There have been more and more ICOs popping left and right recently. This is due to a lot of startup projects and or successful companies wanting to get more funding for either development or just plain working capital. And the best way to get those are through either IPOs or ICOs. IPOs are usually used by the more established companies to collect investors. This is the more preferred method by established companies and investors alike since this is regulated and they go through stringent steps before being approved for the public sale.
ICOs however, when they started out are free for all. As long as you have the cash to invest in, you can be an investor in an ICO. Most of the startup companies go this route as they prefer to get the funds as quickly as possible and they do not have to go through regulatory boards and commissions.
That was back in the past, however. As of right now, a lot more ICOs have a set of rules for regulation. Why? Isn’t ICOs free for all? Well not anymore. Some of the governments have been banning ICOs and token sales or just plainly regulating them due to the numerous ICO launches that were considered a scam. There have been too many ICO launches recently where they just get the money from the investors and just plain disappear right away without putting the investment to either development or marketing.
This has caused a lot of heartaches and a lot of people who invested their money get angry and try to get the kick starter project get punished, only to be pushed away by authorities since these projects are non-regulated. This was the reason why a couple of countries such as South Korea and China put a ban on ICOs, and also other countries such as Singapore and the United States put a regulation of the said token sales by way of accreditation.
Aside from scamming investors money, ICOs are also used as a way to launder money by someone engaging in illegal activities. They use the ICO as a “legal” way to wash the money that they gain through illegal means. This is usually done by the investors and often times, a lot of good projects get stung due to them not knowing where their investment money came from.
What these investors would do is they would invest the money in an ICO, and when the ICO ends and the tokens are available for selling, they would dump all their tokens or coins in an exchange and cash it out with either Fiat or BTC, thus effectively “washing” their money. They would be able to present transaction details if ever authorities question them on where they got their funds and mark it as windfall income from investing.
So what are the new companies do nowadays? The newer kick starter projects who show a lot of promise and would try to gain new investors have put a restriction on the constituents of these particular countries. They do this by requiring paperwork or documentation from the investor before they are even allowed to invest in a particular company. Investors from the United States are usually required to submit an A.I. form or Accredited Investor form which they can only secure from their Securities and Exchange Commission.
This form represents that the person who is investing is fully aware of the risks if securities and commodities trading. These documents are hard to come by and you need a trading license first before even getting an accreditation certificate such as this. This is on top of the required KYC (Know Your Customer) / AML (Anti Money Laundering) documents required for establishing one’s identity.
Other countries such as China, South Korea and Singapore outright ban people from their countries from participating in ICOs. They are also banning companies that would launch the said coin offering. These are usually levied with fines and possibly jail time from their respective countries if they are caught by authorities breaking such rules.
China even went as far as banning their own constituents from trading in any trading platforms or exchanges if it is dealing with cryptocurrencies. The Russian Federation is also planning to regulate the formation of ICOs from their country and also try to have the investors register and get accreditation just like in the United States.
A number of large kick starter projects also do a region lock ban on select countries. This is different from a governing body regulation of a country as this region ban can sometimes be worked around by smarter investors. Some people would either use VPN and trade from a non-region banned IP, and some fly to a different country just to be able to participate in the said token sale.
However, if you are a citizen of United States, even if you have a valid Accredited Investor license, as long as your country is in region or country banned, you would not be able to participate in the said crowdsale. The best way would be to set up a VPN if you really want to invest.
The last method that a lot of companies utilize is whitelisting. This usually starts with the company or project requesting KYC / AML documents from the potential investor. They would then do a background check on the particular person and check if he or she is fit to invest in the said company. Even if you have an accreditation, if you do not pass the whitelisting method, you will not be allowed to participate in their token sale.
The requirements for whitelisting might also include a minimum amount to buy, so even if you are approved, if you are not able to come up with the minimum amount, you still would not be able to participate in the token sale. The bigger companies usually do this on their pre-sale or pre ICO events as they need to filter out and select the investors that they want as the angel investors.
These are some of the ways that current companies or projects currently regulate their token sales. These are done with the approval of their governments where the company is licensed at and also on the side of the potential investor. If both parties come to terms such as providing necessary documents, then an ICO is still a good way to invest. These methods are actually in place to be able to protect both the integrity of the said company and also the money or investment of the said investor.