The Chinese government has banned initial coin offerings, a new fundraising phenomenon that has taken the Internet by storm. In a Monday ruling, the People’s Bank of China ruled that these unregulated sales violated Chinese law and must stop immediately.
Over the last year, ICOs have become a big business. Investors in these sales buy new blockchain-based assets—similar to Bitcoins but designed for specialized purposes. For example, an offering last month called Filecoin will enable people to buy and sell online storage capacity in a decentralized marketplace secured by a blockchain. Another sale earlier this year offered the Basic Attention Token, intended to be used to sell ads through the privacy-focused Brave Web browser.
There have been dozens of ICOs this year alone, with many raising tens of millions of dollars. Ordinarily, fundraising on this scale would be strictly regulated by the Securities and Exchange Commission in the United States and their counterparts in Europe, China, and around the world. Securities laws typically require extensive disclosure and other safeguards before an investment can be offered to the general public. Chinese regulators are now cracking down on projects that flout Chinese laws in this area.