(For more information, see Deng Jianpeng, Sun Penglei: “International Regulation and Compliance Responses for Blockchains”, Mechanical Industry Press, February 2019)
Blockchain entrepreneurship has a high technical threshold, investors should pay attention to if the project team is not a chain technology team, should pay attention to stay away as early as possible. The project white paper is the most important document, and investors should focus on their technical path, team and other details. There have been a large number of so-called ICO projects without a technical team. Projects without technical team support are expected to be heavily financed, implying a significant risk of fraud.
For example, in the beginning of 2017-2019, we tracked a blockchain project called Australia, which is the real trader of two traditional industries. As non-blockchain professionals, they raise funds from Chinese citizens on an ICO crowdfunding platform and promote them on WeChat groups. The trader revealed that the project party had hired a young woman as a WeChat group assistant to answer various questions from potential investors, and hired a white person as the CEO of the project to publicize the project in various public places (commonly known as "the platform" "), the so-called chief expert of the project (a professor of Chinese computer science at a university in Australia) charged the project side for some benefits. The project was packaged in multiple packages, and the perfect “painting cake” was conceived for many investors. By the time of publication of this book, the price of the project token market was only about 2% of the original issue price, causing huge losses to many investors, but there was no complaint.
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In summary, most ICO projects are relatively technical and have high professional thresholds. This means that the above requirements for project evaluation may exceed the capabilities of most investors.
The choice of where to register an ICO project is critical to jurisdiction. The reason why Ethereum chose to establish a foundation in Zug, Switzerland is undoubtedly to avoid unnecessary legal risks. Most ICO projects will choose to establish offshore companies in Singapore, Gibraltar, the Virgin Islands, the Cayman Islands or Seychelles, on the one hand for tax avoidance needs, and on the other hand to avoid the attention of the regulatory authorities. However, in some white papers of the ICO project, some actual controllers do not talk about the location of the legal subjects of the project. They even think that the project development team is composed of loose communities and does not need to establish a legal organization such as a company.
China's regulatory attitude towards ICO is relatively clear. After the regulatory prohibition of ICO, domestic ICO projects were interrupted and virtual currency was cleared to investors, but many projects turned overseas to continue project operations. At this time, the importance of joint supervision by many countries has become prominent. The reasons are as follows:
Virtual currency can be like air. Cross-border circulation is extremely convenient. Without multi-country coordination, it cannot be effectively supervised, and it may even impact China's foreign exchange control system.
It is easy for the actual controller of the ICO project to choose another jurisdiction. For example, the tax-free zone such as the Virgin Islands is often the best choice for ICO projects, and the cost is low.
The treatment policies of ICO in the world vary greatly. Some countries have legalized the ICO and provided preferential policies for the blockchain technology startups.
The huge differences in domestic and international regulatory policies have directly led to China's complete ban on ICO's regulatory policies, which are difficult to achieve, and it is difficult to achieve the expected results, but forced some blockchain projects to go to sea. The blockchain project going to sea has a certain personal relationship and community foundation in China, and its investment in the collection of virtual currency activities is still mainly domestic investors. Therefore, in the field of blockchain, international regulatory coordination between governments must be put on the agenda to effectively combat fraud.
Author: Deng Jianpeng, Central University of Finance and Law Professor