**During the next few months, hopefully, and based on my available time, I'll publish the full ICO handbook for people who want to know how the law and initial token offerings (also known as Speculative Crpytotoken Allotment Methods) work. This is the preface**.
![IMG_20180110_113053.jpg](https://steemitimages.com/DQmS9e6mX8UjZxxJijfkJTWMM8WFFLTPJsEKMKjHgCKPdTZ/IMG_20180110_113053.jpg)

In 2012, Bitcoin was still the currency of a few internet freaks and pirates; it was used scarcely, and was mostly associated only with the Silk Road darkweb site, a site for exchanging illicit goods and services, paid through with the newly founded cryptocurrency.

This cryptoanarchist community, comprised of a group of geeks, hackers, and math geniuses, needed something to do with all this “internet money”.

Indeed, they had an online exchange, Mt.Gox, which allowed them to exchange this internet money for cash. But they wanted more: they wanted to invest, to grow their money, and to make time pass until the mainstream would acknowledge this coin.

This is the context of our story: a story of an evolving legal environment and statutes that haven't changed for ages.

Erik Voorhees was a Bitcoin enthusiast, one of the many entrepreneurs of this changing world. He heard about an online casino developed by a user called “fireduck” and [bought]( https://www.reddit.com/r/Bitcoin/comments/segz0/anyone_want_to_run_my_bitcoin_casino/ ) it off. According to the Reddit thread, Fireduck invested 45BTC (then US$4.92 per BTC) and made 145 BTC off it. Fireduck sold the website to Voorhees, who then started his marketing campaign.

On April 24th, 2012, Voorhees [released]( https://bitcointalk.org/index.php?topic=77870.0 ) SatoshiDice.com, a fully automated online casino. SatoshiDice allowed users to send Bitcoin, a pseudononymous currency, to a determined address and receive an almost instant payout. 

Voorhees’ gambling website was transparent: it allowed everyone to see the money going in and out, and to see the actual house rules; unlike regular casinos where the house’s payouts are calculated meticulously by outside statisticians, or are concealed, SatoshiDice showed you the exact payout you’d receive and the house’s share off every bet.

SatoshiDice became an almost overnight success. The online casino did not require any registration. Players used Bitcoin’s internal feature, consisting of a unique identifier for each wallet, so that the funds sent from a specific address for each bet would also function as a return address. Within 4 months, Voorhees was rolling large numbers.

On August 22th, 2012, Voorhees [decided]( https://bitcointalk.org/index.php?topic=101902.0 ) to cash out and sell 10% of the casino; he put up a message on BitcoinTalk forums and offered any person who was willing to pay to 0.0032BTC, a mere 3.2 cents at that time, per one share of the company. The Company was valued at around 3,200,000 US Dollars.

Voorhees used MPeX, an online exchange for internet businesses, which was closed down since then. MPeX was then an exchange platform that allowed trading Bitcoin futures, derivatives and other securities. All of this, of course, under a non-regulated corporate environment. There are no actual prospecti, legally structured companies or other ways to ensure the investment goes through.

People bought these stocks, even though SatoshiDice was not an incorporated company; most of them had no idea who Voorhees was, and apart from his public statements on the BitcoinTalk public forums, they only had the blockchain, Bitcoin’s transaction ledger, to verify the actual earnings and turnover of the business. 

And yet, the business succeeded. SatoshiDice’s platform was so transparent that you could see the actual results on the Bitcoin blockchain: every person who knows the Bitcoin address that is used for a specific game could verify its accuracy. The stakes are known from the start and can be easily understood.

In this manner, people calculated whether they thought the investment in SatoshiDice was profitable or not. The math, at that time, was quite simple: a return of investment of [around 10 years]( https://www.reddit.com/r/Bitcoin/comments/yj8l4/satoshi_dice_is_ipoing/ ) just out of the dividends. In real-world terms, this is a great deal for an investor, but in the crypto-world, it was not enough. Early investors in Bitcoin expected results that would outperform the than 10-fold per year they saw from 2009 to 2012; at that time, the Bitcoin rate was floating [around 10$]( https://99bitcoins.com/price-chart-history/ ), after going up to almost 20$ and dropping, depending on the weather and hacks to various exchanges.

