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Issuance of utility token through Initial Coin Offering (ICO) requires apt execution of token sale terms and conditions. With the evolution of blockchain based business models relating to different cryptocurrencies, the token sale becomes an important transaction from the perspective of a company. This growth of cryptocurrency-based models received further traction when recently, El Salvador became the first country to accept bitcoin as legal tender. This announcement implies that businesses in El Salvador will have to mandatorily accept bitcoin as a payment option, along with the American dollar, the official currency. Although the government’s expectation is to provide a viable currency option to a vast majority of the population, which doesn’t have access to a bank account. Such announcements are definitely bound to boost the growth of business models built on crypto and issuance of utility tokens through different cryptocurrency exchanges.
Initial Coin Offering (ICO) or token sales have been gaining much attention recently, from both institutional investors and everyday people alike. An IPO represents a significant financial transaction that marks the initial public offering of a company’s stock. Many people are familiar with these IPOs of the past such as Enron and Microsoft. However, the new token sale model that has recently emerged on the market may be even more appealing. To explain, consider this — while an IPO represents a major deal, token sales represent a method of crowdsourcing small business deals via the Internet. The appeal of token sales comes from the fact that they enable investors to participate in an investment with little or no risk, outside of fees that are paid for initial coin offerings.
Additionally, tokens provide an alternative revenue stream for existing investors while potentially providing a great deal of liquidity for up-and-coming businesses. In the future, the use of ether could provide a similar income stream for companies and individuals. Regardless, it’s clear that many large corporations and high net worth individuals wish to use these models to obtain additional funding for their ventures. As was previously mentioned, an IPO represents the purchase of shares of ownership in a company.
A Token Sale is generally recognized as an Initial Coin Offering (ICO) and is a restricted period within which a sale of a specific volume of crypto tokens takes place. The tokens are introduced to the world and are commonly in trade for prominent cryptocurrencies. ICOs are seen as modern IPOs and are developing as the next generation of crowdfunding. Considerably, token sales operate on top of the Ethereum Blockchain system, employing a smart contract that accumulates Ethereum tokens and trades these for a fresh token proposed by the start-up business. This occurs entirely on a Peer to Peer (P2P) network, without any traders or brokers as middlemen.
Terms of use are frequently recognized on any e-commerce and social media website, but it is not confined to those models of websites and is utilized with any website that reserves private data of any variety. A term of use that is genuine is a legally binding contract that can further be changed, once noted in the disclaimer. Websites always possess terms of use considering user actions, accounts, commodities, and technology. For Initial Coin Offerings (ICOs), terms of use play an important role in describing to a user the various aspects of the cryptocurrency system they are investing in. In ICOs the payment system so established is digital and encrypted, and the startup enterprise creates a document that essentially represents how the system works. The terms of use are very similar to a White Paper of any ICO, and users understand the invest their money in the Coin with the hope that the same reaches high circulation and raises the value of the currency altogether. The Terms further point out that unlike Initial Public Offerings (IPO), an investor has no ownership share in the company, thus, rendering their investment the sole criteria of the profits.
Presently there are very few regulations on ICOs in any country. Therefore, in the absence of regulations, a Terms of Use is a contract that allows for a user to be legally protected under basic Contract law. Further, through the Terms, a user can determine that the individuals setting up the ICO are real and accountable. The terms help an individual understand whether they can actively benefit from an ICO and what the developed currency can offer. Thus, any terms of use of an ICO must be engaging, informative, and very detailed. An ICO term of use, like its white paper, identifies the target population that would most benefit from the new venture, by disclosing the nature of the exchange. ICOs are an extremely innovative way of exchanging money, and today, creators are trying to acclimatize to these unique ways without being taken advantage of. In the present market, cryptocurrency involves a person’s capacity to take high risks and in turn earn high rewards, and ICOs are no different. For a Terms of Use that best represents the interest of the creator of an ICO, since each creation is unique, a qualified professional must always be consulted before allowing for the same to be used on the website. All efforts put into drafting a Terms of Use are wasted unless the user is given the choice of accepting the same. This can be done either by using an “I Agree” checkbox or by allowing the user to create an account, by stating in the introduction that “Use of our services constitutes the acceptance of the Terms and Conditions.”
Once an ICO creator understands the reasons and priorities for drafting a Terms of use contract, they must do so keeping in mind the priorities of the user accessing the website. The idea that the creator must put forth in terms of use is that the use of the website and services therein implies acceptance of the terms documented in the agreement. This is the foundation that makes any Terms of use enforceable by law.
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Advocate Rahul Dev is a Patent Attorney & International Business Lawyer practicing Technology, Intellectual Property & Corporate Laws. He is reachable at rd (at) patentbusinesslawyer (dot) com & @rdpatentlawyer on Twitter.
Quoted in and contributed to 50+ national & international publications (Bloomberg, FirstPost, SwissInfo, Outlook Money, Yahoo News, Times of India, Economic Times, Business Standard, Quartz, Global Legal Post, International Bar Association, LawAsia, BioSpectrum Asia, Digital News Asia, e27, Leaders Speak, Entrepreneur India, VCCircle, AutoTech).
Regularly invited to speak at international & national platforms (conferences, TV channels, seminars, corporate trainings, government workshops) on technology, patents, business strategy, legal developments, leadership & management.
Working closely with patent attorneys along with international law firms with significant experience with lawyers in Asia Pacific providing services to clients in US and Europe. Flagship services include international patent and trademark filings, patent services in India and global patent consulting services.
Global Blockchain Lawyers (www.GlobalBlockchainLawyers.com) is a digital platform to discuss legal issues, latest technology and legal developments, and applicable laws in the dynamic field of Digital Currency, Blockchain, Bitcoin, Cryptocurrency and raising capital through the sale of tokens or coins (ICO or Initial Coin Offerings).
Blockchain ecosystem in India is evolving at a rapid pace and a proactive legal approach is required by blockchain lawyers in India to understand the complex nature of applicable laws and regulations.
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