Companies using blockchain as DNA of their business model routinely raise funds by launching their own tokens. The token launch may structured as, an Initial Exchange Offering, i.e. IEO, or, an Initial Coin Offering, i.e. an ICO, Security Token Offerings, i.e. STOs, Decentralized Autonomous ICO, or DAICO, Simple Agreement for Future Tokens, or, SAFTs, Token Airdrop, or other similar models. For all such models, blockchain startups may require a legal opinion letter to certify the token as a utility token, or a security token. Along with such legal opinion letters, other agreements are also needed during launch or issuance of the tokens.
Tokens require platforms such as Ethereum to exist and operate. The examples of tokens are augur, omisego, and golem. These tokens are built on the Ethereum and there are various other tokens built upon other platforms, and they exist on that. Tokens are utilized in a parent blockchain for example, EOS is a token which is utilized in Ethereum blockchain. Creating a token is a simple process, but for that, it is necessary to follow a standard template on the blockchain such as Ethereum and Neo Platform that allows an individual to create his own token. This functionality of creating an individual’s token is made possible using smart contracts. Tokens are usually created and distributed to the public through initial coin offerings which are a form of crowdfunding.
Technology lawyers prepare legal opinion on utility tokens for blockchain technology companies to be submitted at international cryptocurrency exchanges.
It can be possible that issuing and selling of the token come under legal regulations, but it depends on the features of the token. The best example is a security token that falls under securities law, but a utility token does not come under legal regulation. Security token offers an individual the promise of profits or return on investment which is quite different from utility token. A utility token is a transaction type of token that has some sort of use within the ecosystem that allows access to the purchase of goods and services. A utility token is not regulated and controlled by security law. Therefore, they are free to be traded by almost anyone. Utility token has much higher liquidity.
Utility token will increase in value if demand on a good and services on that platform increases. So, the price of the utility token may reach a point where it becomes outrageously high and people say that is too expensive. People could not pay too much money for that good or services. A security token is regulated and monitored, which means that the liquidity is reduced because an individual is narrowing his audience. There is an emergence of exchanges that allow and facilitate the trading of security tokens.
A cryptocurrency is a type of digital money that means it only exists electronically. The cryptocurrencies were designed to be secure as well as in most cases completely, anonymous. An individual cannot follow the cryptocurrency money trail like he can with dollars and pounds.
Cryptocurrency is an online currency that uses Cryptography. Cryptography is the art of solving codes and creating them. It does not have a central bank for regulating it. It operates independently of a central bank. It exists only in computers, and an individual can transfer it backwards and forwards.
A cryptocurrency exchange also is known as digital currency exchange (DCE). With the help of cryptocurrency exchange, an individual can buy or sell cryptocurrencies. With the help of it, an individual can also trade them using electronic monetary units, fiat currencies, or other digital assets. A cryptocurrency exchange works 24/7, but nobody knows who the buyers and sellers in cryptocurrency exchanges are.
A legal opinion is a formal letter by an attorney that verifies the legal status of an individual or entity. The situations that define a legal opinion involve verifying the validity of the corporation and statement the way the judge should rule on a particular legal matter. A legal opinion is a tool that permits parties to obtain a qualified third-party opinion on the subject and other issues related to the conclusion of a transaction. Legal opinion is a document that is drawn up by a competent lawyer on any specific problem.
The main point of any token offering is listing an issued token on a cryptocurrency exchange so that liquidity is created. Therefore, there is a requirement to draft a legal opinion on the substance of the token that analyses the concept and features of the token. A legal opinion is drafted so that it should confirm the classification of a token as a security. Cryptocurrency exchange needs such type of legal opinion on security or non-security in order not to be subject to the laws that are applied to a classic exchange that trade in securities.
There is an important fact that should be considered when compiling legal opinion for a cryptocurrency exchange. A legal opinion is drawn up by a specialist who knows the particular field of law. But it should not be provided for the law of a foreign state with which the lawmaker is not familiar. Qualitative Legal Opinion for a cryptocurrency exchange plays an important role which should be distinguished by strict wording, circumstances provided with clarity, with validity in current legislation, and the presence of transparent, and understandable conclusion. If the customer’s activity is found illegal in the investigation, the conclusion can never come out to be positive. The self-respecting lawyer will not risk his name and give an opinion on the legality of the activity if the activity after the investigation is found illegal.
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Now there are law firms that focus their practice entirely on the cryptocurrency aspects of fintech, intellectual property, and securities law. Their attorneys give legal advice to Initial Coin Offering, Security Token Offering, Initial Exchange Offering, Exchanges, Investment Deals, Off-Exchange Trading, and related matters to Cryptocurrency. They deal with the laws and legal issues that surround with cryptocurrency and blockchain technologies and draft legal opinions for clients after conducting a thorough internal research audit for the client’s project and examine applicable case law.