Evaluation of the legal nature of projects funded with ICOs is extremely important to define the legal and tax characteristics of tokens. The legal qualification of a token has practical implications for the legal status of its creator, token trading rules and other entities (buyers of tokens or intermediaries in their trade). Presentation will focus on legal types of tokens, specific requirements for ICO’s promoters and attitude of regulatory authorities towards token crowdsales in individual countries.

1. INITIAL COIN OFFERINGS –
LEGAL REQUIREMENTS AND
TYPES OF TOKENS
Adam Polanowski, Dispute
Resolution & Arbitration practice,
Wardyński & Partners
adam.polanowski@wardynski.com.
pl
This presentation is for informational purposes only and not for the purpose of
providing legal advice. You should contact your attorney to obtain advice with
respect to any particular issue or problem.

2. A Declaration of the Independence of Cyberspace
by John Perry Barlow
Governments of the Industrial World, you weary giants of flesh and
I come from Cyberspace, the new home of Mind. On behalf of the
I ask you of the past to leave us alone. You are not welcome among us.
You have no sovereignty where we gather.
Governments derive their just powers from the consent of the
You have neither solicited nor received ours. We did not invite you. You
do not know us, nor do you know our world. Cyberspace does not lie
within your borders. Do not think that you can build it, as though it
a public construction project. You cannot. It is an act of nature and it
grows itself through our collective actions.
You claim there are problems among us that you need to solve. You use
this claim as an excuse to invade our precincts. Many of these problems
don't exist. Where there are real conflicts, where there are wrongs, we
identify them and address them by our means. We are forming our
Social Contract. This governance will arise according to the conditions
our world, not yours. Our world is different.
Davos, Switzerland
February 8, 1996

3. BLOCKCHAIN AS A LEGAL
MATTER
Why should we give any consideration to making the
blockchain subject to traditional legal order?
1. Even if blockchain users do not feel the need for
governance by a traditional jurisdiction, this need will
undoubtedly be increasingly felt by traditional legal systems
(taxation of commerce on the blockchain, and the
implementation of specific policies on the blockchain e.g.
preventing potential crimes or frauds)
2. Participants in blockchain commerce will also start to feel
the need to subject the blockchain to traditional legal order
(blockchain participants are still citizens, rights and
obligations under traditional legal order, dispiutes)

4. BLOCKCHAIN AS A LEGAL
MATTER
Three main challenges mean that blockchain regulation will
require a very non-standard approach:
1. It is very difficult to attribute what is happening on the
blockchain to a particular jurisdiction
2. Blockchain is an area that will see increasing numbers of
“autonomous actors” appearing in the form of smart
contracts and the algorithms behind them. Therefore,
events that take place on the blockchain may be
attributed only to a certain extent to traditional legal
entities
3. The dispersed architecture of the blockchain means that
there is no traditional sovereign power that can take
control of what is happening in that space
source and further reading:
Blockchain versus the law by K. Wojdyło https://newtech.law/en/blockchain-versus-the-law/
How may we regulate the blockchain? by K. Wojdyło https://newtech.law/en/how-may-we-regulate-the-
blockchain/

5. ICO AND WHY LEGAL CHARACTERISTICS
OF TOKENS ARE SO IMPORTANT?
These days, we read about tokens mainly in connection with spectacular
ICOs (token crowdsales). The main role of an ICO is to fund projects in
which tokens play the main role. When evaluating the legal nature of
such projects, it is becoming increasingly important to define the legal
and tax characteristics of tokens. This is because the legal qualification of
a token has practical implications for the legal status of its creator
(therefore, also legal obligations on that party), for token trading rules
and for requirements with respect to other parties (buyers of tokens, or
intermediaries in their trade).
In practice, a separate analysis is required to determine the legal status of
each token. As part of it, one must examine:
• the technological aspects of the given token,
• the economic aspects of the token (e.g. distribution model, token
supply, economic functions of the token),
• the given token’s context.
source and further reading:
Tokens, blockchain and the law by J.
Czarnecki
https://newtech.law/en/tokens-blockchain-and-the-law/

