China’s internet regulator, the Cyberspace Administration of China(CAC) in a detailed document outlined a final draft of regulations concerning cryptocurrency and blockchain companies. The rules will come into effect starting February 19, and provide a set of guidelines that blockchain companies are required to follow.
According to the CAC’s director:The Regulations on the Management of Blockchain Information Services has been reviewed and approved by the Office of the Internet Information Office of the State Council and is hereby
promulgated and will be implemented as of February 15, 2019.
According to the final draft, the State Internet Information Office is responsible for blockchain regulations at a national level, apart from state or province-specific authorities who oversee the regulations in respective states.
China previously cracked down on ICO’s by banning them in 2017, along with banning domestic cryptocurrency exchanges, dealing a huge blow to local exchanges such as BTCC.
Some of the fleeting changes brought by the regulations include companies to record and log user activity, along with maintaining backups for at least six months. The data recorded should be handed over to the authorities when requested.
Moreover, the rules require companies to verify users based on their national ID and phone number
Registering Companies With Authorities
Apart from this, blockchain service providers are required to register with authorities within ten days of providing the service. This process is done through a ‘Blockchain Information Service Management System’. A pivot or a change made by the service provider requires going through the procedure once again within five days.
Once the filing process is complete, authorities will assess and enter the company into records within twenty days, reverting with a filing number. Companies are required to publically display their record number(eg: website, application mobile app)
Companies that develop new products are required to report the same to authorities to undergo “safety assessment in accordance with relevant regulations”.
Companies are also required to implement necessary changes in order to issue warnings to users, restrict and close accounts. Users who violate administrative laws and regulations should be reported to relevant authorities.
The extensive document, encompassing twenty-four articles explicitly states that users are not supposed to use blockchain centric services to engage in illegal activities.
Blockchain information service providers and users shall not use blockchain information services to engage in activities prohibited by laws and administrative regulations that endanger national security, disrupt social order, and infringe on the legitimate rights and interests of others
Companies are also required to set up a robust system for managing complaints and address them in a timely manner.
Periodic Inspections and Robust Security
Authorities under the central government will be conducting periodic inspections. Blockchain companies are required to maintain correspondence with authorities through the blockchain service portal and provide relevant information as requested.
The rules also dictate the requirement of strong security standards. This is perhaps because of the large amount of money lost owing to exchanges being hacked.
Any company found to be in breach of the stipulated rules will be required to amend their offering, and their service will be suspended until the issue is rectified. The rules also outline fines ranging from 5,000 yuan to 30,000 yuan. Apart from this, criminal prosecution is also stated as a possibility wherever necessary.
Given China’s stance on censorship, it is not a surprise that the same applies within the blockchain niche. Blockchain service providers are required to be equipped with necessary procedures to tackle content and other information that is unintended for the public. Apart from this, providers are required to formulate a set of rules and conventions, convey them to users and make sure they are followed.
For information content prohibited by laws and administrative regulations, they shall have immediate and emergency response capabilities for their release, recording, storage and dissemination. It should conform to the relevant national standards.
Overall, the regulations seem fairly stringent. It is yet to be seen how they affect companies within China. Given the crackdown in 2017, these regulations are not a surprise. However, they might have an impact on neighboring India, which is about to announce cryptocurrency regulations soon.
Blockchain Financial Plumbing Is Still Years Away, Says LSE Spinoff Exactpro
- Several major blockchain projects aim to streamline post-trade processing for securities.
- The new systems are still prototypes and need rigorous testing before safely connecting to live infrastructure.
- A former unit of the London Stock Exchange, QA specialist Exactpro, estimates that DLT post-trade systems may still be two years away from such testing.
- The upshot for big post-trade blockchains is the potential for further delays.
If blockchain is supposed to be the new plumbing for the world’s financial markets, then think of Exactpro as the home inspector who checks the pipes for leaks.
A former subsidiary of the London Stock Exchange whose management bought it out in 2018, Exactpro employs some 560 specialists who test trading and clearing systems for traditional securities exchanges, investment banks, brokers and technology firms.
As such, the firm knows better than most the ins and outs of “post-trade,” the back office processing after a trade is complete where buyer and seller change records of ownership and arrange for the transfer of securities and cash.
And in Exactpro’s estimation, distributed ledger technology (DLT) systems are still a few years shy of tough benchmark software tests, which they would have to pass before anyone could use them to handle post-trade processes in the real world.
“I think there are still gaps in technology so we can’t assume that the fabrics already support everything,” Iosif Itkin, co-CEO and co-founder of Exactpro, told CoinDesk. “I think it is still a question of a couple of years before there will be a radical shift from prototyping to software testing.”
What’s more, even when they reach this testing phrase, Itkin is skeptical that they’ll pass at first, telling CoinDesk:
“Based on our experience in post-trade and what we’ve observed with the prototypes, I do have doubts on the outcome of the first rounds of real testing.”
If he’s right, a number of ambitious DLT projects tacking post-trade could have to push their go-live dates further into the future to account for an exacting round of tests.
