China Bans ICOs and Bitcoin Trading
By Erik Paluka
This quarter, the community was starting to get ready for the contentious 2MB hard fork of Bitcoin, dubbed Segwit2x, happening on November 18, 2017. Little did we know, China (and now South Korea) would blindside everyone and ban initial coin offerings (ICOs). On top of that, China has also moved forward to prohibit the trading of Bitcoin. This ban means that in the next couple of months, all Chinese cryptocurrency exchanges will cease to allow its customers to buy or sell any virtual currency or token. It also means that blockchain based startups will not be allowed to fund their projects by selling virtual tokens because they’re deemed a form of unapproved illegal public financing.
China’s ban on ICOs came on the heels of a crazy few months where we’ve seen over a hundred ICOs ranging from distributed data storage to a mobile gaming platform. Since these projects have been able to raise over $2 billion USD this year, many market participants are getting in the ICO game as they see it as a way to get easy money. With that, comes a lot of scams and false promises which is at the heart of why China is banning ICOs. A lot of these ICOs are raising millions of dollars based on ideas without a working product, which is unheard of in the venture capital market.
Even though scams and other fraudulent activity should be prevented, a sweeping ban effectively kills innovation in China and has ripple effects around the globe. However, many people argue that this is just temporary until the proper regulatory frameworks are in place.
As for the ban of Bitcoin trading, China wants to prevent people from being able to launder money from criminal activity, as well as reduce the net outflow of capital from its borders. Once someone has purchased Bitcoin, it is extremely easy, cheap, and fast to send money anywhere in the world. Rumour has it that China is actually planning to issue its own digital currency. With this news, Bitcoin went from an all time high of around $5000 USD on September 1, 2017 to $3000 USD on September 15, 2017, according to CoinDesk’s Bitcoin Price Index (BPI). That’s a drop of 40% in two weeks, but as we’ve seen, the market has started to recover. The second largest economy in the world banning cryptocurrencies is definitely a large blow to the overall market, but there are silver linings to it.
For one, it further solidifies how Bitcoin is not controlled by any country. It is a truly decentralized payment network that provides monetary freedom from debt-based government issued currencies that decrease in value due to inflation. With Bitcoin now being beamed down to Earth from satellites in space, it will be able to get past any “firewall” that a country might put up. Secondly, this most likely means that China is actively working towards regulating cryptocurrencies. The faster that proper regulations are put in place around the world means the sooner Bitcoin will be able to reach more people, with the ultimate goal of mass adoption and monetary freedom for all.
Erik Paluka is a Lead Agile Software Engineer at TribalScale with a strong affinity towards all things related to cryptocurrencies. With a background in computer science research, Erik likes to focus on developing and employing new technologies in the fast moving tech space. An avid investor, he also enjoys balancing his life with his love for fitness and travelling.
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