6. „Token may be likened to a white sheet of paper:
One may inscribe on it a legally completely
inconsequential text, as a result of which the sheet
will remain just a piece of paper. Nevertheless, if it
contains the words “bill of exchange”, a signature
and other elements prescribed in law, its legal
status changes diametrically: the sheet becomes a
security. In addition, depending on circumstances,
it may also be a contract, a carrier of a work and so
on.”
Tokens, blockchain and the law by J. Czarnecki

7. source and further
reading:
The Token Classification
Framework by Thomas
Euler
https://medium.com/untitled-
inc/the-token-classification-
framework-290b518eaab6

11. ATTITUDE OF REGULATORY
AUTHORITIES TOWARDS TOKEN
CROWDSALES AND
REGULATIONS IN INDIVIDUAL
COUNTRIES

12. LEGAL REGULATIONS OF TOKEN
TRADING IN USA
TOKENS UNDER U.S. SECURITIES LAWS
The recent explosion of tokens sales raises obvious questions surrounding their
status under U.S. securities laws, an inquiry governed by a complicated body of
case law and administrative materials applying a test first articulated by the
United States Supreme Court in SEC v. W.J. Howey Co.109 (1946). Within this
framework, significant uncertainty as to whether digital tokens will be treated as
securities exists.
For investment tokens, which assign economic rights to their holders, the analysis
is relatively straightforward. These are often securities dressed in different clothing
and thus would be subject to U.S. securities laws.
For utility tokens, however, the analysis is more muddled. These tokens combine
functional and consumptive elements with high liquidity and speculative value in
a way that raises challenges under the Howey test
Utility vs Security
source and further reading:
Blockchain-Based Token Sales, Initial Coin
Offerings, and
the Democratization of Public Capital Markets by
Jonathan Rohr & Aaron Wright

13. LEGAL REGULATIONS OF TOKEN
TRADING IN USA
Howey Test:
Under the Howey Test, a transaction is an investment contract if:
• It is an investment of money
• There is an expectation of profits from the investment
• The investment of money is in a common enterprise
• Any profit comes from the efforts of a promoter or third party
Although the Howey Test uses the term "money," later cases have expanded this
to include investments of assets other than money. The term "common
enterprise" isn't precisely defined.
The final factor of the Howey Test concerns whether any profit that comes from
the investment is largely or wholly outside of the investor's control. If so, then the
investment might be a security. If, however, the investor's own actions largely
dictate whether an investment will be profitable, then that investment is probably
not a security.
Utility vs Security

14. Guidelines for enquiries regarding the regulatory framework for initial coin
(ICOs) by FINMA
Published 16 February 2018
At present, there are no ICO-specific regulatory requirements. ICOs raise a variety of legal
issues for which there is no relevant case law and no consistent legal doctrine. Given the wide
variety of types of token and ICO set-ups, it is not possible to generalise. Circumstances must
be considered holistically in each individual case.
Three tokens categories:
• Payment tokens: (synonymous with cryptocurrencies) are tokens which are intended to be
used, now or in the future, as a means of payment for acquiring goods or services or as a
means of money or value transfer. Cryptocurrencies give rise to no claims on their issuer.
• Utility tokens: are tokens which are intended to provide access digitally to an application
or service by means of a blockchain-based infrastructure.
• Asset tokens: Asset tokens represent assets such as a debt or equity claim on the issuer.
Asset tokens promise, for example, a share in future company earnings or future capital
flows. In terms of their economic function, therefore, these tokens are analogous to equities,
bonds or derivatives. Tokens which enable physical assets to be traded on the blockchain
also fall into this category.
FINMA treats asset tokens as securities. Asset tokens constitute securities within the
of Article 2 let. b FMIA if they represent an uncertificated security and the tokens are
standardised and suitable for mass standardised trading
Switzerland – FINMA
guidelines
source: https://www.finma.ch/en/news/2018/02/20180216-mm-ico-
wegleitung/

15. Guidelines for enquiries
regarding the regulatory
framework for initial coin
offerings (ICOs) by
FINMA
Appendix: Minimum
information requirements
for ICO enquiries

