There will be 3 things that are affected to varying degrees.
- After the September 4th ICO ban, Mainland China-based projects were forced to refund their ICO token issuance and Chinese citizens were effectively banned from participating in ICOs. However, the Chinese historically have always found ways around these types of regulations and noticed that there were two connected legal loopholes. The first is that whitelists are considered private investor lists, making it effectively not an ICO and instead a blockchain investment project (also requiring way less document verification), the second is that people would use KYC from say, a Taiwanese guy, and then they would pool funds to invest in that guys name. This is called fund pooling.
- "Air Projects/Air Coins/Air Tokens". The current legal requirements for Chinese projects is that if they wish to remain in China they need to move the token department overseas. This means that you can have a mystery development team and make lots of promises. So many of the blockchain projects (and this is by no means unique to China but its especially prevalent) are completely fake projects. "Air projects" meaning a project without working product/code of any kind, just promises. Most ERC-20 coins for example. That's why verifying partners is important. Take VeChain as an example with PwC. They both signal that they are partners and
now you have a mysterious China coin that is essentially authenticated by a Top 4 auditing company. So the Air Projects will get absolutely smashed.
- Exchanges. Currently most fiat to crypto is done OTC (over the counter) in Wechat groups or via some p2p websites like localbitcoins.com. Whilst they do use more OTC trading than we do, they mostly use the same exchanges we all use. On September 4th all exchanges in Mainland China were ordered to cease operations. The ones that decided to continue on as a business decided to do what most other blockchain projects did: move token operations outside of China but leave business operations inside. This is when the Chinese exchanges reopened with little fanfare in the form of international platforms and used their Mainland properties for "blockchain analysis". Huobi, for example, moved to HuobiPro.
Binance Exchange Rumors
The story of Binance is easily one of my favorites in Crypto. I really think it will be made into a book. As NEO neared its rebrand, two friends were ready to enter into a new era for Chinese/Shanghai blockchain: Da Hongfei, CEO of NEO and CZ, CEO of Binance. The grand opening of Binance was publicly welcomed by NEO itself and included a market unique feature in that Binance not only allowed GAS trade but even allowed you to generate GAS in your exchange wallets. This was truly revolutionary and the BInance initial Western userbase was almost entirely NEO fans, myself including. We loved the interface, we loved watching our NEO soar. Then on Sept 4th when the crackdown began Binance faced a big issue. Now, CZ is not a Chinese national. Hes Canadian. So he has very good freedom of movement. He moved the servers to South Korea and kept his office in Xintiandi, Jingan District, but now also has offices in Singapore, Japan and Taiwan. As a result Binance survives and never ceased operations for any extended period of time. There were some growing pains (servers literally exploding during ICO's for example). They complied with government regulations that required them to disable the trading features for Chinese IP addresses (clever that they went with IPs which can be switched with VPNs) and this persisted until quite recently (a few weeks ago) where it no longer blocks those addresses. They started with allowing the app (if downloaded from the website itself, not the appstore) to continue trading 100%. Full featured and in simplified Chinese. Don't forget, Chinese are mostly mobile users, trading included...... Then a second round of SEC scrutiny and both Bittrex and Korean exchanges began to lose even more customers to Binance and has poised itself to be the definitive #1 platform for trading...
So Binance will be 100% safe because they have moved everything abroad and have
a non-Chinese CEO. Binance, if anything, will gain users and BNB should in theory appreciate quicker because of this round of bans.
Now there were a few odd things that popped up like with 2 days of the ban:
- Renren, a less successful version of Facebook, was going to run an ICO. They pulled the ICO completely when this was announced.
- Matrix ICO got caught lying about a partnership, and there was some odd things during ICO. Issues in logging in and transactions appearing on the Matrixchain website. They also approved KYC Documents from US and Chinese residents. Just be wary.
- TheKey website crashed had like 40k KYC documents backlogged and somehow "completed" their ico. Not to say these ICOs are scams, but it is definitely a red flag.
How will this affect Skycoin?
- ICO ban: Skycoin’s ICO took place 5 years ago, before any official legislation existed voiding them of any legal issues. The term ICO did not even exist back then.
- Skyledger and Shellpay have been following regulations since the beginning. Skyminer hardware release and Skycoin has had working code since the beginning of their 6 year project. After the lead developer went to work on Skycoin concurrently at Shellpay, Patrick/Steve Dai (now founder of QTUM) was working as the Shellpay CTO for Jane Zhang. He was fired after copying original code and protocols from other project and pretending it was his own. Skycoin’s old bitcointalk threads have been frequently used to model off of (plagiarized) for Chinese projects. Houwu Chen, author of Ethereum whitepapers, wrote a number of Skycoin’s multiple whitepapers as well.
- Exchanges: trading volume is not on Chinese exchanges, although the only USD pairing is on C2CX a Chinese exchanges. (Cryptopia has never been a Chinese exchange).
How will this affect VeChain?
- ICO ban: VeChain already did their ICO refund during the first round. They are completely off the hook for anything ICO related. "But what about VeChain's ICO/Dapps?" They will be closely monitored and created by enterprises. It is possible that new regulations will change how they behind the scenes vet the projects but we won't see any effect because we donʼt know their guidelines anyway.
- VeChain is not an Air Token/Air Project and both the software AND tech is 100% not an air project. Qtum and Tronix will have greater difficulty on this point than we do.
- Exchanges: most of our volume is not on Chinese exchanges. (Binance is not in China anymore).
China Exchanges Most Susceptible: KuCoin, Bibox, Huobi and OKEX. China Exchanges Least Susceptible: Binance
China Coins Most Susceptible: Loopring (LRC), QTUM, NEO and Tronix (TRX). China Coins Least Susceptible: VeChain (VEN), Skycoin (SKY)
Legally most Chinese coins have not protected themselves and will be facing huge regulation issues and auditing. Focus on coins with strong fundamentals and working products. Both VeChain and Skycoin are some of the oldest Blockchain projects with established and connected teams. VeChain has also legally untangled themselves from BitSe while QTUM has not, there are rumors of more impending legal issues. We will continue with developing updates.
- I cannot give credit where credit is due for this article - as there was no authors signature.