July 11, 2018
When it comes to cryptocurrency regulations, China is known to be one of the most stringent nations in the world. Over the past few years, both in China and around the globe, cryptocurrency scams have been quite rampant.
In this article, we will look at China’s actions towards ICOs, bitcoin fraud, and other aspects of cryptocurrency. We’ll also try to understand the reasoning behind these policies and how these decisions have impacted the cryptocurrency market as a whole.
China’s ICO Ban: What It Means for the Market
China officially banned ICOs in September 2017. There are quite a few potential reasons why the Chinese government made this decision. One of the most obvious reasons is the potential for cryptocurrencies to compete with the Renminbi, China’s national fiat currency. Another commonly-cited reason is that the Chinese government wants to prevent the public from investing in ICOs that could turn out to be fraudulent, nonexistent projects.
Additionally, some people think the ban is merely reflective of the fact that the government does not have an established framework for ICOs. It can be viewed as a preventive measure that is necessary since the creation/adoption of these policies would take a while. Regardless of the exact motivation, the result is the same. In China, the ICO ban makes it difficult for Chinese investors to participate in fundraising events, although some reports have stated that the ban has been mostly ineffective.
Regardless of the reasons for the ban or whether it is considered to be effective or not, there is plenty of evidence to show that many projects are not looking to China for fundraising. For example, projects list China under the geographic restrictions section on ICOs. This means that Chinese citizens are typically ruled ineligible for ICO participation.
As of July 2018, it appears that the ban has been rather ineffective in changing the overall trajectory of the ICO market. Additionally, the statistics on ICO fundraising amounts for Q1 and Q2 2018 are impressive despite the fact that this year has featured a mostly bearish market for post-ICO cryptocurrency prices.
Crackdown on Bitcoin Fraud
ICOs are not the only area of cryptocurrency-related concern for China. As bitcoin fraud continues to be a prevalent issue, officials are trying to find better ways of cracking down on these crimes.
One such example of a cryptocurrency scam occurred at the end of 2017 and the beginning of 2018. A man whose surname is Zhang claimed that he was selling bitcoin mining rigs at a discounted price. After selling a few units and actually taking a net loss on each order, Zhang built a reputation and received more orders. After receiving payments totaling ¥100 million (approximately $15 million) for over 3,000 mining rigs, Zhang defaulted on shipments and disappeared. Since that time, he has been arrested and now awaits prosecution.
Seller-related scams aren’t the only potential fraud issues. Another reason why the Chinese government is establishing strict fraud prevention is that, according to a recent report from Kroll, many citizens are prone to cryptocurrency scams. For example, 55 percent of survey respondents say that they feel highly or somewhat vulnerable to email-based phishing attacks. 53% feel highly or somewhat vulnerable to data breaches.
Both of these examples are important to note for a couple of reasons. The former is an example of something that investors can control but is still a large issue that many cryptocurrency investors continue to face on a daily basis. The latter is more telling of the state of blockchain and cryptocurrency security, especially as data breaches are typically executed against cryptocurrency exchanges which use centralized databases to store user data. With improvements in decentralized technologies, we could soon see a reduction in these fears.
The State of Bitcoin Mining and Other Cryptocurrency-related Industries in China
Bitcoin mining is another important part of the cryptocurrency industry that is currently banned in China. There are a number of people who are concerned with the negative environmental impacts that bitcoin mining has been notorious for in recent years. The Chinese government’s decision to ban bitcoin mining isn’t uncommon as we have seen this happen in other places like small towns in the US, for example.
Blockchain Research Is Still Welcome
While the Chinese government has expressed its concern over cryptocurrency scams involving fake ICOs as well as other forms of bitcoin fraud, it has actually been quite supportive of blockchain research. One of the ways in which this is evident is the number of blockchain-related patents being filed by Chinese companies.
In 2017, for example, 55.4% of the world’s blockchain-related patent filers came from China. It’s important to note that these blockchain-specific patents fall under a different category than the other main category (cryptocurrency-specific). Still, this statistic it apparent that the Chinese government continues to see the importance of blockchain research as a technical innovation. For now, this technology can’t be applied to the creation of cryptocurrencies domestically but can improve a variety of existing business models and create decentralized businesses of the future.
As China has established strict regulations and bans on cryptocurrency in recent years, many people are asking if this stance will last forever. That answer is mostly unknown. For now, the regulations have no time period restrictions or projected end dates.
Theoretically, it is possible that regulations and enforcement of these policies will continue to become more stringent. Still, it is also possible that we will see a change sometime in the future. For example, the Chinese government has even released ratings of particular cryptocurrencies. There are rumors that China’s central bank will ultimately distribute licenses for qualified cryptocurrency projects. However, there is no definitive evidence to support whether or not restrictive regulations will be lifted to allow the advancement of the cryptocurrency market in China.