China's banning of initial coin offerings for new digital currencies may stop scams and improve the market but these ICOs are very much here to stay, industry experts told CNBC.
ICOs allow organizations to raise investment by selling new cryptocurrencies, similar to bitcoin, in return for cash or other established digital currencies. However, the People's Bank of China ruled earlier this week that the practice, which has become popular around the world, as well as in China, constitutes illegal fundraising.
Around $1.78 billion has been raised through ICOs since 2014, according to data from the CoinDesk ICO tracker. However, a major issue is that many ICOs could be scams, with no hope of backers receiving a return on their investment.
"There's no secret that a lot of the initial coin offerings, with ads on Facebook promising huge discounts and returns, are nothing but a scam," said Sasha Ivanov, CEO of blockchain company Waves, in an email.
"The Chinese government could cope with those companies working in a shadow zone of the law, but they have finally lost patience, as more and more companies tried to raise millions for nothing."
Ivanov says the move will be helpful for the industry, and predicts that regulated ICOs will be allowed in China in the future.
One company affected by the ban is online lending platform Blackmoon Crypto. It recently raised more than $9 million in an ICO pre-sale. The company has now halted its planned promotional activity within China. It will also prohibit Chinese citizens taking part in its token sale on September 12 and will refund citizens who took part in the pre-sale.
"Blackmoon Crypto will continue to take very seriously all initiatives of global regulators and will comply with the upheld requirements. As a professional in the industry, we welcome the cleansing of the market from scrupulous participants and are ready to cooperate with regulators," said the company's CEO Oleg Seydak in an email.