Part 1/5: The Issuance of coins and tokens are an innovative way to raise capital and fund projects using distributed ledger technology. This first part introduces the technology, its structure and basic legal classification.
Initial Coin Offerings (ICO) are a financing option based on the idea of crowdfunding. Through an ICO, coins or tokens[i] based on blockchain technology are issued.[ii] The technical structure is flexible, as are the rights related to it. It is reasonable to divide tokens into three categories: currency tokens, security tokens and utility tokens.
[i] (hereinafter: "Token" Coins have their own blockchain, Token is used on an existing blockchain (e.g. ERC20) (cf. Schiemzik/Kübler, NWB 2018, 2038, 2042 [specialist journal of tax and business law]).
[ii] Cf. Jünemann/Kast, ZfgK 2017, 531 [journal of the entire credit system]; Eschenbruch/Gerstberger (footnote 2), 8.
[iii] FINMA (Swiss Financial Market Supervisory Authority) shares the view of BaFin regarding Switzerland, cf. FINMA, FINMA publishes ICO guidelines dated February 16, 2018.
[iv] BaFin provides information as a simple sovereign action without regulatory character (cf. Fußwinkel/Kreiterling (footnote 6) p. 56), the person concerned then lacks the possibility to have his/her/its opinion confirmed in court should BaFin deviate from it.
[v] In addition, it is also possible to structure tokens as an insurance business in accordance with the VAG Law on the supervision of insurance enterprises) (Insurance Token); this will, however, not be discussed here.
[vi] The concept of financial instruments under the KWG is broader than the one of the WpHG because it also includes foreign exchange and units of account.
[vii] BaFin, consumer warning: risks of Initial Coin Offerings (ICOs) dated November 9, 2017.
[viii] BaFin, Initial Coin Offerings: high risks for consumers dated November 15, 2017.
[ix] ESMA Statement of November 13, 2017, ESMA50-157-829; in addition to ESMA and BaFin, other supervisory authorities have issued consumer warnings, such as the Joint Committee of the three European Supervisory Authorities on February 12, 2018, and the International Organisation of Securities Commissions IOSCO on January 18, 2018, ICOSCO/MR/01/2018; further warnings and statements are available on the IOSCO website.
[x] ESMA statement of November 13, 2017, ESMA50-157-828.
[xi] "A new start for Europe, a new dynamic for Germany, new solidarity for our country, Coalition agreement between CDU, CSU and SPD", February 7, 2018, line 1935 et seqq., 3211 et seqq.
[xii] Hacker/Thomale: Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law, November 22, 2017, SSRN Electronic Journal, 10.2139/ssrn.3075820, available on SSRN: https://ssrn.com/abstract=3075820 or http://dx.doi.org/10.2139/ssrn.3075820; Zickgraf (footnote 6), 294.
[xiii] Cf. also: Keding, WM 2018, 64, 66
[xiv] With regard to Smart Contracts cf. also: Jünemann/Kast, ZfgK 2017, 531; Heckelmann, NJW 2018, 504 [New Legal Weekly Journal]
[xv] Cf. Lerch, JBB 2015, 190, 193; Schlund/Pongratz, DStR 2018, 598 [journal of the German tax law].
[xvi] Cf. Lerch, JBB 2015, 190, 193.
[xvii] Cf. Regional Court of Konstanz, judgment dated May 10, 1996, docket no.: 1 S 292/95, NJW 1996, 2662; Engelhardt/Klein, MMR 2014, 355, 357 [journal of multimedia and law ]; Lerch, JBB 2015, 190, 195; Wagner, in: Münchener Kommentar zum BGB (German Civil Code), 7th edition 2017, sec. 823 BGB, marg. no. 294; Fritzsche, in: BeckOK [Beck online commentary] BGB, Bamberger/Roth/Hau/Poseck, 44th edition, as of: November 1, 2017, sec. 903 BGB, marg. no. 10.
[xviii] Eschenbruch/Gerstberger (footnote 2) refer to it as t as the "digital equivalent of a bond or an investment certificate/share certificate".
[xix] Cf. IOSCO, January 18, 2018, IOSCO/MR/01/2018; Weitnauer (footnote 6), 232; Klöhn/Parhofer/Resas (footnote 6), 102.
[xx] FINMA, guideline (footnote 9).
[xxi] Cf. also Dietsch, MwStR 2018, 546, 547 [journal of the entire value added tax law]; or Krüger/Lampert, BB 2018, 1154, 1155 [journal for business consultants], who support the generic term "investment token" and a distinction between debt tokens and equity/trust tokens.
[xxii] A new phenomenon is the so-called Initial Loan Procurement (ILP), in which loans are issued as Future Loan Access Tokens (FLATs).
[xxiii] An example of a stock issue on the blockchain is the US online trader Overstock.
[xxiv] BaFin, Initial Coin Offerings (footnote 14).
[xxv] German supervisory law must still be observed if the token is offered in Germany.
[xxvi] Cf. for example conference report of the specialist conference "Blockchain: Chancen, Recht und Regulierung" [Blockchain: opportunities, law and regulation" by Jean Louis Schiltz, MMR-Aktuell 2018 [news service], 400563.
[xxvii] Art. 4 (1) no. 44 MiFID II.
[xxix] Sec. 2 no. 1 WpPG, Art. 2 Lit. a) Prospectus Act.