Dmitry Machikhin, Partner of GMT Legal, reveals how to choose jurisdiction for ICO
The main mistake in ICO preparations is trying to do everything on your own. This is the opinion of Dmitry Machikhin, a Partner of GMT Legal and evangelist at IMMO. expert believes that it is better to rely on specialists in legal issues in order not to lose millions of dollars. We talked to Dmitry who explained how not to lose when choosing jurisdiction for an ICO and what to take into account during token sale preparations.
Interviewer: Blockchain & Bitcoin Conference Belarus (BBC).
Respondent: Dmitry Machikhin (DM).
BBC: How long have you been taking an interest in ICOs and cryptocurrencies in your professional activity? Why did you consider it promising?
DM: I got interested in ICOs in early 2017 and in cryptocurrencies and blockchain in late 2014. Back then, the ICO was not so popular; literally, the very few companies launched it. By the way, Ethereum was one of them, but not the first. The pioneer was Mastercoin (Omnilayer now).
It was initially nothing but hobby for me: I just read, explored, wrote some articles, and communicated with the specialized community. Later, when the commercial aspect appeared, the industry grew, the market capitalization increased, and there was the need for specialists, it turned into my job.
Now, the ICO is my top priority. In 2014, I realized that blockchain and cryptocurrencies were the elements of Industry 2.0 along with AI, neural networks, and Big Data aimed at developing our society.
BBC: How important is the assistance of a lawyer when preparing the ICO? What issues can be puzzled out on your own?
DM: I believe that it is impossible to prepare the initial coin offering on your own. Moreover, any offering when you raise funds is impossible without a lawyer.
If you don’t have necessary skills and experience in this aspect, you’d better address a specialist. Let’s examine a major example: an IPO, which involves the whole staff and a big team of lawyers, lasts the entire year. In this regard, the ICO as its “younger brother” is no exception.
We are just talking about other scales, and sometimes ICOs can be even larger than certain IPOs. Attempts to explore this issue independently if you do not have legal education or experience will lead to mistakes. If you want to make them, it’s your choice. In such a case, you will just have to hire a lawyer later in order to correct these errors.
BBC: What legal aspects are the key ones in ICO preparations? Which of them should be primarily taken into account?
DM: As cliché as it may sound, the key aspect is the availability of a company that issues digital certificates, securities, and token rights. There is no actual digital anarchy. So, if you do not have a company but have tokens sold for money, it means illegal enterprise and illegal activity.
When a private entity receives profit, it is not quite legal. Therefore, you should initially focus on a company and its banking account, as well as the territory where the ICO will be launched.
BBC: How to choose jurisdiction for the ICO?
DM: Jurisdiction is a highly charged and crucial matter when preparing the ICO and token sale. To select jurisdiction, you should answer a range of key questions. It is important to understand the concept of a token and the regulation of this activity in a certain country we are interested in.
Who are company’s beneficiaries? What about investors? Are they professional market players, qualified investors, or mass market representatives, which is less popular now? The answers to these questions will help to narrow the search and to choose an appropriate place for the company registration.
BBC: After working with dozens of blockchain projects, could you name the most common legal mistakes made by ICO authors?
DM: The main mistake is the attempt to make everything on your own. I have often heard the following phrases: “Everything is clear there”, “There's nothing complex here”, and “Everyone has just the same, we will just copy it”. This mistake can be later worth millions of dollars. It always gives poor results. If people consider themselves the smartest and experienced, they will suffer from financial losses.
Surely, if a person is ready to easily lose a certain sum in order to solve legal affairs, that’s not a problem. However, if you think of this issue in advance, you will be able to reduce expenses tenfold and to form the powerful legal framework. Everyone chooses their own path here: either to pay twofold-threefold or think in advance.
One of the less popular, but still common mistakes is the registration of a company within popular jurisdictions, disregarding taxation features and post-ICO actions. It is a critical topic as a tax flywheel gains inertia for a long time and fails to act as fast as regulators if, for example, scam occurs. However, it will definitely work.
BBC: What will you tell guests and participants about at Blockchain & Bitcoin Conference Belarus?
DM: I will explain how important the legal strategy is and at what stage this issue should be considered; what things can be overlooked and done later, and what aspects are essential even at the stage of the idea; what mistakes are allowed in order to launch and complete the ICO and get off easy.
Sometimes, the ‘get off easy’ method can be applied because I put the business process before the legal one. For instance, if we can get a penalty during some operations, it is also the way out. We will discuss these issues as well.
BBC: What are you expecting from Blockchain & Bitcoin Conference Belarus?
DM: I am expecting meetings with interesting people and the exploration of the Belarusian market. I would like to receive a constructive feedback and to hear questions.
Dmitry Machikhin will speak at Blockchain & Bitcoin Conference Belarus, an international conference dedicated to cryptocurrencies and blockchain. The event will take place in Minsk on October 10.