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Chinese Attitude towards CryptoAssets and Democracy

The Republic of China’s Cyberspace Administration released a draft proposal governing its citizens interactions with blockchain networks on Friday October 19th. Titled “Regulations on the Management of Blockchain Information Services”, the public has until Friday 2nd November to provide feedback on the draft proposal after which adoption is assumed.

What is proposed?

The Cyberspace Administration of China (CCA) proposes that citizens must provide their real names and national identification card numbers before using blockchain networks and associated services. Similarly, blockchain start-ups in China would have to register their names, service types, server addresses and fields of industry with the CCA. It is proposed that such information will be stored on a public domain and will be reviewed annually by the CCA. Additionally, blockchain projects will be required to censor content considered to be a threat to national security and are disallowed from publishing content contrary to national legislation.

The Great Firewall of China

China employs strict internet censorship policies through legislative actions and facilitative technologies under the “Golden Shield Project” conducted by the country’s Bureau of Public Information and Network Security Supervision. Censorship includes limitation of citizens’ access to foreign information sources, internet tools and mobile apps, and a requirement that foreign companies must comply with domestic regulations.

Blockchain technology presents a very real and visible threat to China’s internet censorship regime. Decentralised networks can be used to record and transfer information in easily accessible, secure, transparent and unchangeable ways. Some cryptocurrencies like Monero can even be used to conduct transactions in untraceable ways. Blockchain technology has the potential to allow Chinese nationals to subvert the country’s rigid censorship regime. This makes the Chinese government especially uneasy as crypto assets are not centrally controlled.

China and Blockchain

China has a complicated relationship with blockchain technology. In July, Chinese state media reported that the People’s Bank of China had been successful in cracking down on cryptocurrency and that Chinese currency  accounted for less than one percent of all Bitcoin trades globally. This move away from cryptocurrencies began in September 2017, when RNB-BTC trades accounted for almost 90% of trading activity. China’s government reacted to this in several ways – fiat was immediately prohibited from use in crypto asset purchases, travel bans were placed on OKCoin and Huobi executives, and since then almost 90 exchanges and 85 ICOs based out of China have ceased operations in the country.

With China alleging ICOs to be an “illegal public finance” method, linking them with money laundering and securities fraud, most projects have relocated. Huobi and Bitmain moved to Singapore and OKCoin rebranded to OKEx and relocated to Malta. Once the largest repository of Bitcoin mining farms in the world, Chinese authorities have also cracked down on mining in the country, most recently showcasing the confiscation of over 500 computers in a police raid in the city of Tianjin.

Emerging Attitudes

Despite China’s unyielding crackdown on cryptocurrencies and its draconian internet censorship laws, it seems that the draft proposals may act as a way for the country’s citizens to interact with blockchain networks and innovate new projects once again.

On Thursday 11th October, the People’s Bank of China (PBoC) posted blockchain-centric job descriptions to recruit developed to build a fiat-linked digital asset software. The job listing specified expertise on chip design blockchain development  and application, cryptography and security protocol design and system architecture, according to CoinDesk. Additionally, the PBoC is also recruiting experts in economic theory to assist with issuing digital currency. These listings coincide with the filing of over 40 patent applications by the PBoC in July, further demonstrating China’s likely reunion with cryptocurrency.

Similarly, on Friday 26th October, the Shenzhen Court of International Arbitration upheld that no law in China prohibits the ownership of Bitcoin or the transaction of cryptocurrencies between individuals and that as such, Chinese contract law legally protects bitcoin ownership.

It seems that China may be rekindling its relationship with blockchain technology and similar use and innovation as seen in the past may emerge from within the country’s borders once more, albeit in an environment of overbearing regulatory scrutiny. While the proposals remain drafts until legislated upon, the current climate indicates a positive shift in the Chinese government’s relationship with cryptocurrencies.

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