Crowdfunding and initial coin offerings

Abstract

This chapter argues that blockchain technology enables start-ups and small and medium-sized companies to raise funds from a multitude of investors on a peer-to-peer basis without the involvement of an intermediary. It discusses the phenomenon of initial coin offerings (ICO), illustrates with concrete examples, and reviews the legal framework governing ICOs. Using the potential of distributed ledger technologies, ICOs have emerged as a novel mechanism for financing entrepreneurial ventures. One of the main challenges related to the legal regulation of ICOs is the functional diversity of the tokens issued in crowdfunding campaigns. Tokens can be linked to different types of rights, such as membership rights or property rights. A key aspect regarding the financial market regulations of ICOs is whether the tokens qualify as securities. A fundamental problem for the said qualification lies in the different definitions, depending on the applicable jurisdictions.