16. Guidelines for enquiries
regarding the regulatory
framework for initial coin
offerings (ICOs) by
FINMA
Appendix: Minimum
information requirements
for ICO enquiries

17. EUROPEAN UNION
The European Securities and Markets Authority (ESMA)
Two statments from ESMA (November 2017) - ESMA alerts firms involved in Initial Coin
Offerings (ICOs) to the need to meet relevant regulatory requireme.
If their activities constitute a regulated activity, firms have to comply with the relevant
legislation and any failure to comply with the applicable rules would constitute a breach.
Depending on how they are structured, ICOs may fall outside of the scope of the existing rules
and hence outside of the regulated space. However, where the coins or tokens qualify as
financial instruments it is likely that the firms involved in ICOs conduct regulated
investment activities, such as placing, dealing in or advising on financial instruments or
managing or marketing collective investment schemes. Moreover, they may be involved in
offering transferable securities to the public.
Source: https://www.esma.europa.eu/sites/default/files/library/esma50-157-
828_ico_statement_firms.pdf

18. • Prospectus Directive: It requires publication of a prospectus before the offer of transferable
securities to the public or the admission to trading of such securities on a regulated
situated or operating within a Member State, unless certain exclusions or exemptions
Depending on how the ICO is structured, the coins or tokens could, potentially, fall within
the definition of a transferable security, and could therefore necessitate the publication of
prospectus which will be subject to approval by a Competent Authority
• The Markets in Financial Instruments Directive (MiFID) In the case of ICOs, where the coin
or token qualifies as a financial instrument, the process by which a coin or token is
distributed or traded is likely to involve some MiFID activities/services, such as placing,
dealing in or advising on financial instruments.
• The Alternative Investment Fund Managers Directive (AIFMD) Depending on how it is
structured, an ICO scheme could qualify as an AIF, to the extent that it is used to raise
from a number of investors, with a view to investing it in accordance with a defined
investment policy. Firms involved in ICOs may therefore need to comply with AIFMD rules.
particular, AIFMD provides for capital, operational and organisational rules and
requirements.

19. The Polish Financial Supervision Authority statement on selling so-called
coins or tokens
22 November 2017
The KNF informs that investing in tokens, as part of ICOs, is highly hazardous
Therefore, the KNF would like potential investors, as well as entities interested in offering such
products, to pay attention to specific and meaningful risks connected with ICOs. Potential
buyers shall be especially aware of the possibility of losing all capital invested and possible
of legal protection.
Risks associated with investments in ICOs:
• Unregulated area, prone to frauds and other irregularities
• High risk of loss of some or all of the invested funds
• Lack of information, inadequate documentation
• No possibility to “exit” the investment and extremely high volatility of its value
• Flaws of technology used
source:
https://www.knf.gov.pl/knf/en/komponenty/img/The_KNFs_statement_on_selling_socalled_coin
s_or_tokens_ICO_60238.pdf

21. LEGAL REQUIREMENTS
FOR ICO’S PROMOTERS
UNDER POLISH LAW
There is no ICO-specific regulation in Poland. However, depending on the features
of the tokens issued in the ICO, the following legislation may apply (Civil Code of
23 April 1964, Electronically Provided Services Act of 18 July 2002, Consumer Rights
Act of 30 May 2014).
Regulations applicable to securities tokens include the following legislation:
• Trade in Financial Instruments Act of 29 July 2005;
• Public Offering Act of 29 July 2005;
• Bonds Act of 15 January 2015; and
• Investment Funds and Management of Alternative Investment Funds Act of 27
May 2004.
Several ICOs have originated in Poland. In most cases, the structure included a
separate legal entity to collect funds. Once the ICO completed, the funds were
transferred by various means to other entities responsible for product
development. This structure often avoids the implication of regulated activities,

22. CRYPTOCURRENCIES AS SUBJECT OF ANTI
MONEY LAUNDERING AND COUNTERING
FINANCING OF TERRORISM (AML/CFT)
REGULATIONS.
Currently, legislative work on these regulations is nearing the end, both at the EU-level and in
Poland. One of the main goals of the 5th AML EU directive (5AMLD) is the strengthening of
transparency rules in financial transactions.
The process of implementing 4AMLD into the Polish legal system is ongoing. The Polish
regulations will also address ’virtual currencies’ – a subject matter addressed in the still
incomplete 5AMLD.
The key impacts of the proposed regulations (in their current versions) will include:
• A new definition of ‘virtual currencies’
• Applying AML regulations to cryptocurrency exchanges

