IDEAS: ‘ICO’ AND LEGAL STATUS , by Sima Baktas, ELONTech Liaison-Turkey , May 2018

Entrepreneurs resort to many alternative ways to accomplish their projects. You have an idea that you think it will be effective, but you do not have enough financial resources… In this case, opinion holders usually ask for loans from the bank, apply for state subsidies …prefer to take advantage of some of the EU projects if their projects are appropriate, or ask the angel investors to support their projects in exchange for certain shares. They also want to support their projects with Crowd Funding, but there are monetary limits on this funding claim.

Many entrepreneurs need more financial resources, especially for projects requiring a technological basis. Here, with Blockchain technology, which comes to life with bitcoin, entrepreneurs find the opportunity to promote their projects with “Initial Coin Offering” (ICO) as a new investment support that allows them to find support on the international stage. Using ICO and especially Blockchain technology, which has made a big impact in the world since 2014, an alternative funding opportunity has been created for entrepreneurs to accomplish their own ideas. From 2014 to the first quarter of 2018, more than $ 10 billion was invested in ICO projects. It is predicted by experts that by 2019 there will be a market that is even higher than the figures indicated.

First of all, I would like to give you some information on how ICO projects are performed. The project needs to be a project that requires a technological basis in particular and needs Blockchain technology. In ICO projects, every initiative needs to create their own crypto money called “token”. Ideas are projected on their websites via the “Business Plan”, which is called “Whitepaper”, and this business plan is described in detail to the users called “investors”. ICO projects are offered to the public in a similar way as “public funding” like “Crowd Funding”, but here we are generally crypto money users. Unlike public funding, everyone, that can reach the Internet internationally, in the world is being offered in a time range; not locally and not for an exchange. The investor usually makes a crypto purchase called “token” specially designed for ICO projects with his BitCoin or Etherereum and can be involved in the project. Thus, investors who appreciate your project and regard it as an opportunity to generate revenue in the future, have been supporting the project. The fact that ICO projects receive funding as crypto money instead of price currency, the state-issued currency, distinguishes it from all other funding sources. There is no direct legal regulation of cryptocurrency in the world and in Turkey. Due to the fact that ICO project owners do not have the “shape condition” specified in the framework of the rules and they are not subject to a regulation, a certain rules directory has been created and a system specific to ICO project owners has been implemented completely. Due to legal gaps, malicious ICOs also lay the groundwork for project owners to deceive investors. As a result, many ICO projects have moved only for making money, and projects that have been promised have not been accomplished, investors have been victimized. On the other hand, we must not ignore other ICO projects which are very successful. The best known of them are ethereal, NEO and filecoin.


I would like to give you some information about the legal status of ICO after I have made a general description of it. Entrepreneurs who want to put their ICO projects into practice must be informed in the field of law before starting this process. As the general coordinator of Bitcoin and Blockchain technology, as well as the Blockchain law group Block-Law (, we are following the process related to analyzing the legal aspects of ICO and Smart Contracts We are making summits, workshops and roundtable meetings about the topic. This new technology, which especially loopholes in the law as a working group in the world and how we are transferring to Turkey should be positioned to embody ways of examining the legislative work in other countries.


Turkish Law :


First of all, other cryptocurrencies like bitcoin do not have a definition in our law. Evaluating in terms of the law no. 6483 “Law on Payment and Securities Consensus Systems, Payment Services and Electronic Money Institutions” which is the closest arrangement related to the electronic money, we see that cryptocurrency is not a payment instrument and does not fit this definition. Likewise, the disclosures of the BRSA and the CMB are also in this direction. In this case, although we call it cryptocurrency, they are not yet defined as money in our law. There is no definition other than that, too. Without a definition, there can be no law. The relevant subject must be clearly defined scientifically for a law to exist.

A similar situation exists not only for our country but also for many countries. Different definitions have been introduced in many countries of the world. Japan defined it as “money” whereas in the US it is ‘’ commodity or ‘’fund’’ and in the European Court of Justice “payment instrument”. Each day, countries diversify their definitions. It should be known that the legal and tax consequences vary according to the definitions.



