Where Should you Base your Crypto Startup?
While blockchain technology is globally being lauded as one of the most disruptive innovations, the crypto-friendliness of individual countries varies widely. There are jurisdictions that are more welcoming than others to projects utilizing distributed ledger technology and cryptocurrencies.
Certain factors such as a favorable regulatory framework, political goodwill, and crypto taxation laws are likely to have a significant effect on how well a country is able to support crypto startups. Therefore, when deciding on the location of your startup, it is imperative to pick a nation that has created a conducive environment for your business to fulfill its mission.
In order to help you decide on where you should base your blockchain project, read on to discover the ten most crypto-friendly countries, in no particular order.
Malta is taking a favorable stance towards blockchain and cryptocurrency businesses as it aims to become known as the “blockchain island.” Earlier this year, leading cryptocurrency exchange, Binance, announced its move to Malta due to the nation’s positive regulatory stance. The exchange has followed its relocation with plans to establish a bank in Malta, signaling a conducive environment for crypto businesses.
This environment is made possible by the regulation put in place by Malta’s legislators. The country has published a document inviting feedback from members of the public regarding proposed regulation on various aspects of the blockchain sector. The regulation aims to streamline the crypto sector, making it easy for both individual investors and startups. This is part of Malta’s push to become the go-to location for crypto projects in Europe.
The cryptocurrency sector is also backed by political goodwill with Malta’s prime minister Joseph Muscat showing support for DLT-based projects. Regarding the country’s continued push for legislation, Muscat explained:
“Although we may have problems along the way, we will be pioneers in the world doing this. Our direction is clear. They are not coming for the tax benefits, but because we are going to have a regulator which, so far, are going to be the first in the world, and I can assure you it will be the best in the world.”
The European country of Estonia is a popular choice for cryptocurrency startups. The forward-thinking country has set up an e-residency program that allows entrepreneurs to digitally become citizens. Once this is done, they have access to a wide array of business tools.
The program has generated immense interest from those within the crypto-economy. Kasper Korjus, the Managing Director at Estonia’s e-residency program, detailed how the program benefits participants, mentioning “100% online cross-border management” and “0% corporation tax on undistributed profits.” Further, crypto entrepreneurs save money and time on KYC practices by using the program’s “secure digital identities.” Lastly, he stated:
“Everyone’s heard stories about investors losing access to their crypto tokens — perhaps because they forgot their private key for example — but this doesn’t happen to e-residents if their wallets are linked to their government-backed digital identity.”
In addition to the low taxes, Estonia’s regulatory framework is conducive for crypto startups. The country continues to be proactive when it comes to creating a legal framework that protects the public while simultaneously promoting the growth of the sector. Estonia requires crypto businesses to acquire a cryptocurrency exchange license, but the process is streamlined and user-friendly.
The country aims to be a popular choice for crypto projects and is even considering launching its own token to further support these efforts. “We’re working to make e-Residency the best option globally for entrepreneurs launching a trusted ICO, while proceeding with three variants of our own ‘estcoin’ under consideration,” added Korjus. Lastly, the cost of doing business is lower in comparison to other European countries.
Switzerland ranks highly on the list of the most crypto-friendly nations. This is evidenced by the ever-growing list of blockchain-based projects based in the European country. These include Xapo and the Ethereum foundation, as well as the recently launched Tezos.
The country has established what is now being referred to as “Europe’s Crypto Valley” in Zug. The regulatory framework is attractive to developers as it is flexible enough to accommodate the growing crypto sector. Additionally, Switzerland took a proactive stance on providing guidance regarding the legal standing of ICOs, making good on its aim of becoming a crypto nation as announced by its economics minister.
Switzerland also has an attractive taxation scheme for people participating in crypto trading. Lastly, the stringent data protection and privacy laws within the country make it attractive to blockchain projects as they are able to meet their users’ needs effectively.
In 2014, the United Kingdom established a project called Innovate through its regulator, the Financial Conduct Authority (FCA), which allowed startups to test their products in a “regulatory sandbox.” This environment would allow the developers to see how their solutions would perform in real-world situations.
Through the sandbox, the FCA allowed startups to operate in a conducive regulatory environment while still providing adequate protection to members of the public. At the launch of the first cohort of Project Innovate’s regulatory sandbox, Christopher Woolard, Executive Director of Strategy & Competition at the FCA, stated:
“The FCA’s regulatory sandbox was a first for regulators worldwide and underlines our deep commitment to innovation and our willingness to think outside the usual regulatory parameters.”
Woolard also said that the FCA was happy to have found a way of welcoming new businesses while simultaneously making sure that “…appropriate consumer protection safeguards are in place.” At its first cohort, the project accepted 18 blockchain-based projects. In the following years, blockchain-based startups continued to be accepted and allowed into the sandbox.
