 The recent explosion of crowd sales for Blockchain based businesses has resulted in the raising of tens of millions of dollars through the sale of cryptographic coins and tokens, known as cryptocurrencies.
Earlier this year tech companies enjoyed free reign as this method of crowd funding flew under the regulatory radar; however, the latter half of 2017 has been an almost universal wake-up call as all the major crypto markets have sought to regulate such raises in one way or another. While some jurisdictions, such as Korea and Japan, have looked to recognize and regulate cryptocurrencies, others such as China have banned them outright. In the middle are Canada and the USA, which are cautiously attempting to regulate without scaring the innovators out of their jurisdictions. They have done this by attempting to analogize these raises with the existing, though hardly relevant, information and legal framework they have today. This causes problems because cryptocurrencies do not fit easily into existing categories due to their innovative nature. Recently, there has been a growing interest in whether Blockchain tokens may constitute a security. If cryptocurrencies are securities then there are important implications for anyone engaged in trading them, which could deter the practice of raising funds through the sale of cryptocurrencies entirely. To date, the Ontario Securities Commission (“OSC“) has not explicitly categorized a Blockchain token as an ‘investment contract’ or any other type of security under Section 1 of the Ontario Securities Act. However, the definition of ‘security’ is not meant to be exhaustive, so things not specifically listed may ultimately be deemed to be a security. In a press release dated March 7, 2017, the OSC advised businesses that use distributed ledger technologies that “products or other assets that are tracked and traded as part of a distributed ledger may qualify as securities, even if they do not represent shares of a company or similar ownership interests.” On August 24, 2017, the Canadian Securities Administrators published CSA Staff Notice 46-307 – Cryptocurrency Offerings (the “Notice“) to provide guidance on the applicability of securities laws to Initial Coin Offerings (“ICO“), which are used to raise money for Blockchain ventures through crowd sales of cryptographic coins and tokens. The Notice ostensibly showed support for the innovative technology, but very clearly attempted to analogize ICOs to securities as best it could, and where it could not it attempted to encourage those looking to engage in an ICO to voluntarily submit to a new process, it created to address ICOs which are not securities. The Notice states that an ICO is similar to an Initial Public Offering (“IPO“) where it can be analogized to shares of a company, and thus selling coins or tokens pursuant to an ICO may violate securities law. However, every ICO is unique and must be assessed by its own characteristics, and thus not all cryptocurrencies are automatically considered securities. In determining whether tokens sold pursuant to an ICO is a security, businesses should apply the four-pronged test which was adopted by the Supreme Court of Canada in Pacific Coast Coin Exchange of Canada v. OSC, [1978] 2 SCR. In Pacific Coast, the Court held that an investment contract (and thus a security) exists when the following factors are met:
In addition, the CSA Notice indicates that cryptocurrency products may also be considered derivatives and therefore subject to additional requirements. The CSA recently launched the CSA Regulatory Sandbox to encourage disclosure of ICOs and to provide a temporary exemption to securities requirements where they are deemed appropriate. Although it may seem like a viable option, it presumes that the ICO is subject to regulation, which in many cases it may not be. By availing yourself of the sandbox exemption you are effectively admitting that you are a security. Grinhaus Law Firm can help determine whether your ICO will be subject to securities laws and can advise on the various steps and documents required for a successful ICO. Please Contact Us to learn more about our ICO and Cryptocurrency advisory services. PLEASE NOTE: THIS IS NOT INTENDED TO BE LEGAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. IT IS IMPORTANT THAT YOU CONSULT WITH A LICENSED PROFESSIONAL.
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 Very few people understand the potential uses of smart contracts and blockchain technology. From transferring wealth across borders without banks to executing contracts without lawyers, this technology is set to revolutionize how we do business by slashing overhead costs and providing certainty and transparency with respect to your customers, payments and supply chain.
Read article: “Toronto Lawyer’s Cryptocurrency Insights” Grinhaus Law Firm has taken an active role in disseminating information about the practical uses of blockchain technology in the business community.
Grinhaus Law Firm’s network of Fintech experts can help you unlock the potential of your business by advising on the practical uses of coin technology and the shared ledger. Please Contact Us to find out more about our Fintech, blockchain and cryptocurrency advisory services.  Cryptocurrencies, such as Bitcoin, Litecoin, Ripple and Ether, have been making headlines lately, but not for the right reasons. They usually make headlines because of spectacular gains in value or, even more headlines with spectacular crashes. They make headlines when criminals use them to extract ransoms without being traced. They also make headlines when hackers steal millions of dollars worth by breaking into wallets and crypto-exchanges.
But what are these digital coins supposed to be used for? More importantly, why would you want to use them for your business? Cryptocurrencies were designed to cut banks, bureaucracies, and unfortunately for us, lawyers, out of business dealings. They do this by transferring wealth through a decentralized chain of computers that share a single distributed ledger of every crypto-transaction that occurs so that there can never be a dispute as to how much of what was transferred and when. Each transaction has to be verified a number of times (which usually takes less than an hour). This is very different from how things are predominantly done today, where banks, law firms, financial institutions, governments and other players each keep their own ledgers and transaction records, thus making due diligence a necessity and trust a commodity. By using this technology, you can send and receive wealth within and across borders with the bare minimum of time and expense. What are the tax implication of using cryptocurrencies? The tax consequences of using cryptocurrencies depends on what you are using them for. The Canada Revenue Agency (CRA), like everyone else, has been trying to identify with what it already knows and understands in attempting to deal with cryptocurrencies. Here we will address two scenarios:
In later blog we discuss the What Are The Risks Of Accepting Cryptocurrency As Payment? Generally a few of the risks include volatile values of the different coins while the market is getting used to using them, limited acceptance (for now) and uncertainty with respect to shifting regulations while governments try to figure them out. For the time being at least the Pros far outweigh the Cons. Please visit our Cryptocurrency and Blockchain Advisory web page to learn more about what cryptocurrencies can be used for and how we can advise your business on best practices and Fintech solutions that will enhance your business and save you money. Call or email Grinhaus Law Firm for a free consultation to find out how you can integrate Cryptocurrencies into your business model. As a boutique law firm located in midtown Toronto, we have the experience and expertise necessary to help you structure your business. PLEASE NOTE: THIS IS NOT INTENDED TO BE LEGAL ADVICE AND SHOULD NOT BE RELIED ON AS SUCH. IT IS IMPORTANT THAT YOU CONSULT WITH A LICENSED PROFESSIONAL. |
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