Akasha will be speaking at Intersekt, Australia’s leading Fintech Festival, October 30, on the panel ICO 2020: Should there be an alternative regulatory framework for ICOs? Here is Akasha’s article on the question of regulating Australian ICOs from the ADCA roundtable in August.
How do we make Australia a hub for blockchain innovation? That was the question that started the day at the Australian Digital Commerce Association‘s industry roundtable in Melbourne in August.
Representatives of leading blockchain and ICO projects at all stages of development were invited to come together and share their perspectives and experience. It was an encouraging afternoon of open sharing, exploration, and collaboration.
Consider this for a moment. There were 827 ICOs in Q2 2018, and 14 of those were by companies registered in Australia, raising $109M USD between them. If we include ICOs of teams domiciled in Australia, it takes the number of Australian ICOs up to 18. (Source: ICOrating.com)
Given that more than 400 of these ICOs failed to raise more than $100,000 USD, and roughly another 200 failed to raise over $500,000 USD, these stats put Australian based blockchain startups as leaders of the pack.
However, what challenges are this new breed of entrepreneurial teams facing, and what are we, as a country, doing to solve them?
Blockchain as an industry is less than 10 years old. Startup teams reported that of seed funding raised, the vast proportion of it was going to legal and accounting firms simply to obtain advice that may not even be correct before they even went to ICO. The teams expressed that, in actual fact, most often they were educating the legal and accounting firms about the cryptocurrency industry rather than the other way around – and paying for the privilege.
Those who had other non-blockchain startup experience concurred hands down that these costs were far more oppressive in the blockchain industry than in any other enterprise they had ever been part of. Nevertheless, having written legal and accounting advice from large reputable firms was essential to demonstrate that they had bona fide intentions to abide by Australian law should they be called to account, even if that advice turned out to be wrong.
Since the rules are being made as we speak, they said, they shouldn’t be applied retroactively and their should be a good faith process for appealing.
Advanced teams expressed frustration with taxation regimes that taxes ICO funds as revenue, rather than regarding it as capital raised for the purpose of building a business. ICO investors buy tokens in order to fund business development – not for this money to go to a taxation department. Teams suggested that a more forward thinking view would be to enable teams to use this money for the purposes it was given to them – to build a technology project – and that the government should then tax revenue from the platform. Taking the money before it could be used for development was, they said, stifling their ability to innovate to their fullest potential.
Another trouble caused by this was that the tax was charged in dollar value at the time it was paid, and not in the cryptocurrency it was paid in, or in fact that cryptocurrency’s value at the end of the financial year.
We all know that, as an industry, we have bull and bear cycles. Teams suggested that those ICOs that raised funds in the last bull run of Dec-Jan last financial year were likely to be bankrupt now if they hadn’t immediately sold their cryptocurrency for fiat at the time it were raised. Cryptocurrency like ETH and BTC that are now worth quarter of their value would nonetheless be being taxed at their peak rates – a taxation bill which may well be larger than their current exchange value. The solution to this, the teams proposed, was to accept tax in the cryptocurrency it was raised in.
And what about team members who have entitlements to native tokens in escrow – will they be taxed at the value of the tokens when they are released from escrow, or at the rate of pre ICO value when the entitlement to payment was incurred? It was these kinds of niggling uncertainties that were causing deep frustration.
And the confusion about the legality of security versus utility tokens was causing teams to potentially “dumb down” their tokenomics models, making their platforms less democratic and less decentralized in the long run rather than be interpreted in the short term as giving their platform participants a “right” to a “share” via votes and staking.
Despite these challenges, teams expressed their desire to register and remain in Australia. They said that being Australian gave their project recognizable legitimacy in the world – something which is highly encouraging to the future of the industry here. It gave them, effectively, the unique stamp of being “Australian Made.” Between being given the choice to stay and go, they would stay unless absolutely forced by the legal and taxation regimes to go. They wanted to see something like the ASIC guidance paper 225 but for the cryptocurrency and ICO industry, and greater legal and accountancy education led by public institutions – or, otherwise, a government dollar for dollar rebate for the costs they incurring to do it for them.
Blockchain technology – peer to peer cryptographically secured distributed ledgers – is at heart a governance technology. Not only are blockchain teams building new technology, they are the experimenters, innovators, and inventors of a whole new model of social, economic and corporate governance. We all see blockchain as being be the launch pad of a massive leap forward in trade and development akin to the invention of double ledgers by an Italian mathematician in the Renaissance, and the invention of ledgers themselves (and writing with it) in Bronze age Mesopotamia 3,500 years ago.
All the legacy systems that we are dealing with as an industry were in place to govern centralized institutional systems that wielded great power – and may well be simply unnecessary overkill in an industry where blockchain technology removes that centralized point of control. The technology we build may well be transparent, but so far, the steps to establishing and operating the enterprises equipped to build it is the least transparent step of all.
Nevertheless, the prospect for the industry in Australia remains positive. The biggest thing in our favour? Our can-do attitude and our willingness to help each other and work together in an open community that shares wisdom and talent. Our community is our greatest currency, evident in not-for-profit advisory and co-working institutions like The Blockchain Centre that hosted the round table.
Want to chat more? Join us on Telegram at t.me/blockchainmelbourne
Akasha is a blockchain corporate strategy advisor and communications specialist. She is Engagement Director at iomob.net and Advisor at Block.loan, Allrites.io, Bitlumens.io and Realinvest.io, a co-founder of Blockchaincities.io, a team member of Femergy.com and an Ambassador for NEM. She is also community manager of the largest private women in blockchain group on Telegram WIBI.io. She’s known as “Miss_Blockchain” on Twitter. Views are my own.