Cryptocurrency has indeed made a name for itself. The digital currency is even being used in businesses and venture capitalists. You’ve probably heard of the term IPO or Initial Public Offering, right? This is where a company will sell off portions of its shares to the public through issued stock. With cryptocurrency and coins, that process has been modified and a new process called Initial Coin Offering emerged. This is the same as an IPO but here, people buy shares through tokens.
Cryptocurrency was big in China
This process was quite popular in China where digital currency entrepreneurs have been riding the cryptocurrency wave to make millions of dollars. In fact, China houses one of the world’s most active bitcoin communities and has played an active role in the ICO boom. Unfortunately, that wave came crashing down today. China banned and has made illegal the practice and process of raising funds through token based digital currencies. This also means that you can’t raise money, exchange, trade, banks cannot offer services related to them. If you’ve already raised money through an ICO, you’re supposed to refund the money as well, essentially liquidating it.
They are aiming this at the ICO which have fueled a rapid increase in cryptocurrency since the beginning of 2017. If you recall, Chinese bitcoin exchange BTCChina stopped accepting deposits in Chinese Yuan in the year 2013, which caused bitcoin to drop by 50% that year from $1,200 to $572. That ban was then lifted and the price of Bitcoins rose again.
Just for the record, a total of $2.32 Billion has thus far been raised through ICOs, of which $2.16 Billion was from the beginning of the year 2017. The rapid increase in ICOs lead to the SEC or Securities and Exchange Commission in the US to warn people that ICOs should be regulated as well. This happened in July 2017. ICOs are essentially an investment funding where startups either new or existing types of cryptocurrency in exchange for cash.
Why did China Ban ICO?
Well, a main concern for China is that some of the ICOs are either financial sams or pyramid schemes. If you didn’t know, a Pyramid scheme is a business model that enrolls new members with the promise of payments and/or services rather than investments or sale of products/services, upon getting other members enrolled into the scheme. Because transactions of cryptocurrency are anonymous, that essentially makes them vulnerable to money laundering and even terrorist financing as you don’t know who’s using the money for what.
A committee, lead by China’s central bank has since prepared a list of 60 exchanges that will be subjected to inspection in china after which a report of the findings will be published. Thus far, we don’t know what the 60 companies are but two of China’s largest platforms for buying into ICOs which are ICOage and ICO.info have suspended their services and stopped taking on new projects. They didn’t say that their suspension was voluntary, so we’ll leave it at that.