Gibraltar hopes the move will place it at the forefront of the crypto race.

A Gibraltar-based law firm could help breathe new life into initial coin offerings (ICOs), as it claims it has developed the first piece of legislation regulating the controversial fundraisers which are prohibited in certain jurisdictions, including China. 

Ellul & Co hopes its “comprehensive regulation for [distributed ledger technology] or blockchain businesses” will “provide a gateway for ethereum ICOs” into Gibraltar, offering them a “trustworthy destination” at a time when they are banned in both China and South Korea while coming under intensified regulatory scrutiny across other jurisdictions. 

The new laws will enter into force in January 2018. 

"DLT Investors can now have confidence in the fact that if they select a Gibraltar-licensed DLT firm and are actively supervised and have regulatory principles attached, crypto-currency advisor Trent Challis said. “It sends the message that Gibraltar understands DLT business, embraces innovation and is willing and able to license good quality firms," Challis continued.

ICOs, a meld of crowdfunding and an initial public offering (IPO), involve the sale of digital tokens by blockchain start-ups looking to grow their business. But unlike a traditional IPO in which investors get shares, investors in ICOs are instead rewarded with mini crypto-currencies, the value of which is directly tied to the business' performance. This means the digital coins grow in value only if the start-up's operation or network proves viable, attracting more investors and driving up liquidity.

While many ICOs are kosher, some are fraudulent, and warnings have been fired over scams leaving one-in-10 investors penniless.

“Gibraltar and Ellul & Co are embracing DLT and believe that the framework can only be beneficial as the country seeks to create an environment which is both safe and well regulated for DLT-based businesses,” Ellul & Co said in a statement.

The law firm and Gibraltar’s government have agreed that the legal framework should be flexible enough to accommodate new use cases of blockchain technology, making the legislation “able to respond to the change that will inevitably lie ahead,” Ellul & Co said. 

Gibraltar’s move contrasts China, which last month declared ICOs illegal as it sought to rein in risk and control external fund flows. The country also ordered domestic bitcoin exchanges to shut shop, in a drastic move amid speculation China’s government felt uneasy about the potential threat crypto-currencies pose to fiat money.  

Meanwhile, both the UK and Australia have said they will evaluate ICOs on a case-by-case basis and that they could come under the scope of securities regulations. In July, Wall Street’s main watchdog, the Securities and Futures Commission, made a similar announcement. 

By mid-July this year, technology firms had raised around $1.1 billion through 89 coin sales, roughly 10 times more than that in the whole of 2016, according to Reuters data.