In terms of the ICO projects, the closest regulation in Turkish law is the “Law on the Amendment of Certain Tax Laws and Some Other Laws” which is numbered as 7061 and enforced by the Omnibus Law dated 05.12.2017. Definition of Public Funding: Capital Markets Law a. 3/1 (z): Mass funding refers to the collection of funds from the public through mass funding platforms, subject to the provisions of this law on investor compensation, in accordance with the principles set by the board, in order to provide the funding required by a project or venture company. It was defined as a way in which entrepreneurs financed business ideas or projects by collecting money on public funding platforms to realize business ideas or personal projects. Although the definition is similar to the ICO, as we have already mentioned, public funding is possible through fundraising as “price money” recognized by the state. In ICO, however, funds are collected with a token, which is a cryptocurrency. Therefore, it is not possible to assess ICOs within the framework of this law.



IPO (Initial Public Offering), ‘Public Offering’ in our country in accordance with the SPK ( Sermaya Piyasası Kanunu )  laws; is to increase the capital of a domestic entrepreneur who has grown to a certain size and to sell the shares to the investor to add momentum to the growth of the company. The IPO is mostly valid for settled and larger companies to increase their capital. But ICO is for new entrepreneurs.


Here is the ‘stock’ sold. Whether the Tokens sold by ICOs will be treated as stocks is a matter of debate. However, the Token type of ICOs also varies from project to project. The United States recently brought the Howey Test criterion to the diversity of ICO tokens 1946, the Supreme Court heard a case (SEC v. Howey) of ICO tokens and concluded that the ‘public offer’ modules should be evaluated.




  1. Investment of Money
  2. Common Enterprise
  3. Expectation of Profits
  4. Solely from the Efforts of Others


  • Description of the company’s properties and commercial purpose
  • An explanation of the security offered
  • Information on corporate governance
  • Financial statements of the company, their approved by independent auditors
  • It must be a money investment
  • Must be an investment profit forecast
  • Money must be for a joint venture

Any gain must come from the efforts of an incentive or a third party.


If ICO meets these criteria; it will be considered as an instrument and will be subject to certain restrictions imposed by the US Securities and Exchange Commission (SEC).


However, with regard to the existing legislation in Turkey, we see that CMB does not bring such a criterion for ICO.


Apart from this, the definition of ‘Public Offering’ in our law is as follows.

Capital Markets Law a. 3/1 (f):

Public offering: A general call made by any means for the purchase of the capital market instruments, and the purchase after the call.


If we evaluate Tokens in Turkish Law as Capital Markets Tool;

Capital M. Tool. 3/1: Capital market instruments: means other capital market instruments, including instruments, derivative instruments, and investment contracts, determined to be in this scope by the Board.


If the tokens are subject to the provisions of the Capital Markets, it is necessary to make an ‘IPO’ with the permission of the CMB. If these activities are carried out without permission, CMB a. 109 and TCC Article no.552-556 are enforced.


Capital Markets Law a. 109:

‘’ Unfair public offering and unauthorized capital market activity: Those who sell capital market instruments without fulfilling the obligation to issue approved statements or those who sell capital market instruments without approved issuance certificates shall be punished by imprisonment for two years to five years and by the fine for up to ten thousand days up to ten thousand days.’’


Turkish Commercial Law article: 552 – 556:

‘’Without prejudice to the provisions of the Capital Markets Law, it is forbidden to raise money in order to establish a company or to increase the capital of the company or to be called by any means with a promise to the public.

Those who act in violation of Article 552 shall be punished with imprisonment of six months to two years.’’


For this reason, ICO projects are required to have the ‘Capital Market Intermediate’ provisions for the final evaluation under the IPO, which is expressed as ‘public offering’. However, when examined within the scope of Turkish law, we see that the existing ‘public offer’ provisions cannot apply to ICO projects. Since the Tokens are not defined in our laws, the SPK’s existing laws will not be found to be in accordance with the “Principles of Law”. Since the token types of the ICO Projects will also differ in the future regulations, they should be regarded as the Capital Markets Tool  (SPK ) according to their types.



