China Expands Oversight Over Blockchain with New Anti-Anonymity Regulations

China’s primary internet regulatory agency, the Cyberspace Administration of China (CAC), recently adopted a new policy, announced on its Website earlier this month, that would require all blockchain technology companies to collect certain identifying information from its users before offering any blockchain-related service.

The new policy will be effective starting on February 15, 2019.

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Blockchain information service providers, defined as “entities or nodes” that offer information services and technical support to the public using blockchain technology via desktop sites or mobile applications, will be subject to the new regulations. After February 15, these companies will be obliged to register their names, domains and server addresses at the CAC within 20 days of offering any of the services covered by the regulations.

The new regulations will require blockchain companies to provide authorities access to stored data upon request and to introduce registry procedures that would require national identification card and mobile numbers shared by its users for identity verification. 
In addition, blockchain companies will be required to supervise content and censor information that is prohibited under current Chinese law, such as content and information that may endanger national security, disrupt social order, or infringe on the legitimate rights and interests of others. Blockchain companies would be prevented from copying, publishing, or disseminating such prohibited content through its services.

Failure to comply with the new regulations may subject the companies to fines ranging from 20,000 (USD $2,900) to 30,000 yuan (USD $4,400). Repeat offenders may risk a criminal investigation.

While there is some concern that increased regulation will dissuade Chinese blockchain startups and entrepreneurs, proponents argue that improved guidance and clarity from regulators will embolden startups and entrepreneurs by demonstrating China’s commitment to a carefully managed, safe and secure domestic blockchain industry.

A Delicate Blockchain Balancing Act

For several years, China has maintained a cautious and deliberative approach toward the blockchain. China Central Television (CCTV), the powerful state-controlled broadcast company announced in an hour-long broadcast last year, that “the value of blockchain is ten times that of the Internet”, and that blockchain is the next significant global technological revolution, exceeding the importance of the Internet, according to Quartz.

President Xi Jinping spoke in May 2018 about the enormous potential of the blockchain, stating “a new generation of technology represented by artificial intelligence, quantum information, mobile communications, internet of things, and blockchain is accelerating breakthrough applications,” Xi said, via a translator.

These are not just idle words; there is coordinated action underlying many recent Chinese blockchain ventures that have the support of the government, educational and research institutes and private enterprise. Chinese firms occupy 57 spots in a newly compiled “Top-100 Blockchain Enterprise Patent Rankings” list, according to a prominent intellectual property information source. China filed the most blockchain patents globally with the World Intellectual Property Organization (WIPO) in 2017, according to Thomson Reuters, accounting for a total of 49% filed patents, while the U.S. came in second place with 33% of all filed patents.

Nanjing, the capital of China’s Jiangsu province, launched a 10 billion yuan ($1.48 billion) investment fund for blockchain. During the grand opening of the Hangzhou Blockchain Industrial Park in China, the Xiong’An Global Blockchain Innovation Fund launched with $1.6 billion (10 billion yuan) to fund promising Chinese blockchain ventures.

However, regarding cryptocurrency, China has steadfastly resisted liberalizing its approach to any digital currency that could rival the yuan. China does not recognize cryptocurrencies as legal tender, and the banking system does not cryptocurrencies or providing related services.

In 2017, the Chinese government took several high-profile regulatory measures to protect investors and reduce financial risk, including announcing that initial coin offerings are illegal, restricting the primary business of cryptocurrency trading platforms, and discouraging cryptocurrency mining. China’s actions halted cryptocurrency speculation and prevented widespread fraud and manipulation, sparing most Chinese investors from the extreme volatility and tremendous losses sustained in 2018.

Future of Blockchain in China

Overall, the general outlook among China’s emerging blockchain technology leaders is overwhelmingly optimistic. “The future of blockchain has to be bright,” says Dr. Steve Deng, Chief AI Scientist for MATRIX AI Network (MAN), a global open-source, public, intelligent blockchain-based distributed computing platform and operating system based in China that combines artificial intelligence (AI) and blockchain.

Dr. Steve Deng explains:

My belief is that the blockchain technology delivers four key advantages. First, blockchain is a trusted network by offering a secured digital infrastructure for verifying identity. Second, it is a watchdog network to make sure people do no harm. Third, it is a delivery network, which enables faster and cheaper international payments, and also makes the disbursement more natural and transparent. Fourth, it is a collaboration network by providing incentives for mass collaboration.

Like MATRIX AI Network, there are a number of other promising blockchain technology companies emerging from China, such as NEO, GXChain, Tron, and VeChain, that are attracting investors, drawing interest from strategic partners in the private sector and bolstering China’s claim as a force to be reckoned with in the new digital economy.

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