Chinese regulators' have banned trade in cryptocurrencies which has sent the price of Bitcoin down by 6%.
This follows an announcement made in Beijing to stop fundraising using Initial Coin Offerings (ICOs). According to official government newspapers in China, those who raised funds through ICOs have been ordered to refund investors. ICOs are a means of raising money for investment by start-up businesses from Bitcoin users. This is similar to shares being offered by companies to investors but in the case of cryptocoins no legacy cash is involved. The impact was felt by other cryptocurrencies, including Ethereum, which has shed 12.91% since Friday. The move is seen as an attempt by Chinese authorities to minimise financial risk and to cool off investor enthusiasm for the digital currency. Thus far tightened regulations have reduced China's share of the global cryptocurrency market from 90% to less than 30%. The angst around cryptocurrencies among authorities centres on the lack of control they are able to exercise on these trading activities. These digital currencies use decentralised technology that let users make transactions anonymously. No official explanation has been released thus far to describe the extent of the ban and how the new regulatory environment will operate. Bitcoin is the biggest cryptocurrency economy in the world. There is an estimated $41bn worth of bitcoins globally. A combined estimate of all the cryptocurrencies, including Litcoin, Monero, Ethereum and others, is about $100bn. The announcement by Chinese regulators is in contrast to Russia, which has embraced digital currencies. The government in Moscow plans to regulate cryptocurrencies as securities rather than outlawing them. This is a reversal from threats made last year where cryptocurrency traders were threatened with up to seven years in jail. It's also emerged as a way in which the country could try and bypass sanctions imposed on Russia after they supported a rebel invasion of the Crimea. In the United States a law aimed at making regulation of virtual currencies uniform has been passed by the Uniform Law Commission. The law creates a framework for all states and focuses on licensing, consumer protection and anti-money laundering, among other things. A growing number of US corporations accept bitcoins as a means of payment for some purchases. Among these are Microsoft, Virgin Galactic, Wordpress and Lionsgate. The US Dollar accounts for the second-largest exchange volumes in Bitcoin transactions which amount to 23%. The frontrunner in exchange volumes is the Japanese Yen at 40%. In South Africa there is no legal framework that allows the use of digital currencies. According to the current policy framework the South African Reserve Bank does not regulate or supervise any transactions and users trade at their own risk. According to the luno.com website, trends show that the Friday announcement has affected the South African Bitcoin market. The Bitcoin-Rand exchange rate opened at R65,124 on Friday morning. The lowest point over the weekend was R57,693 on Sunday afternoon, an 11% drop. By 11.45am on Monday the exchange rate had recovered by 5% and was trading around R61,056. A discussion document published by the International Monetary Fund (IMF) in June reported that the new wave of technological innovations collectively referred to as ‘fintech’ should be taken seriously by financial institutions.
The paper argues that “regulatory authorities need to carefully balance efficiency and stability trade-offs in the face of rapid changes”.
A discussion document outlines how several start-ups are already delivering small payments and remittance services at low cost using bitcoin as a payment system.
One of the major advantages and a real threat to banks and money transfer agents is the commission, or rather, lack of commission.
Rather than charging 8% to send remittances, the start-up Circle Internet Financial, for example, performs the service free. Furthermore, the digital companies are using simple smartphone apps incorporating social media to market payments and to make it easier to move cryptocurrency.
One method is to let users link their profile to a bank account or card on each end of the transaction and simply "text" money to each other anywhere in the world. The big advantage, according to the IMF, is that transactions are conducted via bitcoin, but the user doesn't need to know how it happens. If the receiver is not in the Bitcoin system, the money can still be retrieved with other "digital wallets".
"It’s like with sending an email," Circle CEO, Jeremy Allaire told the IMF.
"You don’t care about how the message is routed through the Web." Transactions take place in seconds so volatility is not a major worry, unlike currencies like the South African rand which can move by 5% in one day.
The IMF says the other major advantage of Bitcoin is the tracking of the cryptocurrency where each sale can include a great deal of data.
Property could be sold with a location stamp on the currency itself and can provide unforgeable proof of ownership. Other instant payment retrieval mechanisms are possible where cars may be rendered unusable if a loan payment is missed.
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North Korea has apparently begun to use hackers in an attempt to steal blockchains or cryptocurrency as the country was targeted in recent sanctions. This from Fireeye.com which monitors illegal digital activity:
April 22 – Four wallets on Yapizon, a South Korean cryptocurrency exchange, are compromised. (It is worth noting that at least some of the tactics, techniques and procedures reportedly employed during this compromise were different than those we have observed in following intrusion attempts and as of yet there are no clear indications of North Korean involvement).
April 26 – The United States announces a strategy of increased economic sanctions against North Korea. Sanctions from the international community could be driving North Korean interest in cryptocurrency, as discussed earlier.
Early May – Spearphishing against South Korean Exchange #1 begins.
Late May – South Korean Exchange #2 compromised via spearphish.
Early June – More suspected North Korean activity targeting unknown victims, believed to be cryptocurrency service providers in South Korea.
Early July – South Korean Exchange #3 targeted via spearphishing to personal account.