Friday, January 27, 2023

Innovate Blockchain Without Tokens, Says People’s Bank of China

Innovate Blockchain Without Tokens, Says People’s Bank of China

Blockchain innovation can still benefit the fintech industry without ICOs and digital tokens, the People’s Bank of China has said. A central bank representative further clarified the government’s position after its sudden ban threw the industry into turmoil.

Also read: ‘Bitcoin: Shape the Future’ Summit Moves to Hong Kong

According to an English language report on Caixin, since the PBoC and six other regulatory bodies banned fundraising via initial coin offerings, 40 of 60 ICO platforms had shut down. Some had criticized the prohibition as too extreme.

Ban Was ‘Necessary and Timely’

Chinese yuan bills notes moneySun Guofeng, head of the PBoC’s finance research institute, said the ban was both “necessary and timely”. Some companies conducting ICOs were guilty of fraud, pyramid schemes and illegally issuing securities, he said.

Blockchain technology could still benefit the financial technology industry in many applications unrelated to cryptocurrencies, Sun said, without specifying examples.

However the Chinese government has previously expressed its support for “blockchain technology” development across several industries. A white paper published last year by the country’s Ministry for Innovation and Information Technology (MIIT) described blockchain-based ID networks, smart contracts, and asset management platforms for legal securities.

MIIT government followed up with a two-day blockchain conference in Changsha in October 2017, where it broadly introduced the concept to hundreds of industry representatives.

Maybe ICOs Are a Bad Idea Anyway

ICOs, often called “token sales” also have a reputation outside China. The tokens exist either on blockchains created from scratch, or as ERC-20 standard tokens based on Ethereum smart contracts.

ICOs tokens pyramid schemesOn the one hand, they offer an easier, faster and cheaper way for startups to raise millions without undergoing a fully-regulated stock offering. On the other, ICOs have faced criticism for the same reasons — lack of regulation could see ICOs funding scams, companies with anonymous founders,

Then there’s the issue of what the world is going to do with millions and millions of digital tokens that have no purpose other than speculative trading. ICOs are “economically unviable“, said BnkToTheFuture CEO Simon Dixon in May 2017. There’s vast incentives to “pump and dump” the assets, which give holders no voting or ownership rights.

Token offerings have been blamed for causing havoc and congestion on the Ethereum network as companies joined the “ICO gold rush”. Bitcoin and blockchain industry workers describe newcomer friends calling them to ask “how do I do an ICO?”

For a long while, even observers in the U.S. have expected regulators to step in and curb this enthusiasm. Some feared bans, or even arrests. So far, however, all the Securities and Exchange Commission (SEC) has done is issue an official caution to investors.

Can Tokens Be Stopped Completely?

Caixin said China-based ICOs had raised ¥2.6 billion CNY ($398 million USD) from 105,000 investors in 2017. The government is now demanding all those funds be returned.

Chain BlockchainThe Chinese position on the wider cryptocurrency and exchange industry is less clear. While open blockchains like Ethereum and Bitcoin exist, companies could technically still conduct ICOs and raise investment.

Most ICO organizers nominally block U.S. residents participating in sales, despite a general understanding that most inflow comes from there. BTC and ETH transactions aren’t tied directly to real identities, making them hard to police. Even without creating new tokens, companies can still raise funds via existing cryptocurrencies.

Banning or de-legitimizing cryptocurrencies or ICOs wouldn’t eliminate them completely. But it would make the market much smaller and less lucrative, and prevent large mainstream investors from participating.

What’s the future for ICOs, token sales and cryptocurrencies worldwide? Let’s hear your thoughts.

Images via Pixabay

Join the Bitsonline Telegram channel to get the latest Bitcoin, cryptocurrency and tech news updates:

Bitsonline Email Newsletter