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China banned the raising of funds using token-based digital currencies and deemed the practice illegal on Monday, in a move seen as an attempt to impose more regulations on the virtual market.
The move by the Chinese government was reported by Chinese financial news outlet Yicai, and comes as the initial coin offerings (ICO) market has seen $2.16 billion, added this year alone, to the total global value of $2.32 billion.
ICOs have exploded in popularity among digital cryptocurrency magnates around the world, creating a bubble that some fear will eventually bust.
The news of the Chinese cryptocurrency crackdown saw a drop in trading with almost 20% knocked of the value of some digital currency vendors when the news first broke.
A joint statement from the People’s Bank of China (PBOC), China Securities Regulatory Commission, China Banking Regulatory Commission and China Insurance Regulatory Commission released on Monday, said that individuals and organizations that have raised funds using ICOs should arrange to return the funds.
The statement also declared that any attempt to raise funds through ICO activity was now banned. This ban also applies to banks and other financial institutions operating in the country.
The news of the Chinese crackdown comes on the back of reports that hacks on cryptocurrency exchanges have increased over the last few months.
In June there were multiple cyberattacks on major cryptocurrency exchanges when Bitfinex, the largest US dollar-based bitcoin exchange, and the smaller BTC-e, fell victim to DDoS attacks. Just a few weeks later, hackers successfully stole user data and money from Bithumb, which is one of the biggest cryptocurrency exchanges in operation today, with phishing attacks.
Bithumb confirmed that the breach affected around 3% of the site’s customers and was a result of an attack on the personal computer of an employee — not through the company’s internal network system.
These attacks highlight the fact that hackers are actively trying to disrupt and steal from these exchange sites, either through an attack on personal users or through a compromised company network, and is something customers should be conscious of, along with understanding how best to protect themselves.
Whether the move by China can be viewed as a way to remove any possible hacking threats, or if it’s simply a way for them to slow the growth of these cryptocurrency exchanges so they can put stricter regulations in place, remains to be seen.
Author Shane Curtis, ESET