How to apply for a cryptocurrency license? Things to know

Adrien Marchand   09/09/2021

What is a crypto license, and why is everyone getting one now?

In this blog post, you will understand why it is important to start your crypto venture with a crypto license and what options you have to choose from

Cryptocurrencies are disrupting the world at an increasing pace. It is so new and game-changing that most people don’t know how serious it is. Are cryptocurrencies a scam or the next leap in technology since the internet? The turn of events tends to push the balance on the side of the former affirmation. Bitcoin is increasingly recognized as a store of value and a mean of payment, especially in Latin America and in Africa.

Cryptocurrency may just take over the world and change finance and trade as we know them. This is the forecast of many economists and tech insiders. Being a massive, exciting and growing industry, entrepreneurs and investors are increasingly focusing on the market. As a response, to avoid and minimize scams and wrongdoings in a profitable industry, lawmakers have started to regulate activities related to blockchains. This is how cryptocurrency licenses were born.

A short view back to the past

The first regulating certificates were cryptocurrency trading licenses and cryptocurrency broker licenses. Basically, it allowed a company to provide their customers with a decentralized exchange, peer-to-peer transactions and to store their virtual assets on their behalf. One of the first published such framework was enforced in Estonia, which, as of 2021, remains subjectively speaking one of the leading jurisdiction for most types of crypto-related business activities.

After Estonia, many countries have been looking forward to producing a framework for cryptocurrency activities. Among the most famous and regarded cryptocurrency licenses, we can quote Malta, Singapore and Gibraltar. 

Nowadays, we are seeing frameworks emerge in all parts of the world. Asian new “dragons” like Thailand, Malaysia and the Philippines, old European players such as Luxembourg, France and Germany, or even classical offshore jurisdictions and tax havens are more and more leaping into creating crypto frameworks.

Why is a cryptocurrency license so important?

Legal crypto exchanges have an edge: they are considered trustworthy. A license is a permit to do business, in exchange for a review of your operation. This is a guarantee and a proof of seriousness for your clients.

To get licensed, you need to show guarantees and seriousness to a regulator in return. This always means showing the background of the participants: their experience, skills and if they have been in trouble with the law before.

Many regulators will want to understand your systems and business model. They require a description of all the money flows in your project (including the source financing) as well as a demonstration of your software.

But the main element for every regulator is the compliance to anti-money laundering (AML) guidelines, through the application of know-your-customer (KYC) due diligence. It takes place before the beginning of a business relationship: when you identify your client and the source of their funding, before giving them the green light to use your services.

Should I get a crypto license in the USA?

A major player in the regulation of cryptocurrencies had to be the United States. Cryptocurrency licenses in the USA are very sought after.

As the main financial center in the West, holding a license in the United States would certainly position your firm as top-notch. In practice, licensing doesn’t work at a federal level. This implies that each state has its own take on regulating cryptocurrency: to work with all states, you have to comply and get licensed everywhere. This is not a reasonable option, unless your budget is massive and you are putting on a very aggressive strategy to dominate the market.

Important note: unless specifically forbidden by the jurisdiction, any citizen of a country can engage in a business relationship with a foreign country. This means that any US citizen can become a client of a non-US cryptocurrency company, if it hasn’t been explicitly forbidden.

The right cryptocurrency license for my project?

This is one of my favorite parts of our job at LegalBison: assessing the best jurisdiction for the cryptocurrency projects that our clients trust us with. There are no two similar projects and many variables should be taken into account before going shopping for a crypto license: the activity, the market, the funding, the software providers, etc…

It would be difficult to explain in just one blog post what we do at LegalBison to ensure that a project gets the best suitable license. Especially since regulations are evolving at a fast pace. It took less than three years to redesign the Estonian crypto licenses. Regulators are publishing articles, statistics and studies on a weekly basis.

This means getting our head afloat in the ongoing flow of novelties is a day-to-day job. I cannot emphasize how important it is to work with an experienced corporate services provider to start a crypto company.

The timing to get your project licensed

When is a good time to get licensed? Should it be pre-ICO, post-ICO? What is a pre-ICO license?

The idea is that licensing must occur before you start accepting money from your customers. That is, before the ICO, or the pre-ICO if you plan one of these ways of funding. And that’s an important point. Because your funding is expected to be developed in a legal document for crypto ICO.

A more general rule of thumb would be: the earlier, the better. But the latter is definitely before accepting transactions with your clients.

Roadmap to getting a cryptocurrency license

  1. The first step is to assess if you need a license. Is crypto consulting legal without a license? It actually depends on the laws of the financial regulator of your country. Consulting about crypto investments is likely to be perceived as financial advice, which requires due certification in many jurisdictions.
  2. The second step is to go license shopping and determine the best jurisdiction to host your project and company.
  3. The third step is the company registration, followed by the licensing part, which is the trickiest: it’s about demonstrating the trustworthiness of your project and the people behind it. Each regulator has its requirements.

For all three steps, the most effective and safe way to go is to get the help of a corporate services provider such as LegalBison, whose focus always has been on helping cryptocurrency entrepreneurs hit the ground running.