Blockchain Panic: China Drops the Hammer on ICOs

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Blockchain technology is in good shape, but the government of China still caused a crash in the values of crypto-currencies Monday by declaring all Initial Coin Offerings, or ICOs, illegal.

Early reporting on the order indicated China was also making crypto-currencies illegal. But as Chinese exchanges continued to operate prices quickly recovered. By mid-week Bitcoin prices were back above $4,500, within 10% of their record high.

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Traders called Monday’s action “Black Monday” but those who bought the dip were quickly in the black, with the total market capitalization approaching $159 billion. The biggest impact of the Chinese decision should be on the ICO market. This is where companies seek capital by asking for contributions of crypto-currencies like Bitcoin or Ether, rather than cash.

Some see the move helping clean up the market, which has become a haven for scams. They want to create legal frameworks to govern trading. Others, like Blackmoon Crypto, are pulling out of the China market, fearing a broader crackdown. 

A Russian View: Use Blockchain to Solve ‘Real World’ problems

ChronoPay founder (and Krebs on Security subject) Pavel Vrublesky  is now trying to get into the ICO market himself as an analyst. He told me half the ICOs out there are “science fiction,” without enough Internet experience to get anything done  and that the survivors will be those who use the Internet, blockchain, and crypto-currencies to solve real world financial problems.

China was careful only to go after ICOs, not the blockchain technology or the Bitcoin market itself, he said. But neither China nor the U.S. will lead the market, he believes. Stability works against us.

Instead, Vrublesky believes countries under financial sanctions, like Russia and Iran, or countries under severe financial strain, like Brazil, will be first to take advantage. “Here in Russia, I am cut off from financing. Blockchain is the only option.” That is also true for countries with unstable currencies.

Vrublesky compared the current blockchain mania to the dot-com bubble of the 1990s. “The companies that succeeded” in that era either used the Internet as a communications tool to lower costs, like Amazon.com Inc. (NASDAQ:AMZN), or used communication as a product, like Facebook Inc. (NASDAQ:FB).

If the Internet was about communication, what is blockchain about, I asked. “Blockchain is all about trust,” he said. “Money is a good product. But nothing will succeed unless using Blockchain makes the product or service cheaper. Investments need to flow into ICOs that are closer to real life.”

What Might Work

In the West, groups like Swarm Fund may just be the ticket.

Swarm wants to just use crypto-currencies to turn real estate and venture deals into virtual mutual funds small investors can get into. The plan is to create two types of crypto-currencies, a “utility” token that lets buyers into the platform, and a “SUN sub-token” that represents actual investment and can be bought or sold openly.

The aim is not just to collect cash, but to pass rules such as the Howey test used for U.S. security regulation and guidelines issued by the Securities and Exchange Commission in July specifically for ICOs.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.

And Finally…

Just in time for the insurance losses caused by the Atlantic hurricane season, Umbrella Coin has launched to try and simplify insurance using blockchain and the Ether crypto-currency.

Umbrella Coin, currently going through its own ICO, hopes to put claims on a blockchain as a complement to traditional insurance, speeding the claims process. There’s a deeper explanation in their white paper.

Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World,  available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and FB. To follow the value of crypto currencies bookmark https://coinmarketcap.com/

 


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/blockchain-panic-china/.

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