Blockchain unchained

Germany's 'Wild West' laws lure cryptocurrency IPOs

Cowboy on horse with lasso driving cattle through central Oregon PUBLICATIONxINxGERxSUIxAUTxONLY Cop
German ICO investor, unencumbered by regulation. Source: Imago

As authorities in the US tighten their regulations for cryptocurrencies like Bitcoin, upstart financiers are turning to countries in Europe to raise funds from Initial Coin Offerings, or ICOs. Paradoxically, Germany – widely regarded as a digital laggard whose society is stuck in the hard-cash era – is drawing more ICO projects than ever before, thanks to startling laxness in its financial laws.

Experts point to Germany’s stable economy, burgeoning startup scene and oddly relaxed attitude towards initial coin offerings, which makes it similar to that of Switzerland and tax havens like Gibraltar and the Cayman Islands. Alarmed at the potential for dubious dealings, German politicians have called for a crackdown on the “Wild West” of lawless ICOs, and for greater clarity from financial regulators.

ICOs are similar to initial public offerings, or IPOs, in which companies float on the stock exchange. Rather than receive shares, investors get crypto “tokens” or coins that are ostensibly linked to the company’s future value and are cryptocurrencies in their own right. They tend to be a purely speculative investment and their buyers, who often pay in Bitcoin, usually have no voting rights in the company. Bitcoin and other cryptocurrencies run on blockchain or their own version thereof – a digital ledger that records transactions, called blocks, and validates each new transfer from several, independent sources.

As the value of cryptocurrencies soared last year, ICOs also flourished. In 2017, companies are thought to have raised around $5 billion (€4.1 billion) through ICOs, according to Coindesk, a cryptocurrency news service.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.