This article was originally published in the "Beijing News"
Author: Deng Jianpeng (Central University of Finance and Law School professor, doctoral tutor)
With the central level clearing the important role of the integration and application of blockchain technology in new technological innovation and industrial transformation, the development of China's blockchain industry has ushered in a rare historical opportunity.
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At the same time, the blockchain industry is partially reshaping the underlying framework of the financial legal system. Because the blockchain has the characteristics of point-to-point, no borders, no sovereignty, and no specific legal responsibility to bear the main body, it brings great convenience and brings risks in the fields of finance and so on. This requires the state to provide regulatory supervision and even legislation to promote the safe and orderly development of the blockchain industry.
Drawing on international experience and strengthening international cooperation
First, it would be very difficult to rely solely on a country to regulate under this ban. To this end, we first recommend that regulators strengthen international collaboration and strengthen international regulation. In particular, it cooperates with regions with developed virtual currency markets such as the United States, Western Europe, Japan and South Korea.
Second, the definition of virtual currency law is clearly defined and classified according to the classification. The financial sector is an important area for blockchain applications. At present, the legal position of virtual currency is vague, which negatively affects regulatory policies.
Previously, due to the chaos of ICO (which was the first issue of tokens in the blockchain project and the promotion of general digital currency), investment hype prevailed, and the central bank and other seven ministries jointly issued the “Announcement on Preventing the Risk of Subsidy Issuance Financing”. , completely stopped ICO.
As Xiao Gang, a member of the National Committee of the Chinese People's Political Consultative Conference and former chairman of the China Securities Regulatory Commission, said, the financial regulatory authorities should give a clear definition of the application of the blockchain in the financial sector to better regulate development and eliminate chaos.
In my opinion, in the future, regulators may be able to encourage some local governments to carry out ICO supervision sandbox gardens, through local related professional agencies for filing, review and sandbox testing. In the future specific regulatory guidelines, we propose that the central bank should design and plan the basic regulatory framework. The CSRC will lead the introduction of specific rules and regulatory operations. The local financial regulatory agencies are responsible for combating illegal criminal activities such as illegal fund-raising in this area.
For the legal definition of tokens issued by ICO, China can refer to the experience of Switzerland and Singapore in the future, and classify them according to the economic function of tokens—payment tokens, application tokens and asset tokens.
The significance of categorizing virtual currency and various ICO tokens is that it can help regulators quickly determine the specific laws and regulations that should be followed by ICO projects. At the same time, ICO project parties can also reasonably avoid legal risks before issuing tokens.
Third, in the future, the securities sector will consider increasing the small exemption system for raised funds, and at the same time expanding the concept of “securities” in legislation to adapt to changes in the times.
In the Securities Law, the small exemption of raised funds has always been the direction of the securities law advocated by scholars. In order to regulate ICO financing activities, the securities of the securities nature (the so-called STO) issued by ICO can be included in the supervision of the Securities Law, and the scope and concept of "securities" in law can be expanded.
Therefore, China's Securities Law and criminal law-related securities crimes should be moderately expanded and adjusted in the future to adapt to new technological trends. When amending the Securities Law, I believe that we can also draw on the relevant laws and regulations of Singapore and the United States to create a "small public offering exemption system."
Forming blockchain technical rules by legal rules
Fourth, strengthen the threshold of qualified investors and investor risk education.
Over the years, individual qualified investors and institutional qualified investors in the blockchain field have been more academic concepts of academic controversy and discussion, and have long been in a blank state in law. In addition to professional investment institutions, there is no clear legal requirement for individual investors to enter the market.
In the past, ICO hype and virtual currency trading platforms had no threshold for investors. Individual virtual currency trading platforms have long provided (or even induced) futures contract transactions to investors who have no risk-taking ability. A large number of investors have suffered huge losses, and even triggered investors to adopt extreme rights protection events on the trading platform. In addition, some ICO financing platforms outside the country are still open to Chinese residents without distinction. Therefore, if the ICO financing or virtual currency trading is cautiously opened in the future, it is necessary to strictly set the corresponding investor threshold.
Specific to the legal regulation and supervision in the field of blockchain, the blockchain's challenge to legislation and regulation requires regulators and legislators to change their inherent thinking.
With blockchain technology and smart contracts, legal and contractual terms can be translated into simple, well-defined code-based rules that are automatically executed by the underlying blockchain network. Technical rules will increasingly assume the same role and function as legal rules. Governments can use code to ensure that people comply with the law.
By converting some of the laws into technical rules, the legal provisions can be implemented by the underlying technical framework, reducing the need for supervision and ongoing execution. The government's use of blockchain technology as a regulatory technology benefits both regulators and society as a whole—reducing compliance and enforcement costs, automating the law, and reducing the inherent uncertainty of legal texts. If these systems gain mainstream applications and government support, they will lead to the establishment of a new regulatory framework. In addition to simple banned regulation, this idea has provided China with extremely useful inspiration.
Codes that are not subject to third-party intervention can be deployed on the blockchain. If the regulator encourages the blockchain project party to convert some of the laws into codes and promote software autonomy in the blockchain domain, it can coordinate the legitimate interests of the unspecified entities.
At present, blockchain technology is still far from mature. Regulators can shape new rules and influence code rules through different forms. Finally, some internal governance of blockchains can be realized through software to save regulatory resources.
Promote cautious supervision in the blockchain sector as soon as possible
Finally, I believe that under the premise of encouraging the balance between financial technology innovation and risk control, the government should follow up in a timely manner to promote the integration of blockchain technology and regulatory technology.
In addition, relevant regulatory measures include both flexible and hard regulatory. Regarding the former, such as the investigation of the location of the blockchain project by the regulatory agency; issuing relevant investigation reports on virtual currency transactions; proposing investor risk warnings; listing high-risk trading platforms, blockchain financing projects or sponsor lists.
In addition, the regulatory authorities should further promote the self-discipline construction of the industry associations and the self-discipline practice of the industry, and combine the “regulatory sandbox” that has been tried for several years in the world and the long-standing “pilot” mechanism in China to launch blockchain sand with Chinese characteristics. Box Industrial Park.
In summary, from the perspective of maintaining a long-term regulatory mechanism for national financial security and risk prevention and international experience, China should promote cautious supervision in the blockchain field as soon as possible.