Legal and Taxation system for ERC-20 token in an ICO

The ERC-20 token provides token balances for several tokens and

also creates a way  for exchanges to list more tokens through the provision

of that token’s contract address. Additional features of the token are the name

of the token, the symbol and number of decimals. This additional features

are optional and are usually made available as details to the user.

The name of the contract is the name by which the token is identified by.

The length of this name is  not restricted but it is advisable that the length

of the name is not too long as it can be truncated by the wallet being used.

E.g. your Name

The symbol of the contract is the symbol by which the token should be

known by. It is usually 3 to 5 characters in length. Howbeit, the length of the

symbol is not restricted. E.g. USA

The number of decimals of a token contract refers to how divisible a token

can be, ranging from zero(not divisible) to eight(divisible).

Get Feedback on your Token

Is it Legal?

We have earlier established that the system of cryptocurrency is not

centralized i.e it does not have a general body overseeing its

operation/transactions. In year 2017, during a consensus, it was disputed

that ICO should have a legal or governing body so as to protect investors

from fraudulent activities which occurs from transactions. But as the writing

of this article, no governing body or form of regulation has been put in

place. However, depending on who you talk to, ICOs are legal or not.

Also, there exists some legal hurdles which could hinder the sale or

exchange of tokens

1. Taxation system
2. Terms and conditions
3. Commodities laws
4. Consumer protection
5. Incorporation
6. Securities laws
7. AML(Anti-Money Laundering)/KYC(Know Your Customer).

Taxation System

The exchange of tokens for currency or tokens is a taxable event.

This is because it is a form of transaction where an exchange occurs.

Terms and Conditions

In the launching of an ICO, it is important that there be laid out rules,

regulations, terms, conditions,risks, warranties, uses and fundamental

legal issues, which should be made known to potential investors.

This rules and regulations should be the central legal form of communication

and agreement between the project and the public(investors/buyers).

The investors want to be sure that their investment will be safe,

protected and will yield increasing profits as the value of the tokens increase.

Commodities Laws

Your tokens can represent anything, from financial instruments to assets.

In the exchange of this assets, it may be regulated. In the

United States, the CFTC(Commodity Futures Trading Commission) is

the regulatory body for commodities. Giving the example of a house,

if your token was to represent this, it will fall under commodities regulation.