In order to outline some possible regulation help, a working paper was generated and published by creating an outline for cryptocurrency licenses.
The official paper was released on June 26th, 2018 and was titled “The Study of Development and Regulations on Distributed Ledger Accounts, Blockchain, and Digital Currency.”
China is one of the largest financial markets in the world, buthas had many problems with cryptocurrencies over the years. China has issued bans on bitcoin and other cryptocurrencies many times, and according to Investopedia, China has currently banned ICO’s, or Initial coin offerings, since September 2017.
The People’s Bank of China, which is the central bank in China and one that often creates financial policies for the entire country, said that they would be interested in banning all cryptocurrency exchanges and making it illegal to operate or use any exchange whether it is foreign or domestic.
The reason China has decided to take such a strong stance on cryptocurrencies is that cryptocurrency has the feature of borderless trading; and China believes that sending money in and out of the country without close regulation will upset its economy.
Lots of people in China are involved in cryptocurrency market. In addition, China as a country has cheaper electricity costs than the majority of the world, and so it is home to many cryptocurrency miners, who are likely to be affected by these regulatory risks and policies.
So when new laws and regulations come out, there isalways going to be controversial debates. But if cryptocurrency is going to be adopted around the world, China is going to need to ease up on cryptocurrencies as they own a huge part in the world’s finance.
One of the main points within the paper states that “Currently, any capital transaction that relates to distributed ledger accounts, blockchain, cryptocurrency and its derivatives, ICOs and exchange operations should all be regarded as financial services. Therefore,they must be put under relevant financial regulatory frameworks, so that they can operate legally with a license.”
This paper with frameworks for creating policies is trying to get the Chinese government to see cryptocurrency as a new financial service. This paper recognizes that there is a need for regulation, and so a license should be created so that these cryptocurrency exchanges can run a legitimate business and help keep the platforms used by the citizenssafe.
It is good to note that the researchers and people that worked to create this framework have their own opinions, and the opinions and models represented in the paper do not necessarily reflect the policymakers in China.
Other governments like New York have adopted licensing where companies need to register for a BitLicense.
This BitLicensewas created in 2015 and is still in effect today. It requires most companies to file and follow the respective procedures. Currently, China is still debating on whether or not they will introduce licenses for cryptocurrency trading activities (not exchanges).
There are three main key concepts that are evident, which include technology neutrality, timely penetration of technical activities, and strengthening the supervision between financial institutions and technology enterprises.
The first part is fairly simple, the paper makes the argument that cryptocurrency is just a new financial instrument and isn’t replacing the basic functions. It is actually improving efficiency which shouldn’t be a bad thing, and just because a business is using a different instrument it shouldn’t be treated differently. Meaning, companies should be allowed to be built around cryptocurrency as long as they follow the laws that are already in place in the financial sector.
The second concept is the idea that these financial instruments can be carefully monitored, so China shouldn’t create a ban that will illicit illegal activities, but instead, regulate it with policies that will drive profits for the government through taxes etc.
Finally, the third concept is that companies should always try and be innovative and strengthen the bond between institutions and technology. There is no benefit to outright banning an innovation that is strengthening the business. Management and different internal control policies should be in place just like another traditional business.
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