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ICO and Bitcoin, Some Specificities

The modern world, with varying degrees of development of countries, i.e. states, can be described as a paradoxical place in which on the one hand there is a struggle for minimum decent living conditions of a human being, while on the other hand technology offers opportunities that we could hardly imagine – digitization is currently marching with huge steps. As we have already mentioned in the earlier texts related to blockchain, ICO and crypto-currencies, in this text we will address some other aspects that have also attracted our attention, with the intent to continue to monitor all these phenomena from the legal point of view.

In the previous text we dealt with the issue of ICO and the legal status of the same – whether it can they be considered as securities (classically speaking, bearing in mind the traditional definition) as well as how certain countries treat this phenomenon. What arises from the various positions of the states that have declared themselves in relation to ICO is a conclusion that on the question on whether the ICO is permitted it can be answered – perhaps it is. The grey zone that arises in the circumstances of the ICO and the crypto-currency is the one that suits them, but of course, it introduces certain doubts and uncertainties, at least from the point of view of most average people. However, the attitude of regulators in the United States is quite interesting, in particular the USA Securities and Exchange Commission (SEC), according to which federal securities laws apply to those who offer and sell securities in the United States, regardless of the fact whether the issuer is a traditional company or a decentralized autonomous organization, then regardless of whether the securities are purchased by US dollars or virtual currencies and finally regardless of the fact whether they are distributed in a certified form or through a distributed ledger[1] technology.

According to the position of the US Securities Commission, issuers of tokens in relation to the distributed ledger or blockchain technology must register the offer and sale of such securities, except in cases where there are valid exceptions otherwise they are liable for breach of the law. The purpose of such a registration is to ensure that investors are provided with necessary information and protection by the regulator. The innovative technology that stands behind these virtual transactions does not relieve the supply of securities and trading platforms from a regulatory framework designed to protect investors and market integrity. Interestingly, ICO’s tokens are designated as securities, but the status of Ether is vague. Here it is necessary to point to the so-called Howey test, which serves for the purpose of determining whether some transactions are considered securities. Namely, deciding in the Howey case, the Supreme Court has established a test that deals with the substance of the investment, and not with its form, as a decisive factor in determining whether it is a security. Even if an investment is not designated as shares, stocks or bonds, it can be a security in accordance with the law, and therefore subject to to certain registration requirements. This is the case with ICO tokens.

The legal regulation gradually takes a step with galloping technology, trying not to react sharply and falls into its own trap of definitions and regulations, and in this way its slow progress still creates a flexible market and so called a grey zone. In this grey zone, there are some unwanted sides of these technologies. Thus, Ransomwareis also a type of malicious software that denies the user access to the computer and requires the payment in order to remove placed restrictions, where the payment is required in Bitcoins, a suitable market for prohibited substances, and the possibility of unauthorized access. Definitely, blockchain technology is the safest but no secure technology. However, who and what in this world do not have defects?


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Milica Karadza's picture

Milica Karadza is an Associate employed by the Law Firm SAJIC since 2014. Milica graduated from the University of Banja Luka School of Law in 2012.

In addition to public procurement and public-private partnerships, Milica's practice is focused on M&A, affairs related to funds (domestic and foreign), banking law construction law, environmental protection, then deals with matters in the field of electrical, chemical, rubber and non-metal industries.