China Ban on ICOs Sheds Light on Digital Regulation

June 2018
The blockchain, crypto, ICO industries are drawing a lot of attention from governments. The space has the potential to transform finance, which is a critical economic sphere, requiring close inspection from every government in the world. If we compare to climate change, which in the past four decades has drawn minimal state action, the pace and intensity of government attention to cryptos and blockchain has been tremendous. In China, the response has been a ban.

Amid surging interest in cryptos, and the late 2017 Bitcoin bubble, China slammed the brakes on participating in ICOs. Amidst a booming economy powered by debt, ICOs were very attractive to investors looking to move their RMB out of the Chinese economy. But then late last year, China issued a ban on ICO and crypto activity. In a statement translated by Coindesk, the Chinese regulator labelled token sales, "illegal and disruptive to economic and financial stability.”

The ban had a number of overlapping measures aimed at stopping ICOs. The ban meant that no more ICOs should be undertaken in Mainland China, and it followed with a threat of active investigation and severe punishments to those who ignore it. The ban also extended to the trading of tokens on exchanges, and banned financial institutions from supporting token fundraisers.

Despite the broad breadth of the ban, it has been ineffective. One journalist explains, ‘why you should ignore it’. More recently Coindesk reported, the public broadcaster China Central Television (CCTV) noted on their finance TV program that the ban had not deterred local investors. They continue, it appears many issuers are operating loosely and flexibly to avoid industry and government sanctions against token offerings. It seems many Chinese are operating out of ethnic-Chinese territories outside of direct government control, those of Hong Kong, Macau, and Singapore.

The thwarted efforts by China show the need for regulatory technologies that offer real solutions, in all jurisdictions. Bans are circumvented by the industry, but a real regulatory solution will be beneficial to everyone. The Chinese ICO ban will end one day, but only amid a fair regulatory environment that is technically enforceable. There needs to be some ability to sort the good ICOs from the bad, and the ability to sort the investors from the money launderers. To secure blockchain, and allow it to be used in a manner that aids society, the legal and technical need to develop solutions together.