Yang Dong: Urgent need to strengthen supervision and governance of blockchain technology

On June 4, 2019, the founder of the wave field, Sun Yuchen, announced that he had successfully photographed Buffett’s 20th anniversary charity luncheon with a record-breaking $4,567,888. Along with the hot search discussion, it also attracted many controversies. The author has no intention to comment on Sun Yuchen's right and wrong in the currency circle, but I hope to take this opportunity to talk about the supervision and governance of blockchain technology.

I. The regulatory necessity arising from the ICO chaos


In 2017, under the spur of bitcoin price, various virtual coins at home and abroad were also developed. According to relevant news reports, Sun Yuchen issued the wave bank TRON at that time, and sold 100 billion pieces at a price of 0.0015 US dollars. On the day of the issuance of the currency, it raised $600 million. When the value of the wave field currency was the highest, it once reached an astonishing $1.85/piece, and the market value of circulation reached $13 billion. On September 4, 2017, the central bank and other seven ministries jointly issued the "Announcement on Preventing the Risk of Subsidy Issuance Financing" to stop the ICO in full, requiring all kinds of activities to stop immediately, and those that have completed the issuance should be retired. It is reported that in January 2018, Sun Yuchen exchanged the wave currency in his hand for Ethereum, which was worth 300 million US dollars, or about 2 billion yuan. Since then, the wave of coins has gone down all the way. There are reports that the wave currency does not have its own technology, and there is no application scenario. It is an "air coin."

In August 2017, the author issued a document stating that the ICO market was in a period of barbaric growth, and a large amount of funds poured into various ICO projects, which gave birth to numerous financing chaos. In practice, there are many cases of vicious frauds that use the name of ICO, the Ponzi scheme or the illegal fund-raising, and should curb the "fresh-smelling" behavior. On September 4, 2017, the reason why the central bank and other seven ministries and commissions completely stopped ICO was related to the fact that China's ICO risk exposure was more serious and the degree of alienation was higher. At that time, a large number of ICO projects were suspected of violating crimes. In this context, stopping ICO has sufficient necessity and urgency, and it is also a regulatory progress. However, it must also be recognized that simply prohibiting illegal financial activities without trying to meet the essential needs of financing difficulties behind them will still lead to irregular financial governance; ICO chaos is only a blockchain technology that is illegally applied by people with ulterior motives, and It means that the blockchain technology itself should be denied. The regulatory layer should use ICO flooding as a precaution to encourage and support the blockchain technology innovation while improving the regulatory measures for the blockchain industry and prevent the bad currency from expelling the foreign currency.

Second, the regulatory blockchain needs institutional innovation


The innovation of blockchain technology has had a major impact on multiple industries, allowing the “structural” role of code, hardware and other constrained behaviors to rapidly expand, at least redefining the design, implementation and enforcement of legal and regulatory rules. Although the blockchain technology is improving day by day, it still involves many technical problems and legal risks in practice, and the solution of legal problems is the core issue of blockchain development. In the face of a new technology that may change the future human production and life style, it should be escorted at the institutional level, and through the blockchain technology to see the risks of financial technology development.

From historical experience and recent regulatory policies, it can be found that regulators have imposed existing regulatory rules on new emerging technologies, and the high thresholds followed and the regulatory concepts they contain will inhibit the development of de-intermediation technologies. Further innovation. If the regulation of blockchain technology still adopts the traditional regulatory path, there will be risks of regulatory confusion and uncertainty, which will defeat financial innovation. Therefore, the government supervision mode and supervision path should be innovated under the rule of law.

From international experience, most countries in the world regulate various applications based on blockchain technology, especially some of them with financial attributes. In 2018, the author visited Japan, Australia, the United Kingdom, South Korea and other countries to inspect overseas relevant regulatory experience. Among them, there are many ideas and measures that are beneficial and worthy of reference. For example, Japan has specifically enacted virtual currency and introduced a registration system to regulate virtual currency exchanges to regulate the potential money laundering and terrorist financing risks of virtual currency exchanges and protect the legitimate rights and interests of users. The UK is the first to establish a “regulatory sandbox” system, allowing innovative financial companies that use new technologies such as blockchain to conduct their business experimentally within a specific small area and gradually achieve compliance under the guidance of the FCA (Financial Behavior Supervision Authority). . The US SEC (Securities and Exchange Commission) characterizes the ICO based on federal securities laws, citing the Howey Test standard established by the Federal Supreme Court, and defines some ICOs as securities issuance and strict supervision. In general, countries have adopted stricter regulatory measures for blockchain-based financial applications, and have adopted different specific measures based on their own legal systems and national conditions. In order to protect the interests of financial consumers and maintain market order, these regulatory measures are all due to the financial rule of law.

