trigger a deluge of legal obligations which the ICO organisers may not be prepared for.

Setting up an ICO on the basis of your idea is a considerable undertaking, and requires a serious investment of time, money and resources. A detailed legal analysis and opinion should be a crucial element of your R&D stage prior to investing substantial funding into an idea.

Here at DZ&A, we take pride in our personal approach to legal services, and can comprehensively guide you from the inception stages of your idea to the finalisation and actualisation of your ICO through the following services;

  1. Thorough legal analysis of Maltese legal and regulatory infrastructure, its suitability to the needs of the client and the relevance of the imminent promulgation of the Maltese Virtual Currencies Act and the TAS Bill on Technology Service Providers;
  2. Legal analysis of ICO White Paper to ensure protection from liability and compliance with local jurisprudence and EU law;
  3. Legal opinion and advice on issue of tokens to ascertain application of MiFID and ISA;
  4. Drafting of terms and conditions for participation in ICO;
  5. Formation of a company structure to hold ICO assets;
  6. Drafting and preparation of legal documentation necessary to the company structure particular to the needs of the ICO and its founders;
  7. On-going legal advice on the ICO and related issues.

We endeavour to provide tailor-made legal advice on how best to structure your ICO and the idea or service you are basing it upon, in order to ensure that your path to success is a smooth one.