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Blockchain regulatory view from within China


by Zarc Gin.






Zarc Gin
Zarc Gin
Huo Xuewen, director of Beijing Municipal Bureau of Financial Work has fired 9 acute questions toward Bitcoin, blockchain and ICO in a Fintech meetup recently. He tried to explore the fundamentals and values of this technology.

Mr. Huo said that now that investors care only for making profits in ICO and nobody cares about the values behind this innovative mechanism. And since most of the trades of cryptocurrency rely on centralized exchanges, the digital assets are still threatened by traditional risks.

He stressed that he believes blockchain will be the underlying technology for future Fintech industry, however, if short of proper regulation, blockchain could easily become a tool for illegal financial behaviors.

Huo Xuewen also released a signal from regulators – Beijing, the capital of China will strike hard and seriously against financial frauds involving blockchain. He said:
“Any companies who are exploring blockchain must pay attention to risks, control the risks and must not fake concepts and models which have yet been proven feasible. The development of blockchain must put the interest of individual investors and users at first.

Here are the 9 questions and insights from Mr. Huo:

1. What is blockchain, Bitcoin, ICO and token?
If you know blockchain, you will never be blinded by the myth of it.
If you know Bitcoin, you will never take the illusion that Bitcoin price will go up forever.
If you know ICO, you will understand that raising money for a new project should never be this easy.
If you know token, you will easily tell scams from true innovations.
What is a token? It should be a pass for certain service. However, people are interpreting it as an asset whose value will drastically fluctuate. Codes generated from Google Authenticator are tokens. Bitcoin is a new form of currency, but it does not mean that all tokens generated from blockchain are currencies, or securities.
Blockchain, as an emerging technology, has technical barriers, so the understanding of blockchain varies significantly between technicians and average investors. Most of the investors know less than 20% of blockchain and this has been leveraged by frauds.

2. Where lies their values?
Cryptograph is the technical fundamental of blockchain, but does encryption itself have value? If an encryption is not linked to the things it encrypts, it would just be a meaningless string of numbers. So, the value of a token lies in the product behind it. It is a digital vessel for the product.

3. What is the source of value for ICO projects?
It’s easy to say but hard to present – the actual application, the application which can generate revenues.
If an ICO project cannot generate revenue, how can it generate profits for investors? A lot of ICO projects are simply trying to raise money with an exaggerated whitepaper. It’s just wrong.

4. Will blockchain disrupt everything?
Enthusiasts are saying that blockchain will disrupt everything, including finance and society. But let’s be clear, there is no single technology that has disrupted everything yet. And more importantly, key technologies are evolving all the time, it took a combination of multiple technologies (like computer and Internet) for decades (from 1990s to 2010s) to truly change our world.
So blockchain alone certainly won’t disrupt our world in a short period of time. We need to mark that in heart and patiently promote the development of blockchain.

5. A misinterpretation for decentralization in Chinese
Chinese blockchain community has made a serious mistake on the emphasis of blockchain. They think decentralization is the key and have put a lot of efforts on stressing the importance of decentralization. However, as one of the main feature of blockchain, decentralization is just a means of achieving the unique value of blockchain.
What is the unique value? It is to build a new trust system. Blockchain can build and convey trust where traditional credit system is absent.

6. Will blockchain disrupt traditional exchange model?
Definitely no. The transaction rate of blockchain technology is way slower than current security exchange systems. A trade in blockchain needs 10 minutes to be processed, while exchange system can process hundreds of trades in a second.
The value of blockchain is to make process more transparent and fair. Transparency and fairness should also be a part of exchange system. So blockchain will not disrupt it but could help improve it.

7. Are digital assets based on blockchain secure?
Yes on thesis, not so much for now. The trade of digital assets relies on exchanges. And most of the exchanges are centralized and old-fashioned. They are still exposed to traditional risks.

8. How did ICO work?
Most of the ICO projects are based on ERC-20, some of them have developed a language of their own. ICO is one of the most successful application of Ethereum, but Ethereum did not design a anti-fraud mechanism for ICO projects which has made investors unprotected.

9. Is ICO legal?
According to the government announcement release on Sep. 4th, 2017, it’s an illegal financing action in China.

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Wednesday, April 11th 2018
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