There has been a great deal of unease surrounding Initial Coin Offerings (ICOs) in recent weeks and much of it is amply justified.

When China moved to ban them outright back in early September many saw the move as typically heavy handed. Whatever the underlying motives behind the decision are however, they reflect genuine concerns that ICOs represent a grave risk to investors and need to be brought to heel. The Chinese are not the only ones to take this view either. South Korea has followed suit and it seems that Japan may be poised to take similar action.

The sad fact is that whilst many ICOs are genuine and innovative ways of raising capital in the cryptocurrency era, many are little more than scams. And to further complicate the picture there are a great number inhabiting a hinterland between the two extremes – schemes with arguably honest intentions but little chance of success. It’s a state of affairs that clearly can’t continue for long.

Regulatory Challenges

The cryptocurrency sphere is proving notoriously difficult to regulate and for many this is part of its appeal. With many predicting that another financial crash is looming, public confidence in banks and traditional financial tools is low.

The popularity of Bitcoin, Ethereum and others like them in East Asia is in part due to the intense regional instability caused by North Korea’s standoff with the US. People across the world are flocking towards cryptocurrencies precisely because they remain out of the hands of governments and regulators.

This of course means that attempts to regulate ICOs are going to be fraught with difficulty and at present it is not clear how such regulations will manifest themselves. A good start would be for the other major financial nations to impose regulations of their own. This would push fraudulent schemes further towards the margins and make them easier to avoid and act against.

Sensible Regulations

However, following China’s lead and banning them outright could prove a mistake – governments need to be alive to the innovative potential of cryptocurrencies and ready to adapt as they embed themselves ever deeper into the financial system. Regulation needs to leave room for innovation.

Many believe that the Chinese ban is only a temporary measure designed to put the breaks on a runaway train without stopping it altogether. The authorities in China will be well aware that other nations are busily taking steps to line themselves up as leading players in the cryptocurrency field. This is a party that nobody wants to be late to.

It may well be that the craze for ICOs dies out as investors realise that they are probably not worth the risk. If this were to happen, then it’s likely that a great deal of money will have been lost by that point. Affirmative action is far preferable to closing the stable door once the horse has bolted. But that does not mean regulatory measures should not be undertaken – for once there is a chance for governments and the cryptocurrency community to find some common ground.

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Posted by Editorial Team

Editors at large. Posting the latest news, reviews and analysis to hit the blockchain.