China bans ICOs - a couple of thoughts

One hour ago CNBC announced that China bans companies from raising money through ICOs.

Cryptocurrency investors may take this with mixed feelings. A big nation making hard moves will increase volatility of a market already known for its volatility. It may serve as an example and legitimize critical stance towards ICOs and other innovative grassroots uses for blockchain world-wide. On the other hand, when definitely not being enough to kill an industry, potential regulatory trend may also increase legitimacy of cryptocurrencies. Bigger financial institutions have been holding themselves back by the lack of legitimacy of cryptocurrency scene. Some kind of an eventual hybrid solution may not be ruled out either. Existence and late popularity of ICOs as a market mechanism have posed a challenge to existing regulations. They have shown how people cooperate peacefully in forms that cannot be provided by old institutions. That should be understood as a reason for revising and reforming legislation, rather than taking a fast and misguided response.

The other point is more philosophical. Rigorous regulations in entrepreneurship can also appear odd even without any Libertarian leanings. Let us be honest. ICOs are a form of risk investing or even close to gambling. People are allowed to gamble in casinos. Why should the be denied the possibility to gamble with ICOs. There is a fundamental difference between these two that speaks for ICOs. Like tossing a dice, casino games against the house are programmable to generate negative expected financial returns to the customers. Returns have a fixed probability distribution. However, entrepreneurship is totally different. When not a scam, shares or tokens of a risky startup are subject to "Knightian" real life uncertainty. Profitability of a company cannot be reduced to a toss of any dice. In capitalism, investors are bearing uncertainty that they cannot truly capture in any calculations. There is at least a theoretical possibility that startup companies are profitable by default, and thus better for risk-seeking investors or gamblers than actual legal casinos that generate them losses.