As of September 29th, South Korea is the second country in Asia to ban Initial Coin Offerings, or ICOs in short. ICOs refer to the creation of new cryptocurrencies. The ban comes after South Korea noticed that “raising funds through ICOs seem to be on the rise globally” and domestically, the Financial Services Commission said in a statement after meeting with the national bank, tax, and finance officials. After all, ICOs can range from serious attempts to build more digital currencies to more risky plans that resemble pyramid schemes, according to some financial experts’ analysis in the past. In addition to banning raising money through ICOs, Korean regulators may exact more measures to control cryptocurrencies after continuing to monitor the situation. Earlier in September the Chinese government announced it was banning all ICOs due to their ”disrupting” influence on the country’s financial order. The Chinese continued to state that ICOs are a form of unapproved illegal public financing that can be used to finance illegal activities and commit fraud.
Because cryptocurrencies are new, no one is really sure about the full extent of the impact cryptocurrencies have on our society. As it appears, South Korea and China are not willing to take the gamble on cryptocurrencies. They fear that their inability to regulate them will have dire consequences for their country’s economy. Aside from the destabilization of the financial market, they claim that these untraceable, unregulated and decentralized currencies are the perfect way for criminals to finance their activities. So, as a response to the impact and uncertainty of cryptocurrencies, these Asian governments are the first to restrict the influx of new cryptocurrencies, while also tightening control on already existing cryptocurrencies. And who can blame them, with the rise of organisations like the Silk Road; a website that provided a digital platform for drug dealers and users to purchase and sell drugs, all using Bitcoin.
Apparently there are some good reasons to blame them, according to some critics. Most importantly, they argue, the money that is raised from Initial Coin Offerings provides the needed finance for start-ups that would otherwise never have existed. These companies actually contribute to value creation, and should therefore be considered important for the (global) economy. Aside from this, cryptocurrencies enables a system of more efficient transactions. It does this in two ways. Firstly, there is no need for an intermediary like a bank to validate the transactions. This is done via the cryptocurency’s blockchain. This increases the speed at which transaction can be handled. Secondly, since there are very small (if any) transaction costs, financing becomes cheaper and more readily available for everyone.
It is clear that cryptocurrencies are and will remain a sensitive subject, at least until more is known about their positive and negative effects on our society. Perhaps cryptocurrencies are too big of a shock for a society that has been using the same financial system for centuries. But what do you think? Do the benefits of decentralized currencies outweigh the societal risks associated with them? Should governments embrace cryptocurrencies as a blessing or are they right to fear them?
References:
- Choudhurry, S. (2017). China bans companies from raising money through ICOs, asks local regulators to inspect 60 major platforms. Retrieved from: www.cnbc.com/2017/09/04/chinese-icos-china-bans-fundraising-through-initial-coin-offerings-report-says.html
- Ezugwu, C. (2016). The Pros & Cons Of Cryptocurreny. Retrieved from: https://www.bizcatalyst360.com/the-pros-cons-of-cryptocurrency/
- Liao, S. (2017). South Korea bans Initial Coin Offerings. Retrieved from: www.theverge.com/2017/9/29/16384718/south-korea-ban-initial-coin-offerings-bitcoin-cryptocurrency-icos
- Vicent, J. (2017). China bans all ICOs and digital currency launches as ‘illegal public financing’. Retrieved from: www.theverge.com/2017/9/4/16251624/china-bans-ico-initial-coin-offering-regulation
- Quartz. (2017). South Korea has banned all forms of initial coin offerings in the country. Retrieved from: www.qz.com/1090437/bitcoin-btc-and-ethereum-eth-prices-fall-on-south-koreas-bans-on-initial-coin-offerings-icos/
It’s a well-written article on a super hot and interesting topic and I like your concluding questions, but I want to use this comment to reflect on your definition of ICOs. You stated that ‘ICOs refer to the creation of new cryptocurrencies’. This is practically in many cases correct since most cryptocurrencies, such as Etherium, are initially released via an ICO. However, by definition, an ICO is a transaction in which investors can exchange their cryptocurrency (usually Bitcoins) against newly created tokens, that have a certain use in the business model of the funding company. These tokens are traded in the same way as cryptocurrencies, however they are not necessarily cryptocurrencies but they can also have different uses, such as in the form of smart contracts or for industrial applications.