Furthermore, London is a major global financial center as well as a fintech hub. Hence, raising capital, entering into partnerships, and finding talent is easier in London than in most other countries listed in this article.
The US is also considered a crypto-friendly nation. However, this varies from state to state. Nevada, Arizona, Texas, and New Hampshire are the states that have enacted legislation that is blockchain-friendly. Nevada’s bill, for example, ensures that blockchain use remains tax-free, while Arizona legally recognized smart contracts and other blockchain-related activity as binding.
While these states have taken a proactive and positive stance on blockchain-based projects, most other states require all crypto startups to acquire licenses from relevant bodies before they can begin operating. Therefore, when it comes to the US, it is important to choose the right state from which to base your crypto startup.
Belarus is the first country in the world to recognize smart contracts as legally enforceable agreements. The country passed the decree into law on December 22, 2017. Ratified by President Alexander Lukashenko, the “On Digital Economy Development” decree made smart contracts, ICOs, and cryptocurrencies legal.
The law allows individuals to participate in a wide array of crypto-related activities with little regulatory restriction. Additionally, all cryptocurrency-related activities, such as mining and trading, will remain tax-free until 2023.
The director of the government-mandated technology hub, The Belarus Hi-Tech Park, Vsevolod Yanchevsky, explains the country’s dedication to creating a favorable environment stating:
“Having adopted the Decree, Belarus becomes one of the world’s most comfortable jurisdictions for IT business. Besides, the country is creating favorable conditions for the development of blockchain technology and businesses based on it.”
Gibraltar has introduced a number of features that are designed to make the nation attractive to entrepreneurs creating blockchain solutions. The country launched a digital asset exchange called the Gibraltar Blockchain Exchange in 2017. The (GBX) is an official subsidiary of the Gibraltar Stock Exchange (GSX).
The GBX is designed to “be one of the world’s first licensed and regulated token sale platform and digital asset exchanges that is operated by a European Union (EU) regulated stock exchange.” The GBX hopes to facilitate the trade of crypto tokens in an environment that is as secure as possible for all participants within the market.
Prior to its launch, the exchange reportedly had over 200 ICOs submit applications for the exchange. Nick Cowan, the GBX CEO, said that he anticipates major action regarding “the tokenization of financial markets and whole economies.” He sees a future in which Fortune 500 companies and governments will use cryptocurrencies to raise funds. Further, he stated, “We see the potential for substantial cross-over between the crypto community and mainstream institutional investors.”
The country hopes to replicate the success it has had with regard to the gambling industry and has enacted legislation designed to grow the crypto sector. The new laws are conducive to continued growth as they feature attractive taxation schemes.
The Cayman Islands has long been considered a conducive nation for financial services. This is similar for crypto-based startups. The country features a narrow definition of securities in its legal framework which means that ICOs are not denoted as securities.
“ICOs in Cayman are generally accepted as not being captured by Securities Law because they are not frequently traded instruments under Cayman’s narrower legal definition.” This is an easier environment for crypto startups looking to launch a token sale.
Additionally, the Cayman Islands has an attractive tax structure. “In the Islands there is no tax rate for any type of activity (only the stamp duty is mandatory, which is 7.5% and is levied on the sale or transfer of real estate).” This is an obvious advantage.
Singapore continues to attract a number of cryptocurrency startups. This is due to the country’s approach to regulation of the crypto sector. The Monetary Authority of Singapore (MAS), which is the body tasked with overseeing all money-related activities in the country, has taken a neutral stance to the crypto sector, particularly ICOs.
The body stated:
“…MAS has observed that the function of digital tokens has evolved beyond just being a virtual currency. For example, digital tokens may represent ownership or a security interest over an issuer’s assets or property. Such tokens may, therefore, be considered an offer of shares or units in a collective investment scheme1 under the SFA. Digital tokens may also represent a debt owed by an issuer and be considered a debenture under the SFA.”
In addition to the wait and see approach, Singapore has good infrastructure and great connectivity which are conducive to a positive business environment for tech companies.
Mauritius has taken a neutral stance on the crypto sector, avoiding enacting regulation that may stifle the industry. Additionally, the country established a sandbox through which startups would be able to participate in the market without much trouble.
Moreover, ICOs are not classified as securities, giving greater wiggle room to projects looking to raise funds in this manner. “Unless the white paper detailing the token sale describes the tokens so that it falls within the above-mentioned definition of securities, ICOs remain unregulated under the Securities Act of Mauritius.”
Furthermore, Mauritius possesses good infrastructure and a good legal system, as well as adequate internet connectivity, all of which are essential for the growth of the industry.