Most people who made their money from buying Bitcoins did not think of Bitcoin as an actual investment back in 2012; the person who [paid]( https://bitcointalk.org/index.php?topic=137.0 ) 10,000 bitcoins for two Papa John's pizzas later said that he did not [regret]( https://bitcointalk.org/index.php?topic=109.msg5141191#msg5141191 ) the trade, even though the Bitcoins he had paid have multiplied their value a few orders of magnitude.

SatoshiDice was, therefore, a not so profitable investment: investing on a 10 per cent per year with a coin that doubles every month is not that profitable. However, investing in a company that offers a unique model for investments (Bitcoins for shares) is very interesting. 

In parallel to Voorhees’ IPO, the GLBSE, Global Bitcoin Stock Exchange, was founded by Dr. Nefario (James McCarthy). The GLBSE allowed people to trade stocks in their Bitcoin ventures, where payment is made via the cryptographic currency. Most companies listed were related to Bitcoin mining, gambling or virtual businesses.

[![ICO Talk](http://img.youtube.com/vi/z5yXEJStZHo/0.jpg)](https://www.youtube.com/watch?v=z5yXEJStZHo "ICO Talk")

When people have their funds, they will try to invest them in any way possible. During that time, there were very limited ways to make money in the cryptocurrency field: either mine coins, sell them to others for cash, allow people to gamble or sell “mining contracts”, a special kind of security which offers a person the right to buy off your profits from Bitcoin mining.

All these attempts to create legitimate markets to trade ownership in shared endeavour Bitcoin businesses did not yield legitimate results.  

Soon after the IPO, Voorhees, which was already making substantial profits from the rise of the Bitcoin exchange rate, decided to [sell]( https://bitcointalk.org/index.php?topic=101902.msg2751536#msg2751536 ) SatoshiDice to a Costa-Rican entity: Blockchain Limitada. In such transaction, all of the investors’ minority shares were bought out at a premium of x3 of the Bitcoin value. 

While some doubts were raised regarding Voorhees’ interest in Blockchain Limitada, and while the investors did get their money (in theory) back, the US Securities and Exchange Commission decided to pursue the issue and to investigate.

This was following the SEC’s [warning]( https://investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-alert-bitcoin-other-virtual-currency ) on investments and virtual currency, where the shady practices of the cryptocurrency market were already set up. 

The Securities and Exchange Commission [decided]( https://www.sec.gov/litigation/admin/2014/33-9592.pdf ) that Voorhees’ actions were illegal, made without a prospectus, and in violation of the US Law. In order to reconcile these findings, Voorhees undertook to cease any similar IPO in progress and to pay penalties of approximately US50,000. 

This, of course, was in 2014. 

The SEC thought that these fines and legal findings would discourage any interested parties from conducting similar business and public offerings of shares.

What we can learn from Voorhees’ story is that new business models, such as profit distribution and equity investment, become more transparent and easier in a distributed society. The law is lagging behind, unable to find a potential slot where these new business models can come to effect. We cannot assume that all these methods will be legal and that the existing rationales for consumer protection don’t apply in the virtual world.

What we can assume though, is that these assumptions are meant to change, to evolve, to be amended. We shouldn’t apply the same standards of care for an investment of a few dollars to an investment of a person’s life savings. We need to adapt, to make our laws evolve.

This handbook is made as an abstraction layer. It contains the legal tools for the new crypto-businessman and businesswoman who wants to set up a new business model for the digital age; where shareholders are anonymous, decisions are made by artificial intelligence and the profit distribution models are always evolving. 

This handbook will guide your way, it will help you learn more about the existing models, best practices and precautions that should be considered. However, this handbook does not replace expert legal advice. It provides you with tools, but you should use these tools in conjunction with the assistance of your lawyer. This, indeed, is an abstraction layer: translating the new world tools into old world definitions.

*I'm Jonathan Klinger, I'm a master of law, certified to practice in Israel. I've explored the blockchain, and now I'll be helping you in deciding on whether you should raise funds via a token generating event. I highly recommend you avoid it*.