Industry News ICOs still Widespread in China

ICOs still Widespread in China

May 22, 2018

CCTV, or the Chinese Central Television, which is seen as the highest representative of the country’s government-run media, recently hit out at domestic ICOs (initial coin offerings). The report on CCTV stated that these ventures are still very much rampant in China and that this continues to present a big problem for the authorities and individuals who might end up in scams.

During a financial news program, the media outlet stated that the ban on ICOs did not deter local investors. Instead, the get-rich-quick mindset continues to drive investment into these ICOs.

It is interesting to see the government’s media source state something of this nature. On one hand, it is a verification of the idea that many analysts working in the cryptocurrency space already had – the ban did not provide adequate results. On the other hand, it also shows that the interest inside of China for initial coin offerings is not waning.

Also, local exchanges active in the crypto domain, as well as other companies working in China must be fearing an additional regulatory onslaught. Here are some additional facts about the state of the ICOs and where could this process potentially be going in the upcoming months and years.

Air Coins

The Chinese crypto community has been using the term air coins to describe token projects that are not fully (or even marginally) backed by legally registered businesses. In fact, the report claims that the number of these ICOs has risen by more than 30 percent since the crackdown on the process began more than two years ago.

According to CCTV, many of these ICO companies have moved to overseas territory following the ban. However, a large number of air coins remained in China where they are run by teams assembled on demand. These groups are not even formal business entities but ad-hoc organizations that are created only to be disbanded when they no longer serve the needed function.

This showcases issues that have been long promoted by valid ICO backers and companies – it is technically easy to create a cryptocurrency blockchain of some sorts. The ban did not stop people from doing this and then use the resulting network to take peoples’ money.

The Fake ICO Methodology

The report also noted that the organizations looking to scam people through these ICOs usually created projects that were promoted thanks to celebrity association. One of the regularly seen ones is a relationship that the ICO would claim to have with Li Xiaolai. He is one of the first BTC investors in China as well as cryptocurrency evangelist.

However, according to him, 99.99 percent of the time, he is associated with projects he does not even know exist. Xiaolai also named the fear of missing out as one of the key driving forces among the investors. Ironically, they are usually less than adequately informed about a particular ICO, which is why they look for any known association. Here the scammers have the ideal option of using Xiaolai or other well-known names as a form of instant and shallow validation.

For most investors who are willing to put some time and effort in things like reading white papers, the valid ICOs will easily differentiate from the phony ones. But, the truth is that the big numbers game will always land more than enough gullible investors to the scammers.

Educating the Public

CCTV ended its report by showing how the Chinese state-run media is trying to educate the public about the chaos that is gripping the cryptocurrency domain. With this help, the hope is that the people themselves would be able to recognize bad actors and act appropriately.

At the same time, the government is also taking a more direct approach when it comes to tackling this issue. Across the nation, including Xi’an and Shenzhen, there have been arrests and raids targeting ICOs and teams that develop them.

The judiciary system will process these individuals and companies (when they exist) as entities which are engaged in the illegal fundraising process. This alone is serious enough, but if the authorities determine that the particular process was completely fraudulent, they can bring down even harsher charges, including organizing for the purpose of creating a criminal venture.

Potential Softening of the ICO Ban

The reading on the wall shows that this type of report could be the prelude for the lifting of the ICO ban. By saying that the ban is not producing wanted results, the country could slowly return to the point where ICOs are controlled and checked, but not outlawed immediately.

For anyone working in the crypto domain, especially the traders and investors, the lifting of the ban would be equal to removing a great hurdle from future cryptocurrency development. This means that the prices would once again jump and the whole cryptocurrency market cap would probably skyrocket as well.

Yet, while most agree that this lifting of the ban will occur at some point, it could be years away. In fact, China might wait to see what other nations are doing about this and then figure out how the same decisions go through. This would be a smarter move, so there is no doubt that the Chinese government is willing to take their time and get the solution that works the best.

The Future of ICO

ICOs seem to be a part of the reality of cryptocurrency financing, which is why they are a part of the wider economic setup. Similar to eSports, online social media and many similar digital ventures, they provide many elements that the modern users want.

China is a good example that simply banning them will not do anything in particular to the malicious parties, aside from making their operations slightly more complex. But, in terms of accessibility to the market, air coins seem to be just as approachable as regular, company-based ICOs.

Here, like with any outlawed process that is still very sought-after by the public, it can be argued that shady elements will be even more attracted to it. However, at the same time, the strength of the Chinese state is substantial and most are aware of the risks they are taking on by creating fake ICOs.

Yet, in spite of these risks, the future of air coins just like ICOs seems to be certain – more and more will come, regardless of their legal status.

Source: CoinDesk