Regulatory Interests in Establishing Cryptocurrencies

Clinic: Georgetown University Law, Spring 2019

Beneficiary: BitMal Organization

Executive Summary *

Read the full report here

This Report presents research relevant to social enterprises interested in issuing and exchanging socially oriented cryptocurrencies about the international legal framework surrounding their activities. It approaches this goal through the lens of the Organization (See Section 4 for a detailed description). The Report focuses on the evolving regulatory frameworks of the US, Switzerland, and EU as guides to understanding the international regulation of cryptocurrencies. These three jurisdictions were selected for specific reasons. The US is one of the largest and wealthiest markets in the world with a well-developed legal regime, but it is becoming more and more active in regulating cryptocurrencies. Switzerland has a cryptocurrency friendly regime and also ranks high in terms of ease of doing business. Finally, the EU was chosen because it would be helpful for the Beneficiary to have an overarching understanding of the implications of establishing a presence in any given EU country. Because this Report is meant to assist organizations at a nascent stage of development as they move towards formal establishment, it also includes information that does not relate solely to cryptocurrencies (such as forms of incorporation). The Report does not provide a step-by-step procedural analysis of the law. Rather, it explains the law in a way that will guide the Organization’s understanding of the legal implications associated with the structure and functions of its business.

Several questions are pivotal to the successful establishment of a socially oriented cryptocurrency platform, such as that contemplated by the Organization. These questions serve as the guiding focus of this Report: (1) What is the ideal corporate form for such an enterprise?; (2) Depending upon the corporate form and the goals of the enterprise, what types of funding are available under the law, and is securities law triggered?; (3) What are the implications for an enterprise of this nature under evolving anti-money laundering rules?; Finally, while not particular to establishing a blockchain-based social enterprise, the Organization also specifically requested information regarding (4) What form of intellectual property protection might be best suited to this type of enterprise?

How to Use this Report – A way forward

This Report is meant to be used as a guide for groups such as the Organization as they begin to make decisions that will be consequential to their success in establishing a socially oriented cryptocurrency platform. While the entirety of the information contained in the Report may appear overwhelming, it is meant to guide decision-making in the following way. First, the Executive Summary summarizes important information in the Report to provide an understanding of the full scope of potential legal interests. As the Organization begins to make concrete decisions regarding its funding sources and corporate form, it can refer to these sections in the body of the Report specifically relevant to the decisions it is trying to make. While it is likely that more research may need to be performed to reach a final decision, the information in the body of this Report is intended to serve as a starting place to gain a global understanding of the legal consequences of certain decisions.

Outline of the Report

Section 4 of the Report introduces the Organization and explains how its cryptocurrency, BitMal, is meant to function. In brief, BitMal is planned as a “pegged” cryptocurrency (valued at 2 BitMal per 1 unit of underlying fiat currency) issued using blockchain technology, and it will be available on a platform established by the Organization in order to facilitate interaction between socially oriented projects and persons interested in supporting such projects. Section 5 covers the laws relating to incorporation (establishing a legally recognized business). It outlines possible corporate forms the Organization might take, focusing on models which the Beneficiary has proposed and addressing relevant laws in the three jurisdictions. Section 6 of the Report deals with how the Organization might fund its business and the implications that funding decisions may have with regard to securities laws. Here, securities regulations, crowd funding regulations, and venture capital regulations may apply, and, again, the Report focuses on how these regulations differ depending on the jurisdiction. Section 7 of the Report will outline anti-money laundering regulations which will likely apply to the Organization’s business. Section 8 of the Report, per request of the Beneficiary, provides an overview of intellectual property rights law. Finally, Section 9 sets out recommendations based on the contents of the Report.

The full report can be read here.

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