The negative sentiment and bashful rhetoric driven by the animosity of political power toward the prosperity of cryptocurrencies was exemplified this week through China’s banning of ICOs. Firstly, what is an ICO? An ICO is the initial coin offering formulated by a start-up venture looking to create its own Altcoin. An analogy aligned to this process is comparable through the formation of an IPO – whereby shares are given to initial investors, ICO’s offer future coins of the currency. Although the prospect of Cryptocurrency has received an outlandish number of negative connotations since its creation, this move by the Chinese government is one of the fiercest attacks on the ‘crypto-boom’.
The first question to derive from the new-found legislation implicated by the Chinese government is to understand the government’s reasoning behind the move. Cryptocurrencies are extremely significant to the national economy due to their decentralized nature – governments cannot manipulate their currencies for political power nor can they identify tax fraud. While these currencies hinder governments, they offer economic protection over individuals due to the current unstable political international environment: Donald Trump’s ‘rocket man’ tweet on North Korea correlated distrust in traditional currency with a rise in bitcoin investment. Although the move by the Chinese government saw a drop in the currency, I believe it will stabilize due to ICOs expanding into Japan and South Korea. The government’s ruling disrupts the crypto economies internationally and displaces business within China temporarily: I do not believe the initiative is beneficial in the short run.
Furthermore, it is important to show the potential outcomes of the legislation and the impact on businesses in the long run. Chinese officials have stated that the move is temporary, and the ban is only in place while they create new legislation – it should be noted that this is sourced from the Chinese government. The resonating long-term impact on business is solely dependent on the intentions of the government. If they agree to form a licensing deal between themselves and start-up altcoin creators - whereby the government ensure that the companies are legitimate - the legislation would minimize fear and maximize trust in the industry. This would be a positive outcome. On the other hand, if the legislation becomes too stringent, start-ups may lose their decentralized value; which would cause the degeneration of crypto start-ups.
The government should implicate legislation which ensures that only legitimate start-ups create altcoins in order to ensure protection. Yet, if the government – as is foreseeable (especially after the recent closure of domestic bitcoin exchanges) – enforce legislation which demonizes the aspect of decentralization – there has been speculation of a tax incentive drive block chain protocol, China’s contribution to the cryptocurrency industry would impact international investment and diminish the value of any currency.