It's official, blockchain technology has beat one of the biggest authorities on earth. The decentralized nature of what has become the backbone of the cryptocurrency craze has proven its mettle. Bitcoin and a host of other highly speculative digital currencies live another day.
Last month, China banned mainland residents from trading in cryptocurrencies on exchanges and made it illegal for Chinese start-ups to raise funds via initial coin offerings -- a hybrid of crowdfunding, venture capital, and initial public offerings, to put it simply. Bitcoin prices fell. Ether prices fell. And then cryptocurrency start-ups shook it all off. It was as if they were punched in the face, shook the cobwebs out of their head, and remembered that this whole blockchain thing is decentralized and autonomous. That's the point. Banned in one country, move to another. Now they're back on their feet in most cases, like a terminator cyborg hard to knock down.
Bitcoin prices are over $5,000.
China's regulations might have stopped a few start-ups for raising funds, but the general consensus is that this is temporary.
"The ethos behind blockchain has been tested," says Ken Sangha, COO of Open Money and the Open Project in San Francisco. "A central, organized and powerful authority -- China -- said 'no' and we all have been tested worldwide because of it. But the system flexed its muscles. It's doing what it was supposed to do."
Sit. Stay. Good Dog.
Not even an obedient service dog can sit still forever.
Sangha was going to launch an ICO in September for Open Money, a developers platform like Java that would allow app makers to include user options to purchase their products with cryptocurrencies in app stores. The Chinese ban put their ICO on hold. Most of their investors were Chinese. Start-ups from San Francisco to Moscow had similar problems.
Malta-based Providence Casino, a physical, crypto coin casino being planned and shooting for an ICO this year was initially targeting Chinese investors in the mainland. They were banned from doing so. Instead of marketing to Chinese en masse, investors are only brought on board if they have personal relationships with the company founders, a sort of who-you-know system of project finance networking.
Chinese augmented reality start-up Metaverse reportedly lost out on a number of cross-border tie-ups and other deals. Its CEO Eric Gu did not want to talk on the record.
Shanghai-based exchange C2CX had to temporarily scrap their planned joint venture with a Russian company called KickICO as key money men like CyberTrust of Switzerland dropped out for now. That project, a China-Russia exchange for Chinese investors to buy tokens of Russian start-ups listing on KickICO is still planned once the dust settles on the regulatory environment, the two partners said.
"China is a main source of crypto investing and the bans just mean that that capital will go to projects based elsewhere because the local ICO platforms will not be able to attract new start-ups," says Scott Freeman, CEO of C2CX. "For China, financing their blockchain companies is just going to happen outside of China. For foreigners looking to tap Chinese money, they will either wait a while or look elsewhere. People are adjusting."
Companies are adjusting. Chinese blockchain developer Bibox set up shop in Estonia, instead.
"Let's put it this way, they opened up in Estonia after the ban and moved fast," says Vlad Dobrov, a blockchain investing consultant based in Singapore. "As you can clearly see from their website, from every angle, they are targeting Chinese investors. Their founders all came from the top Chinese exchange. They know what they are doing."
There are ways around the ban, everyone will tell you. They include more peer-to-peer investing done in private rather than the traditional Kickstarter-esque crowdfunding method that some start-ups use on ICO platforms like KickICO in Moscow, now gathering hundreds of new tech companies, including American ones.
Non-Chinese ICOs didn't kill their start-up funding plans because of China bans (and subsequent bans in South Korea). Instead, most put their plans to launch on pause to figure out ways to legitimize their activity and find the right investors now that crowdfunding these things in China is illegal under the ban. Chinese with crypto wallet accounts in Singapore, Hong Kong, London and elsewhere are still buying tokens of companies listing on exchanges and still speculating in cryptocurrencies.
Open Money found Chinese smart money. They built relationships with Chinese venture funds over the years and private asset managers who are now delving into the crypto markets. Those funds in China are known as "whales". The whales tend to be large investment firms with tens of millions of dollars to throw around, often belonging to the family offices of Chinese multi-millionaires and billionaires.
"We are definitely getting Chinese money and are still talking to a number of China-based funds," Sangha says.