How are the legal regulations for ICO Projects in the world so far? It is beneficial to mention to this topic without much detail.

The first reaction to the ICOs in the world came in September 2017 from China, and ICO projects were completely banned. This development caused Bitcoin and other Altcoins to fall hard in the first place, but then many entrepreneurs prefer to go to Japan, which made the positive law for cryptocurrencies.



The USA has been a bit more cautious about ICO projects and has had a few regulations for the investors not being victims. The Securities and Exchange Commission (SEC) recently issued several reports on ICO projects. As I mentioned before, every ‘public offering’ initiative that passes the Howey test according to the SEC is subject to the SEC’s legislation. Apart from this, the SEC has enlightened entrepreneurs and investors publishing other reports recently.

In the SEC’s report; it is mentioned that ICO processes are not audited like IPO processes, and since the raised money with ICOs are against the stocks and bonds laws, investors are not protected by ICOs which does not have any rule protecting the investors, it is necessary to be cautious for ICOs, which may violate the laws.

Companies and individuals are committed to choose the ICOs to increase their capital or to gain investment opportunities. While these digital assets and the technology behind them provide new and effective tools for performing financial transactions, they also increase the risk of fraud and manipulation, as the markets for these assets are less regulated than traditional capital markets.


5 things you need to know about ICOs;

  1. Instruments can be exported with ICOs.

ICOs may export instruments on the basis of certain facts and by applying the SEC’s federal securities laws.

  1. They need to be registered.

ICOs which are instruments are most likely to be registered with the SEC or not exempt from registration.

  1. Tokens sold in ICOs can be called many things.

ICO’s, or more particularly tokens, can be named in various ways; but only the token, which is called the “service” token or is configured for the service cannot save tokens from being instruments.

  1. ICOs can pose significant risks.

While some ICOs try to find honest investment opportunities, many of them may be a fraud by promising guaranteed income and future wealth that separate you from your money. They may also pose significant risks for loss or manipulation, including hacking.

  1. Ask your questions before investing.

Try to find satisfactory answers to your questions before investing in this area.



What should investors know;

  1. Products can be traded and/or sold internationally.
  2. Investigate your financial specialist.
  3. If an investment seems good enough to be unrealistic, be cautious.
  4. Find out how to buy and sell products.


What should market experts know;

  1. Warn when presenting your offers or when selling tokens,
  2. The SEC protects investors and you are also expected to protect them.
  3. The SEC may prepare a research report on token proposals.
  4. Know when an exchange transaction should be recorded.



Switzerland aims to be the center of Blockchain Technology by establishing the Crypto Valley (CyptoWalley) in Zug because it is not a European Union member but a country that will not be influenced by the EU decisions without ignoring the income-generating element of ICO projects. For this reason, for the ICO and Cryptocurrencies to be regulated legally, significant steps are taken compared to other countries, so entrepreneurs from many parts of the world choose Switzerland as their headquarters.

The most important development for ICOs is; FINMA (Financial Market Supervisory Authority) issued a guide for ICOs and divided the ICOs ‘Payment Tokens, Utility Tokens, Asset Tokens). .In this regard, we can say that a new era has been introduced to define ICOs and tokens.



Auditory and Regulatory Framework

Payment Tokens (Cryptocurrencies) These tokens does not encumber to their issuers. These tokens are designed to be used as a payment instrument to receive goods or services, or as a means of money or value transfer, for now or future use.

Asset Tokens: Token exporters are responsible for assets such as future company profits or share of capital flows. In terms of their economic function, these tokens are similar to stocks, bonds or derivatives. Tokens that allow physical assets to be processed by a block entity also belong to this category.

Utility Tokens: They provide access to an application or service through a Blockchain based infrastructure.

