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ICO Projects, Products and Tokens

Since we have already written about cryptocurrency, the legal status of the same and the ways in which other jurisdictions regulated this area, we will now write about Initial Coin Offering (ICO). 

As we previously defined the ICO, as an unregulated method of fundraising to secure a new project through a cryptocurrency, we have also found that the core of the problem (some would even say advantage) lies in non-regulation. Therefore, in this text, we will pay more attention to the emergence of ICO, then ICO products, tokens, potential directions of development, and finally whether its application will find an adequate place in today’s legal system.

Initial Coin Offering projects have emerged along with the rapid development of cryptocurrencies and blockchain, and the very first problem arose in their definitions, actually in a question whether they, as such, issue their own cryptocurrency in exchange for new money or the same can issue any cryptocurrency. Why is it significant? Precisely because, for example, the Chinese industrial regulator considers that in that way new digital money is issued, while in accordance with its regulations, governing currency and the market China prohibits issuance of cryptocurrencies through ICO projects. On the other hand, the relevant regulators in the United States consider that issuing refers to new tokens or vouchers that have their nominal value in already known currencies. It is precisely for this reason that the US allows ICO projects to function despite the lack of clear rules, but lead by the fact that their status is not fully defined yet there is no basis for taking any measures against the same. The reason is mostly related to the fact that the majority of these companies can legally bar themselves by a prominent disclaimer of liability, the rules of use, and the emphasis on noting that ICO products are not securities.

However, the reason why we often associate ICO products with securities is that those who invest become ICO projects investors, and the fact that very success of an ICO project and its profitability depends on the performance of the company that issues cryptocurrencies. Therefore, in the same way as joint stock companies can raise capital by issuing shares, ICO projects can attract their investors by issuing a token, where the same represents a kind of digital certificate of ownership over shares. In particular, with the token, we prove we are owners of the amount, percentage of assets, money, cryptocurrency or any other property. Most ICOs are launched through the Ethereum platform. They are programmed and released on the Ethereum virtual computer in the form of a smart contract, which then serves to raise funds and, in return, the investor gets a share or promise that the project will be launched in the future. On that basis, it follows that the digital token is valid or will be valid in the future, and precisely through this digital token, we actually connect the material and digital world.


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Tijana Milacic's picture

Tijana Milacic is an Associate employed by the Law Firm SAJIC since 2015. Tijana graduated from the University of Belgrade Law School in 2014.

In addition to the labour and media matters, Tijana's area of expertise is corporate and stock market law, consumer protection, IT and trade law.