Russia’s lawmakers are considering setting up a framework which will allow ICOs to legally raise funds in a decentralized manner through public blockchains, like ethereum, according to Vedomosti, Russia’s version of the Financial Times. They say:
“The interdepartmental working group on assessing the risks of the circulation of the crypto currency at the State Duma began to discuss the introduction of amendments to civil legislation that will allow ICO to be held in Russia.”
According to Elina Sidorenko, a professor at Moscow’s State Institute of International Relations and head of the working group, the framework may have requirements for smart-contract verifications and potential AML/KYC of sellers and buyers.
The latter part appears to be limited to exchanges only, rather than protocol level identification, as Sidorenko says:
“Blockchain is a technology. One can’t regulate a technology. Our task is to define cryptocurrency, introduce it to the legal terrain and outline the basic direction towards legalization of cryptocurrency-related businesses.”
The full legislative requirements remain unclear, but “there’s no sense in a law that hinders businesses. If we wanted to do that, we’d just leave it as it is,” Sidorenko says.
Russia has stated aspirations to follow the Japanese example, which has made digital currencies like bitcoin and ethereum legal tender, with the Russian law to be proposed in autumn, but they seem to be going a bit further than Japan.
“As soon as the regulation is introduced, those businesses who want to be legal will have to change their operations. In some cases, those changes will be minimal, like registering as an individual entrepreneur or creating a specifically registered wallet to accept payments,” Sidorenko says.
Which may amount to requiring a license for an ICO, something that may at this stage be far too restrictive considering the very nascent and fast developing nature of the field.
However, there will probably need to be some enforceable guidelines. ICOs, for example, should provide quarterly investors reports, details of their holdings, details of their project progress, future plans, and so on.
Before an ICO, there needs to be a due-dilligence body with ConsenSys stating they are planning to set one up, but time estimates are unclear.
Moreover, most ICOs should be capped, especially if they have an insignificant amount of users or revenue, and there probably needs to be some way of keeping them accountable and incentivized to deliver on their promises.
As the field develops, other guidelines will probably become clear too, but there is a danger with any law that it pre-empts, rather than encourages, innovation, especially when a license is concerned. Something which would be very costly, time-consuming, and the licensing body would probably lack the expertise in any event.
Which is probably why other jurisdictions have so far stayed out from setting down iron laws, opting instead to see how the field develops, whether any non-governing bodies are a better option at this stage, as well as to better understand what the law should be with the aim of balancing risks and benefits.
And if a legal framework is to be set-up, it should do so after a lengthy period of public consultation and debate so that reasonable laws are laid down after all issues are considered.
“We have no idea which way the market is going to take. We don’t know how 2017 will end, what will happen to all those ICO’s that currently may cause the market to collapse and change the very approach to estimation of cryptocurrencies. Our task now is to give some confidence to the market players and take the Japanese path,” Sidorenko says.
It’s a move in the right direction from the current situation in Russia which, some suggested last year, had made digital currencies like bitcoin and ethereum illegal, but whether they can be as forward looking as Japan or some other jurisdictions remains very much an open question.