Initial coin offerings took the world of investments by storm this year. It's clear that the whole concept has been successful as just a few months ago, ICO volumes surpassed regular venture investments in numerous niches like blockchain startups and early-stage startups. But as more money flows into ICOs, more governments will step into action. Until now, governments have not interfered much with the whole ICO crowd, but things have just changed.
China Was the First Mover
While the Bitcoin price is sky-high and ICOs are on the top of the world, the Chinese government has seen a threat in crypto investments. In the middle of September 2017, Chinese officials banned their citizens from launching or investing in ICOs. Considering that China had been accounting for some 10-20% of ICO volumes, this was quite a heavy hit.
South Korea Follows Suit
Another Asian nation, South Korea, decided to go the same way as China and passed a ban on ICO-related activities. All parties involved in ICOs will be punished, but the new law does not specifically list any possible penalties.
Why Does This Happen?
There are several reasons that governments may want to ban ICOs. First of all, while there are some webpages that provide ICO ratings and analyses to potential investors, there are no official ICO rating agencies. Because it's so easy to launch and rate ICOs, there are many scams making the rounds. Hence, some governments think it's their responsibility to keep investors' funds safe. And the only thing they can really do is ban all the activities they consider shady.
In addition, many people have figured out how to get rich quick by launching ICOs and then disappearing. Instead of focusing on product development, they spend most of their budget on nice designs and amazing PR. This attracts curious investors but once the fundraiser is complete, companies tend to commit little effort to actually delivering on their promises. Such practices are harmful to investors and the ICO ecosystem.
Does Banning Make Sense?
It's clear that if there is a will, there is a way. If a company from South Korea or China wants to run an ICO, it can surely do so by registering a proxy company. This would keep the legal entity outside of unfriendly jurisdictions. And a similar practice would work for investors. If Koreans and Chinese ICO enthusiasts want to acquire tokens, they can also do it via a proxy.
Hence, banning ICOs likely just won't work. Perhaps a better option would be to set requirements for companies looking to raise money via an ICO. This could include full KYC for co-founders, a minimum capital requirement, and a completed MVP.
Written by Nick James