Supervision comes first as China develops blockchain

By Zhou Qing Source:Global Times Published: 2019/11/11 20:23:39


Illustration: Luo Xuan/GT

China has gained the edge in blockchain technology. Now, formulating a solid regulation and supervision system for it is the top priority; it needs to come before public blockchain is launched or admitted in the Chinese market. 

According to a blockchain white paper released by the China Academy of Information and Communications Technology on Friday, China has obtained more than half of all blockchain patents globally and is home to about a quarter of global blockchain companies. This shows that blockchain innovation is on the rise in China. 

Despite the advantages China has in this new technology, it is still quite challenging for authorities to regulate and oversee it, which implies there are vulnerabilities which could be detrimental. The abuse of blockchain technology could pose dangers for China and Chinese people.

Public blockchain is the dominant format internationally, while China's blockchain research emphasizes consortium blockchain. With multiple positive characteristics such as decentralization, anonymity, being tamper-proof and having lower costs, public blockchain has been widely adopted by Western countries. Consortium blockchain combines the decentralization of public blockchain and the high efficiency of private blockchain.

Bitcoin, as the symbolic first generation of public blockchain technology, is frequently used as a transaction intermediary for illegal activities because there are methods to buy Bitcoin anonymously. When cryptocurrencies came to China, they stirred up speculation and generated chaotic initial coin offerings (ICO) which largely turned out to be fraudulent. Therefore, the authorities banned ICOs in September 2017 and put tighter regulations on tokens last year. 

Outside of China, Facebook is in the process of creating its cryptocurrency Libra and is ambitious enough to attempt the construction of financial infrastructure for the world. Mark Zuckerberg, founder and CEO of Facebook, drew connections between Libra and democratic values. Libra "will extend America's financial leadership around the world as well as [its] democratic values and oversight," according to Zuckerberg's testimony which was released ahead of a House Financial Services Committee hearing in Washington last month. 

By highlighting US financial leadership and values, it seems Facebook is turning Libra into a weapon to reinforce US hegemony worldwide. China has to remember that US companies' ambition may someday infringe on China's national interests and clamp the country's financial system. 

Therefore, a proper supervision system in China should be built up to ensure blockchain technology will not be abused. Technologies to trace and detect public blockchain should be further researched and developed. This could establish boundaries of supervision. "Any good technology or instrument will have to be in good hands and put into rightful use so that it can maximize its value," Chen Chun, director of the Blockchain Research Center at Zhejiang University and academician of the Chinese Academy of Engineering, said in a note sent to Global Times on Monday. 

The once un-hackable blockchain has experienced an increasing number of loopholes over the past few years. According to the Wall Street Journal, more than $1.7 billion in cryptocurrency has been stolen as of January 2019. As blockchain has permeated people's daily lives in China, regulation must play a role. Applications of blockchain technology have "expanded from cryptocurrency in the early stage to multiple areas such as government administration, people's well-being and social management, as well as powering up the real economy," Cai Liang, who works in the same research team as Chen and is executive vice director of the Blockchain Research Center at Zhejiang University, told the Global Times on Monday. 

Blockchain technology poses challenges to regulation and supervision authorities. But Chinese policymakers are prepared. Several laws and regulations were passed earlier this year to build a legal system for blockchain technology. Any entity that provides blockchain services will have to a pass security evaluation conducted by the Internet Information Office before launching a new product, application or function. The system will require blockchain technology companies which operate within China to submit identification to verify authenticity, and will keep records. 

Aside from being subject to attacks from hackers, blockchain technology does have an Achilles heel. There have been reports that quantum computing could quickly decode blockchain cryptography. But the quantum computing technology required to do this is likely decades away from application. Blockchain, which has evolved three generations, will continue to advance. 

During this process, regulations and supervision will need to pay close attention to keep it on the right track. 

The author is a reporter with the Global Times.

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