As far as China is concerned, on January 10, 2019, the State Internet Information Office issued the Regulations on the Management of Blockchain Information Services (hereinafter referred to as the “Regulations”), which will take effect on February 15, 2019. The promulgation of the "Provisions" will help combat illegal crimes and curb the "pseudo-innovation" in the name of the blockchain chain. It will have a positive effect on the management of blockchain-related market chaos.

Third, the regulatory blockchain should use regulatory technology to “chain the chain”


Effectively regulating the blockchain requires not only institutional innovation, but also the introduction of regulatory technology (RegTech) represented by blockchain to enhance regulatory capabilities. Regulating the blockchain requires breaking the tradition and adopting some new approaches. The most important of these is the “chain-and-chain”, which is the establishment of the “French Chain” (RegChain), which uses blockchain technology to regulate the blockchain industry. In May 2018, the author published in the article "Regulatory Science and Technology: The Regulatory Challenges and Dimensional Construction of Financial Technology" in China Social Science, pointing out that the traditional bimodal regulatory system is built with prudential supervision, functional supervision and behavior supervision as the core. And laws and regulations can not effectively deal with decentralized financial innovation represented by blockchain technology. Therefore, it is necessary to add a technological dimension beyond the traditional financial supervision dimension, apply scientific and technological means to the regulatory system, and shape a two-dimensional regulatory system to better cope with the risks inherent in financial technology and the regulatory challenges it raises. .

With the emergence of new financial formats such as smart contracts and digital currencies driven by blockchain technology, it is completely unrealistic to artificially supervise such automatic trading or compliance activities. The traditional artificial supervision mode is to the automatic supervision mode. The shift is irreversible, and without the use of automated legal review, record tracking and regulatory changes, it will be difficult to meet extremely complex regulatory requirements. Historical experience has shown that traditional regulatory measures are not sufficient to respond to market failures and may breed illegal and fraudulent use of decentralized technology. If blockchain technology can be used for regulation rather than excluding regulators, a blockchain-based regulatory system will increase the effectiveness and accuracy of regulation. A real-time, transparent shared account book will enable regulators to identify and respond before the results deteriorate. Even regulators can embed compliance mechanisms directly into the blockchain system. Blockchain technology can be used to solve potential problems. Market failures and government failures, and the ability to fully consider the unique organic regulatory system of emerging technologies. Regulators will play a dual role in the blockchain technology model: First, legislators formulate laws and regulations, provide legal support for regulators and enterprises, form new effective regulatory channels, and reduce the risks caused by uncertainties; Second, in cooperation with technical experts, the regulatory laws and regulations on finance and other aspects are embedded in the blockchain technology, so that the implementation of laws and regulations is realized by code.

Fourth, in addition to supervision, it is necessary to strengthen the application of blockchain


For blockchain-related innovation activities, local governments can, through local legislation, carry out pilot tests within a certain scope of government control, and create policy space for blockchains to be applied to smart government. In fact, some local governments in China have already made useful attempts. For example, Guiyang City proposed a “sovereign blockchain” to establish a credible blockchain system that the government can supervise, control, and intervene; Qingdao North District builds a “chain bay” and establishes a non-profit chain bay research institute. To study the development of supporting blockchain innovation enterprises, and to study the specific scheme of using blockchain for supervision; Loudi City, Hunan Province uses blockchain to improve government affairs and transfer some public services to blockchain; Jiangxi Cangzhou establishes blockchain Supervise the sandbox to allow blockchain innovation companies to carry out experimental operations; Hainan Eco-Software Park and the People's University of China's Big Data Blockchain and Regulatory Technology Lab jointly set up a blockchain system innovation center to study the use of blockchain for government regulation To achieve institutional innovation. The attempts of local governments are highly forward-looking and positive, and relevant practices will certainly provide valuable lessons for the supervision and governance of the blockchain.

In recent years, foreign countries are also actively exploring the application of blockchain in government management. In terms of theory, it focuses on “how to make government data open”, “how to increase the participation of citizens and social organizations in social public affairs through scientific and technological means” and “how to create personalized government services through blockchain technology”. A series of questions. In practice, blockchain technology has been applied to public service areas related to citizenship, such as passport processing and land transaction information disclosure.

Combining domestic and international blockchain government construction experience, it is not difficult to find that the important foundation for building a smart government is to build a digital government. Blockchain technology can be combined with other technologies such as big data and artificial intelligence to improve the efficiency of government and build an efficient and secure digital government. Taking this as an entry point, the application of blockchain technology can form a collaborative management and service mechanism across industries, regions, systems, and departments. The future development path of the blockchain and the risks to be circumvented should be considered from the perspective of the government's exploration of the initial and historical application of the blockchain, that is, returning to the original intention of serving the real economy and serving the local government.

