There can be little doubt that cryptocurrencies as well as the technologies which they use (e.g blockchain) are changing the way that the world does business. And, as the first and foremost cryptocurrency, Bitcoin, seems to be the main catalyst for this change, there appear to be some “growing pains” emerging in Asia, notably involving China and North Korea.
By now, virtually everyone has seen a headline decrying the fact that the Chinese government has called for an immediate cessation of ICOs (Initial Coin Offerings) and intends to close cryptocurrency exchanges that operate in mainland China. While the banning of exchanges for individual use is just an extension of a 2013 ban on trading by major Chinese institutions, the ban on ICOs, which involves the initial purchase of new cryptocurrency units in order to raise funds for the currency’s development, is something new.
Considering that China is a country that, from 1994 to 2005, had its currency, the yuan, pegged to the US dollar and, since then, only allows a managed float of its currency in relation to a basket of other global currencies, the threat of a global cryptocurrency taking hold in China is obvious, because, to paraphrase US President James A. Garfield, whoever controls the volume of money in any country is absolute master of all industry and commerce.
Looking beyond the obvious though, the very nature of instruments like ICOs, offering the cryptocurrency versions of a stock IPO without the rigorous vetting and well-regulated process found on a more established market, raise red flags for more seasoned investors. Moreover, ICOs carry with them an inherent risk of fraud through pump-and-dump schemes where a party artificially hypes appeal for an investment in order to raise prices and maximize profits before selling/dumping the investment on the market.
In the case of North Korea, the major concern is the cryptocurrency world’s resilience to hacking and theft. Just this May, North Korea was linked to the WannaCry ransomware which affected over 200,000 computers in 150 countries. With cybersecurity firm FireEye reporting several more attempted hacks against South Korean exchanges after WannaCry, (25 employees at four different exchanges were targeted in 10 separate “spear phishing” attempts since July) the questions regarding the security of cryptocurrencies in relation to the safeguards for more traditional securities are starting to resurface.
Regardless of whether China is legitimately worried about monetary control, investor confidence, or is simply attempting to appease hardline factions of the Chinese Communist Party before the next major meeting, opening on 18 October, the action resulted in an over 30% decline of bitcoin’s value. Hacking and phishing attempts will hopefully demonstrate the strength of security in the system, but, if they don’t, any attempt at regulating a quasi-legal, global, independent currency definitely creates a headache-inducing scenario.
Still, the fact that these issues are being discussed and, even without legitimate exchanges, the cryptocurrency marketplace in China is still operating albeit underground via peer-to-peer marketplaces and messenger apps, and the ban does not stop Chinese crypto-currency developers and service providers from getting in on the action, suggest that, whatever may develop from these events, the future of the Chinese cryptocurrency market seems strong and awaiting new regulatory frameworks and policies.
