Recently we published a piece about the top 5 ICOs. Since we published, Block.One established a new record, and Tezos is about to break that one. Both have surpassed Bancor, the old record holder, which set a $150 million USD funding mark just over 2 weeks ago. Clearly, the market for ICOs is only speeding up, but this is exactly the kind of excitement that draws malicious actors into the game. Just like the rise of bitcoin gave way to scams, the rise of ICOs is opening the door for scammers to plan new schemes. Governments around the world are responding, sometimes with extreme measures. The Chinese government for example, is reportedly using the threat of death penalty for perpetrators of ICO scams.
ICO Scams: The New Enemy
ICO scams are a very big problem all around the world and Chinese government now wants to punish fraudulent ICO schemers with the death penalty. With a new anti-illegal fundraising publicity campaign, China is looking to battle incorrect behavior in the ICO industry according to local bitcoin magazine, 8BTC. There is no doubt that ICO scams are a pressing issue for investors and the whole industry world-wide, but the threat of death penalty seems like an extreme step.
Avoid ICO Scams with Due Diligence
Despite the extreme measures, death penalty threats alone will not prevent ICO scams. Investors should engage in comprehensive analysis of the asset they want to invest in, and due diligence research. China should at least encourage investors to do this instead of just issuing harsh warnings. This is especially important given that under Chinese law, both investors and organizers could be sentenced to death in case of a fraudulent ICO.
ICO Scams and their Definition in China
Two important Chinese exchanges distanced themselves from involvement with ICO scams, due to these death penalty threats so far. BTC38 exchange for example, declared that it “will not list any newly-issued ICO assets” even if it seems to be legitimate. This points to the failure of the Chinese government to clarify which kind of ICO can be interpreted as a scam and which could be legitimate under the law in China.
When ICO scams lack a clear definition, the whole industry suffers. Exchanges are forced to make blanket statements and ban the listing of new coins and tokens entirely. Yunbi is another exchange that, like BTC38, was forced to distance itself from the ICO industry due to the new ICO scams policy in China. Yunbi limited the projects that it will partner with. “Recently, the ICO market is extremely heated, some of the ICO projects use “Collaborate with YUNBI” to advertise their projects which seriously mislead the investors,” states a recent blog post.
China Needs a More Comprehensive ICO Scams Policy
ICOs are very helpful for all the blockchain startups. It is a great tool to raise funds quickly, and it can help fuel innovation as well as job creation. On the other hand, the lack of regulation and the presence of scammers may damage the whole ecosystem. The situation worsens if governments react to ICO scams with death penalty threats instead of investing in a more nuanced approach and clear policy. Only a more balanced approach in China, can save the industry and encourage Chinese start-ups to break those crowd-funding records, create jobs and allow Chinese innovators and investors to thrive.