A new research paper on “What can a blockchain do and not do” has been released by China’s central bank experts. The authors have warned of a bubble in any financing and investments associated with blockchain-connected cryptocurrencies. This included activities in respect of the initial coin offering (ICO). The research paper has called for the strengthening of supervision of the emerging sector so that financial risks could be curbed. This is not new as the government has expressed this in the past as well and the new paper is a reiteration of the same.
The research paper was written by the People’s Bank of China’s Research Bureau director, Xu Zhong, and its analyst Zou Chuanwei. The two believes that there could not only be speculation and market manipulation but also sees violations of laws and regulations. They see these becoming a common feature particularly when it comes to public offering transactions. Though the paper claimed to represent ‘academic opinion,’ it is believed widely that the central bank is reiterating its position on blockchain-associated digital coins including bitcoin.
The paper focused on different applications of distributed ledger technology (DLT) and offered an economic analysis of projects based on it and called for a realistic view of the technology’s application. The researchers have said, “Firstly, don’t exaggerate the function of the blockchain. Some industry practices in recent years have proven that some blockchain applications are not feasible.” They are obviously referring to the financial sector specifically to drive their point of view. They also believe that there is no disruptive impact from any technological innovation on the financial system currently. This included blockchain.
Another key factor pointed out by the two authors was the lack of intrinsic value of cryptocurrencies. They believe that there is no credible sovereign banking and thinks that digital coins could not replace legal fiat currencies. The anonymous nature would only make it tough to executive KYC and anti-money laundering practices. While not indicating the acceptable DLT use in China, the authors think that decentralization of the nation’s commercial bill market offers enough potential for blockchain apps.
Though China has been strict on anything about digital currencies and ICOs, it has taken a favorable stand on DLT. For instance, the country’s 13th Five-Year Plan includes blockchain for the period between 2016 and 2020. Similarly, its president, Xi Jinping, termed DLT as “part of the technological revolution.”
China has repeatedly been stating its stance against the emerging asset class and even banned ICOs in totality in September 2017. The government has declared ICO as an illegal form of fundraising and ordered the closure of domestic cryptocurrency exchange platforms, which offered crypto-associated facilities. As a result, China-based big digital coin exchanges have moved to neighboring countries such as Hong Kong, Singapore, and Japan and continue their services to even domestic investors.
At the same time, some operators acted as market-makers in over-the-counter trading since it was not banned openly. The regulators have been warning against cryptocurrencies and even resorted to cracking down on those trying to use different or alternative names to circumvent the ban.
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