The battle lines have been drawn between sovereign governments and the legitimacy of cryptocurrencies, warned anti virus software pioneer John McAfee during the first global blockchain technology event in Hong Kong since China imposed a ban on cryptocurrency sales and trading on exchanges earlier this month.
Among core issues in the US$150 billion industry are how nations can apply taxation to cryptocurrency transactions and whether there should be curbs on the ability for bitcoin and other virtual currencies to facilitate global fund flows.
"Today will go down in history as the beginning of the war between the proponents of cryptocurrency and the world governments," McAfee told the South China Morning Post of the growing conflict between governments and the "fugitives" subculture who back the development of virtual currencies.
What's more, bitcoin's status varies in different jurisdictions. Australia said it would remove the double taxation on transactions involving cryptocurrencies like bitcoin, while China has yet to define the legal status of virtual currencies.
"If governments aren't able to know what the movement is they will be unable to collect revenues. That's going to cause panic in some countries. China sees it already," McAfee said.
Supporters of blockchain technology, the system underpinning bitcoin, believe initial coin offerings or token sales is an innovative and easy way for start-ups to raise funds to finance their projects.
"Like applying chemotherapy to destroy the cancer cells, many healthy cells will also be killed. What happened in China will kill a lot of projects regardless of whether they are decent ones or scams," said Emil Chan, vice-president of the Hong Kong Blockchain Society.
Critics of bitcoin say the virtual currency market is in a bubble, drawing in speculators. However, McAfee, whose company MGT Capital Investments mines the cryptocurrency, disagrees.
"It costs my company over US$1,000 to create one bitcoin. We are one of the largest bitcoin miners in America. We put work, time, electricity and a lot of preparation to create this coin. How much work does it need to create a $100 bill?"
Despite China's tough stance on cryptocurrency, the virtual currency market keeps on growing.
"Exchanges in Japan, Korea, the US and Hong Kong now dominate global crypo-token trading activities after the first major restrictions were imposed on Chinese exchanges in January. Most major token sales and blockchain development has happened and is happening outside of China, and major mining operations in Russia, Europe and the US have emerged to challenge their Chinese peers," said Aurélien Menant, founder and chief executive of Gatecoin, a cryptocurrency and blockchain token exchange based in Hong Kong.
"Therefore, this will have little impact in the longer term future of the cryptocurrency and blockchain token ecosystem," he said.
Two of the largest cryptocurrency exchanges in China, OKCoin and Huobi, issued statements on Friday night saying they would shutdown all trading between bitcoin and the yuan by October 31. A day earlier, BTC China, a Shanghai-based cryptocurrency exchange, said it would stop trading as of September 30.
Some bitcoin entrepreneurs said they were deterred from making new investments amid policy risk.
"If we don't start operating, then we can still get most of our investment back, but once we start, and if the government says we are illegal, then it's impossible for us to recover our investment," said Wang Hongyi, who was poised to open a bitcoin mining farm in China's Gansu province.
"The official attitude is 'we don't support it, but we are not against either,'" he said.
Advocates of bitcoin flew in from around the world to attend the two-day Blockchain Global Summit, which got underway in Hong Kong on Wednesday.
The event, hosted by BitKan, a company specialising in bitcoin trading and services, originally was expected to kick-off in Beijing on September 10, but was postponed a few days before its commencement and eventually moved to Hong Kong.
China's central government on September 4 declared the issuance of ICOs illegal, defining the activity as unauthorised fundraising. The move was regarded by analysts as a death sentence for ICOs and the centralised trading of cryptocurrencies.
Countries such as China and Australia are concerned over money laundering and capital flight associated with virtual currencies such as bitcoin, which has seen its value surge more than five times from a year ago. Bitcoin currently trades at US$3,940.
Blockchain technology, the system which underpins bitcoin, allows users to access and share data and is maintained by a network of computers, instead of a third party.
China has seen explosive growth in ICOs, an unregulated practise of raising capital through issuing cryptocurrencies called tokens, often exchangeable for more established cryptos such as bitcoin or ethers, which can in turn be bartered for products, services, or cash.
As many as 65 ICO projects were completed in China in the first seven months of 2017, raising an estimated 2.6 billion yuan (US$398 million), according to the Beijing Internet Finance Association. The Chinese central bank said 90 per cent of the ICOs launched on the mainland were fraudulent, culminating in the ban of all ICOs earlier this month.
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