The function and classification of a token can change over time.

Assets and Service Tokens can also be classified as Payment Token. In other words, tokens are considered both instruments and a payment tool.


I can easily say that for the ICO companies, Malta will host the most attractive ICO projects compared to the USA and Switzerland. For the first time, the president of a country expressed that he will give full support to ICO projects and cryptocurrencies, and bring legal guarantees. Moreover, according to the legislation whose expected date is until the last quarter of 2018; very attractive opportunities, special incentives, tax advantages and staff salary support will be provided to companies offering ICO projects. He also stated that offshore accounts are not allowed due to international agreements since they are a European Union country, so the investor must trust Malta-based ICO projects. That’s why the world’s largest crypto-banking entity, Binance, and the Blockchain project, Tron, are moving their corporate headquarters to Malta. So I can say that although Malta is a small island country legally and financially compared to Switzerland and Singapore, it will be a very big competitor.



As it can be seen, legal legislation of ICO projects cannot be talked about since crypto money has not been defined legally yet. However, the absence of a legal definition of ICO and Cryptocurrencies does not mean they are “Prohibited.” In accordance with the ‘principle of law’, it is unthinkable that an act without a law is prohibited.

Therefore, there is no disadvantage in making the ICO projects in Turkey. However, when doing ICO, if the promises are not fulfilled and reasonable justification is not provided, ICO judicial authorities will examine the ‘investors’ complaints and legal remedies. Likewise, this applies to other investments with legislation. For this reason, it is very important to make the ICO to be done properly and reliably. First of all, ICOs need to be prepared for possible regulations, transparent towards investors, and in compliance with the project action schedule that they call ‘Road Map’. In the event of a contrary situation, the investor should be presented with the reason. The budget distribution should be open and transparent again, the profit and loss statements of the company should be shared with the investor upon request. In addition, the tax issue should be very sensitive. There is no doubt that these projects will be examined in more detail by the governments.

Because ICO projects are international by their spirit, it is necessary to act not only according to the laws of the country where the company headquarters are, but also according to the regulations of other countries in the world. The most important aspect is the legal and taxation dimension.

In particular, the reports of the USA SEC are in accordance with the Swiss FINMA guidelines. Other than that, the protection of personal data according to the World Standards, KYC (Know Your Costumers), Investor’s Right of Withdrawal, Privacy Policy, Unfair Terms, Terms of Use, Distance Sales Contract, Avoidance of Sales, Commercial Advertisement Policy, Corporate Partners’ Legal and Penal Responsibilities, The provisions of the contracts (Smart Contract) and the responsibility of the programmers or the preparers must be prepared in accordance with the world standards of the Escrow Policy. The ‘Applicable Law’ provision is important because it is a cross-border initiative. You need to know that you are responsible for the international dimension.

For this reason, ICO projects must be designed in such a way that the people who are going to do the projects will take into account all kinds of risks and risks from A to Z.

Turkey’s geopolitical situation has a very important point for ICO entrepreneurs since it will be a bridge between Europe-Asia-Africa. Compared to other countries, it has the possibility to receive services with a much more economical budget. We have the youngest population in the country among other European countries and we have a respectable audience sake of Cryptoworld. That is what makes Turkey a great choice. If Turkey brings encouraging regulations to Cryptocurrencies and ICO projects like Malta, it will revive the economical market. With these regulations, attempts to defraud the people by not fulfilling their promises and by collecting money on the market should be prevented. But it is also obvious that it would not be right to act with a totally prohibitive mindset. In this case, you will have removed the fruit-bearing tree because of the few bruised apples. For this reason, state officials should take the views of blockchain technology experts, lawyers and tax specialists working on the subject while doing legal regulations. Otherwise, we may miss this important opportunity that will contribute to the development of the country that is in demand. In order to ensure that the country develops in the international arena, it is necessary to evaluate and make necessary arrangements at the time of the occasion like Malta.



Att. Sima BAKTAŞ

GlobalBLaw Founder