V. Transition from Supervision to Governance: The Necessity of the Theory of Common Tickets


As mentioned above, we must develop the application value of blockchain technology, and also use the method of technology governance to effectively deal with the risks and challenges of this emerging technology. This shift from simple supervision to comprehensive governance is mainly reflected in: the goal is not only to “control” the risk of the blockchain, but also to “promote” the healthy development of the blockchain and ultimately serve the real economy for the benefit of the people; In terms of strategy, from simple violations to compliance guidance; on the specific path, from the traditional single supervision tools, to the various governance measures of social governance, especially the introduction of technical tools, improve self-discipline supervision. In this regard, the main problem with the current blockchain governance is that the market is guided by the wrong concept and the lack of technical regulatory tools.

China is one of the countries with the most rich blockchain practice. Putting forward the original Chinese governance theory based on the rich blockchain practice will not only benefit the further healthy development of China's blockchain business, but also be the world digital economy. Development contributes to Chinese wisdom.

Blockchain economy is a new form of crowdfunding under technology. Maintaining this economic shape is the true value of the blockchain. The "Token", which is not worthy of the name, does not reflect this value orientation. Instead, it promotes the digital currency market that has pursued hype and has produced a huge bubble. The "Token", which is not worthy of the name, was further enhanced after being translated into "tokens" in the Chinese context, resulting in even worse misguided guidance, breeding a variety of "selling coins" and "air coins." The digital token market, which is dominated by misconceptions and is the main target of speculation, is unsustainable.

In order to guide the healthy development of the blockchain industry with the help of the crowdfunding system, return to the source and bring order out of chaos, the author puts forward the "common vote" theory. “Common ticket” refers to the shared new rights on the blockchain. Its English can be combined with “Co-” and “Token” which means “common, joint” to translate into “Coken”, which represents the common word “Token”. The inheritance also represents the correct development direction of the blockchain. It has the following characteristics: 1. The function of increasing dividend sharing to attract external participation of the system and contribute to the internal system; 2. The function of circulation consumption to facilitate the optimization of resource allocation on the system; 3. The function of equity certification is the consensus of the system. Mechanisms and means. "Common ticket" and "Coken" fully embody the idea of ​​crowdfunding. In terms of concept, it can guide the application of blockchain to the right track, and also provide direction and goal for the authority to manage the blockchain, guiding the project party to simply point to the second level. The predicament of the market, abandoning the wrong impulse to issue worthless air coins, really prompts all parties to return to science and technology to make life better and finance more convenient.

In particular, blockchain and co-voting are significant for data. The data in the digital economy era is similar to the capital of the industrial revolution, and data collection has been similar to the concentration of capital. In this case, a series of legal actions such as the collection, use, storage and trading of data will change. The emergence of new legal objects and new legal subjects is just like the formation of corporate systems and capital systems, and is currently forming a valuable data. The existence of the system in the nature, the content of rights, the ownership and other aspects of the lack of institutions, which led to the emergence of "free rider", moral hazard and adverse selection and hinder the realization of Caldo Hicks efficiency. Blockchain technology can empower data to determine the ownership and confirmation of data; and the common vote can empower data, and can be used as a public participation in the creation of data, so that the public can share the data economic dividend. Volkswagen's participation in the digital economy through joint voting will give new value to the digital economy and a new driving force for development.

The author once put forward that "crowdfunding is the core system, blockchain is the basic technology, and the common ticket is the shared interest." At present, the physical performance of the blockchain technology is not high, and there are not many related landing projects, but the institutional innovation prospects brought by the blockchain should also be seen. Blockchain is the basic technology that truly conforms to the concept of crowdfunding. Further building a common ticketing mechanism around blockchain technology and crowdfunding concept can truly release the significant potential of blockchain and crowdfunding system application, and win the institutional revolution in the digital revolution era. Leading opportunity. At present, many governments have applied blockchain technology to innovate smart government affairs, which is in line with the requirements of the party's 19th National Congress to promote the modernization of the national governance system and governance capacity. In the future, we should pay more attention to the various opportunities driven by innovation, fully realize the change of lanes and overtake, and stand the leading position of a new round of technological revolution.

(Yang Dong: Member of the Chang'an Street Reading Club, Director of the Big Data Blockchain and Regulatory Science and Technology Laboratory of Renmin University of China)

Source: Chang'an Street Reading Club