23. CRYPTOCURRENCIES AS SUBJECT OF ANTI MONEY LAUNDERING
AND COUNTERING FINANCING OF TERRORISM (AML/CFT)
REGULATIONS.

24. A NEW DEFINITION OF ‘VIRTUAL
CURRENCIES
Both the draft directive and the proposed Polish act include a definition of ‘virtual currency.’ This
significant development will impact how the new regulations are applied to cryptocurrencies such as
Bitcoin and Ether and, potentially, to a wide variety of tokens.
Polish act defines “virtual currencies” as “a digital representation of value which is not:
1) a legal means of payment issued by the National Bank of Poland, foreign central banks or other
public administrative bodies,
2) an international settlement unit recognised by an international organisation and accepted by
countries belonging to or cooperating with the organisation,
3) electronic money within the meaning of the Payment Services Act of 19 August 2011,
4) a financial instrument within the meaning of the Act on Trading in Financial Instruments of 29 July
2005, or
5) a promissory note or check,
and is exchangeable in commercial turnover for legal means of payment and accepted as a
means of exchange, and also can be transferred, stored and traded electronically

25. APPLYING AML REGULATIONS TO
CRYPTOCURRENCY EXCHANGES
One of the key goals behind the new rules is ensuring that entities facilitating access to ‘virtual
currencies,’ especially ones which operate at the nexus of traditional financial institutions and blockchains,
are subject to AML regulations.
As set out in the Polish act, this will involve the imposition of legal obligations on:
“entities engaged in providing:
1.exchanging services between virtual currencies and fiat currencies,
2.exchanging services between virtual currencies,
3.facilitating exchanges listed in a) or b), or
4.custodial wallet services subject to (2)(17)(e)”.
Item d) refers to ‘virtual currency’ wallets which are defined as “digitally-stored credentials necessary for
authorised persons to access virtual currency units and execute transactions including their exchange.
It is important to note that the scope of the proposed Polish act would extend beyond the draft EU
regulations. The Polish proposal would apply AML rules not only to entities providing “exchanging
services” (e.g. exchange bureaus) and “facilitating exchanges” (e.g. exchanges) of “virtual currencies” into
traditional currencies but also ones which conduct “exchanging services between virtual currencies”
(crypto-to-crypto).

26. POTENTIAL CONSEQUENCES
Sources and further reading: Important regulation impacting blockchain technologies (especially
ICOs) in Poland by J. Czarnecki
https://newtech.law/en/important-regulation-impacting-blockchain-technologies-especially-icos-in-poland/
The newly introduced definition of ‘virtual currency’ is quite imprecise and broad-ranging. As a result, we
can expect that the term ‘virtual currency’ will apply not only to well-known cryptocurrencies (e.g. Bitcoin)
but will also cover a wide variety of tokens
This would mean that many token-to-token exchanges would also be covered under the new regulations.
Within this context, ICOs (coin offerings as means of raising capital for new ventures) represent a unique
scenario. Most ICOs involve the exchange of ETH for newly introduced tokens. If these tokens fall under
the new definition of ‘virtual currency,’ all ICOs would potentially be classified as “exchanges between
virtual currencies” under the proposed rules.
Also, it is important to note that this regulation would most likely be unique to Poland (as it is not part of
the Commission’s draft directive). Meanwhile, crypto-to-crypto exchanges are provided by entities across
the world and can be accessed through any internet connection. As a result, there are serious doubts
whether the proposed provisions would have any practical impact on money laundering operations.

27. Thank you for your attention.
Adam Polanowski, Dispute Resolution &
Arbitration practice, Wardyński & Partners
adam.polanowski@wardynski.com.pl
Conntact to blockchain team:
Krzysztof Wojdyło
krzysztof.wojdylo@wardynski.com.pl