The BSV industry in China needs to build applications aimed at enterprise-tier data users from now on, rather than creating tradeable tokens and payment services. That’s the opinion of Fueng Li, creator of BSVdata.com, in light of China’s recent tightening of regulations concerning blockchain technology and associated activities.
China has now essentially forbidden all monetary uses for blockchain technology, as well as mining the assets themselves. While this puts a damper on any project looking to mimic or replace aspects of the legacy financial system, it could open up a lot of other opportunities. BSV, Fueng says, is actually better positioned to adjust to these changes than other blockchains. Its unbounded scaling capacity, and ability to perform data processing and verification functions, could see it continue to grow in China — although a shift in direction may still be necessary for many.
CoinGeek interviewed Fueng Li for a more in-depth look at the background to the changes (which represent more of an evolution than a change), and what it will mean for both BSV and other blockchain projects.
BSVdata tracks BSV applications according to their volumes, types, and protocol usage, giving a clearer overview of how Bitcoin is being used around the world.
What circumstances led to the current changes in policy?
Fueng Li: We should first look at the overall system to understand the circumstances. The crypto/virtual currency ban is part of a far greater and macroscopic plan of financial regulation (or even tech and capitals crackdown) in China in recent years, aiming to shrink the influence of mainland private or foreign capital, and also deleverage and stabilize common financial activities, etc. There are many events that exposed the vulnerability of China’s financial system and intentions of the authorities, such as Ant Group IPO being suspended, HNA airlines or the Evergrande crisis.
China’s financial regulators worry the speculations would add more risks to the system, firstly because of capital outflows (China is not forex free) caused by cryptocurrency as gateways, and secondly, possible social unrest brought by a crypto market meltdown or exchanges frauds.
China has encouraged non-monetary blockchain technology in the past. Is development still continuing?
Fueng Li: China’s policy makers took different approaches on blockchain, and cryptocurrencies are separated. The regulation on non-token/coin-free blockchains is quite friendly and encouraging, while cryptocurrencies, no matter whether in the form of coins or tokens with security and monetary values, are strictly forbidden to be used and circulated.
One noticeable example is Xunlei, a leading company in IT infrastructure, whose digital token issuing was banned in late 2017. And ICOs or any form of virtual currency are prohibited since then. While on the other hand, China has always encouraged blockchain technologies and has started to apply it to multiple industries. Blockchain in China is a fast growing industry with participation from almost all Big Tech, such as Antchain (Alibaba),BSN (State), JDChain (JD.com), TBaaS (Tencent), etc.
What’s the current situation in the trading and mining sectors?
Fueng Li: As you mentioned, China has banned crypto mining and exchanges many times, that’s true. But many people missed the bigger picture of the system, thinking this was just another non-workable threat, while the authorities’ plan is very clear: gradually remove all cryptocurrency related markets out of China. Though regulation and enforcement come slowly, it’s getting further and tighter along the way.
Now even the gray area is illegal now, no coin trading on exchanges for Chinese citizens and no cheap electricity is allowed to support mining firms, and it applies to whether you operate in the shadows/use VPNs or not. They have issued multiple notes that they will refund and close accounts of all mainland Chinese. With 50% active users from China on OKEx and Huobi, I think they can influence the liquidity and price quite dramatically.
What’s more, Bitcoin mining created a competitive and distributed electricity market, which is something the authorities would firmly forbid, because the electricity market and its price is a state monopoly business.
Can there still be a market for BSV products if the asset can’t be traded?
Fueng Li: It’s really a challenging and critical time for the space.
Firstly, online users are impacted directly. BSV coins or tokens issued on the BSV chain are illegal for trading, so new users of Chinese citizen couldn’t even buy coins and thus cannot gain access to products and services that build on Bitcoin SV and require wallets to use.
Secondly, applications rely on users in the mode above would also be unable to operate in the long term. Once (if) you get bigger, let’s assume 1 million users, there’s no way you can get away with illegal activity under state policy. Rather, it’s a matter of time and scale. So this is a stop warning for those who rely on issuing tokens and speculation, which is clearly illegal.
What does this mean for BSV development in China and the world?
Fueng Li: China’s restriction policy on virtual currencies applies to all coins including BSV, though BSV is not a cryptocurrency but a digital cash as commodity. The monetary value of the blockchain coins is what it’s aiming to forbid, while on the other hand it doesn’t apply to the blockchains as technology infrastructure. So the edge is a little bit subtle but should be considered by businesses to operate accordingly.
I think, personally, companies who focus on China’s mainland market should move away from Ethereum, DeFi and NFT models which don’t work legally in China. Building utility products by utilizing the basic BSV layer, but not requiring BSV coins in payments and settlement from users, could possibly find solutions within legal frameworks with local banks and the tax department.
What’s more, we can see major demands are from the enterprise level in China’s blockchain industry, which is also what solution providers focus on. I think the Bitcoin SV blockchain can easily compete with them in terms of scalability. We haven’t seen enterprise level solutions on BSV in China yet, though we’ve seen lots of diversity in China’s products on BSV. Another reason for advocating enterprise application is that it’s one important way to work out legal solutions for the adoption of BSV blockchain and possibly set examples for the followers.
Finally, branding and marketing of BSV in China should avoid falling into digital cash, but emphasize the blockchain data ledger, which is also the current strategy of the Bitcoin Association. Speculation dominated activity could only drive the BSV brand into a bad and unlawful reputation, just like BTC, ETH, and DeFi. I think this does not only apply to China, but to the world.
Watch: CoinGeek Zurich panel, BSV Blockchain & China
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