Initial Coin Offers Banned
The role of governments has since time immemorial been to protect its citizens, the assets of citizens, and, businesses by whatever means. Sometimes it was through force, and other times it was through the rule of law. Initial Coin offers were a new way of holding assets of citizens, without governmental control and oversight. This past weekend saw an exercise in such control in China.
In China, Initial Coin Offers were banned in total.
While an “outright” ban bought the fledgling market to a grounding halt. Reasons that were attributed to this ‘ban” are many: a significant mushrooming of ICOs (Imagine about 50 online businesses helping create ICOs to raise public money); the high cost to enforce regulations; the extreme bypassing of national banking systems causing capital flight, etc…. There are two sides to the regulation debate. On one side, some proponents of ICOs claimed that a total ban was bad. On the other side of this debate, is the fact that regulations remove bad actors that harm the ecosystem. There are always going to be instances where regulations can completely kill a new market for innovation, but, developed societies always manage to find a balance based on the convictions of experts. The New York hearing in my previous post was an example.
Ease of creating Complex Contracts – bypassing regulation
There have been plenty of businesses raising money from gullible investors bypassing all known capital regulations. The underlying platform in this case Ethereum – per-se does not have a governance model for launching a new ICO. In fact, anyone can create an alt-coin- as documented here and here. Ethereum is creating an easy to use graphical web-based interface to enable non-programmers to create tokens (as contracts). The platform can create, validate and transfer tokens across geographic boundaries, and, even financial-economic boundaries. To top it all, these tokens can be configured as a contract which can express complex functionality when it executes on the network. These complex functionalities could be as complex as either a second order derivative that can be traded on exchanges: an example would be Mortgage-Backed-Securities with a dividend option; or; as a simple security: one that holds value and increases as the business grows. These can be bought and sold on exchanges that support the alt-coin.
Hope for a Governance model for new ICOs
With such complex functionality supported, a few bad actors riding on speculative transactions can cause significant mistrust amongst citizens and the government’s ability to reign in bad financial actors. We wish that at some time in the future, either the Ethereum Enterprise Alliance or some other entity sets out a global order to govern new token (and ICOs) releases – so as to give them more legitimacy supporting the aspirations of nation states and their financial needs.