China Just Banned Bitcoin-Like Initial Coin Offerings

China's central bank has taken action.

Getty Images / George Frey

Government officials in China revealed plans to halt initial coin offerings on Monday, a move expected to hamper Bitcoin-like cryptocurrencies seeking money to fund development. Seven agencies led by the central bank described the offerings as “essentially a form of unapproved illegal public financing behavior.” But investors are concerned the move could end a legitimate way to raise funds.

“ICOs are a valuable and innovative financing method,” Sun Xixuan, an ICO investor, told the Financial Times. “They can solve a lot of shortcomings with traditional financing and trading methods.”

An ICO is where investors hand over money in exchange for a token. Ideally, when the cryptocurrency is up and running, the system proves useful and others buy into it, increasing the value of the token. The technology behind ICOs means developers can bypass traditional channels of investment and bring anyone interested on board.

ICOs are big news. Tezos raised $230 million fundraising back in July, while Paris Hilton tweeted about her plans to participate in Lydian on Sunday:

But some investors have been burned by schemes that went wrong. Analysis firm Chainalysis found that when Ethereum held an ICO, around 30,000 investors fell victim to scams customs around $7,500 each. Some investors were tricked into providing their details to third party websites that seemed a lot like the legitimate ICO channels, while a flaw in the decentralized autonomous organization project allowed hackers to steal around $55 million worth of ethereum.

“The overall figures mean there are infrastructure that we need to build to help prevent people from getting abused,” Jonathan Levin, co-founder of Chainalysis, told Bloomberg.

But while it seems more needs to be done to combat the rise of ICO fraud, many are skeptical that China’s ban will have too much of an effect on the rise of ICOs in general.

“Certainly we will not see Chinese entities marketing ICOs to mainland investors, but there’s nothing to stop an overseas legal entity or platform from having a Chinese version of their website,” Zennon Kapron, principal at fintech firm Kapronasia, told the Financial Times.

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