For example, Digital Asset is busy replacing Australian Securities Exchange’s (ASX’s) CHESS system for cash equities, which had been pushed back until Q2 2021. Meanwhile, the blockchain re-platforming of DTCC’s credit derivatives Trade Information Warehouse is scheduled to go live later this year. And recently, R3 Corda was recently contracted to build the DLT plumbing for Swiss exchange SIX Digital, also slated to go live this year.
So far, Exactpro is only considering the DLT created by R3 (with which it has a partnership), Hyperledger (it’s a member of the consortium) and Digital Asset, and has not focused on any enterprise versions of the ethereum blockchain. (Hyperledger, R3, Digital Asset did not return requests for comment.)
Points of failure
In particular, the most likely points of failure will be where these DLT systems connect to legacy architecture, according to Exactpro, which will present a white paper on its methodology for testing such “hybrid financial software” at the ICST 2019 conference in China next month.
Itkin noted that DLT systems are still largely at the prototype stage and therefore the builders are trying to prove that these things work. The essence of software testing, by contrast, is to try to break it. In other words, pushing an already battle-hardened system to explore its limits is a very different ballgame from proving a prototype can muster a minimum viable product.
“Professional testers always expect that the system will not work,” Itkin said. “Other testers assume that the system will be OK. Good for them. Bad for the live service.”
When Exactpro tests a next-generation post-trade system, as it recently began doing (with non-DLT tech) at Hong Kong Exchanges and Clearing (HKEX), it checks both the functional specifications and also non-characteristic conditions, such as when a huge load is placed on the system, or in the case of a server going down or some other type of service disruption.
Most of the problems, when these systems go live, will happen at the boundary between a distributed ledger and the rest of the platform, Itkin predicts. He pointed out this has also been observed in crypto exchanges, where most of the problems are not within the fabric of the exchange itself, but at the intersection with the “real world.”
Itkin said that when looking at implementing DLT prototypes, his team constantly finds particular parts are not implemented yet. For example, “domain models are absent in most of the areas and software developers need to build them from scratch for every new use-case. In the code, there are still some trade-offs between what is already available and the security/reliability requirements.”
He reiterated that such missing parts are well known to developers and expected to be released in the next versions, adding,
“It is just [that] there is still lots of work to do.”
Itkin added that Exactpro does a fair amount of work in the swaps space and is interested in the possibility of implementing the International Swaps and Derivatives Association’s Common Domain Model on R3’s Corda, adding,
“We are looking at the systems that are most likely to be used as the foundation of the future generation of settlement and clearing systems, and Corda, Hyperledger and DA look like the most probable candidates to serve as the foundation going forward.”
R3 Co-Founder Jesse Edwards Is Leaving the Enterprise Blockchain Firm
Jesse Edwards, one of the co-founders of R3, has left the enterprise blockchain company, CoinDesk has learned.
Edwards, a former Sandler O’Neill investment banker, helped found R3 back in 2014 with CEO David Rutter and ex–Standard Chartered executive Todd McDonald.
In a statement provided by R3 to CoinDesk, Edwards said:
“It’s true that my work here is done and it is time to move on. This has been one of the best experiences of my professional career, and I am incredibly privileged to have worked alongside such a talented and passionate team in building this business. R3 has broken away as the market leader and standout partner of choice for professionals looking to apply this technology to their industries. I couldn’t be prouder.”
His departure appears related to a strategic difference over how to spur investment in startups that build on top of Corda, R3’s blockchain fabric and base for running open-source applications.
Edwards, who was heavily involved in getting R3’s initial funding in place, had been working at R3 on “a side fund targeted for $50 million to $60 million,” similar in kind to the various funds for Dfinity and Tezos, according to a source who wanted to remain nameless. “Adroc was the name of the fund (which is Corda spelled backwards),” the source added.
Instead, R3’s board has opted for what it called “an internal corporate development function,” which the company said will be tasked with supporting early-stage companies building on the Corda platform, and also explore a variety of potential joint ventures, acquisitions, and related activities focused on later-stage companies.
Still, Edwards had long wanted “to set up his own independent investment shop, one dedicated to driving Corda adoption globally,” R3 said in a statement.
As such, R3 and Edwards have decided “it made sense for him to explore his own path, which we fully support,” said the company said. “Jesse remains an investor in and a close friend of the firm, and we look forward to working with him closely in the future.”
R3 said in its statement the firm had indeed earlier explored the idea of launching an outside fund built with R3 capital and supplemented with third-party investment focused on the same goals with early-stage companies.
“Yet after careful consideration, and especially in light of the financial strength of R3, we determined that we would accomplish these objectives more rapidly and with a more streamlined process by doing it ourselves,” the company said.
Rutter praised his departing colleague, telling CoinDesk:
“Jesse Edwards is an amazing friend and colleague, and we continue to invest alongside each other in multiple business ventures. We are forever grateful for the contribution he made to launching R3. People come and go in your professional life, but I am proud and honored to have worked with Jesse at R3, and look forward to continuing our work together in other ventures.”
It’s no secret R3 is getting itself into lean and mean shape for the road to Corda adoption this year.
An internal reorganization back at the end of January saw two members of its management committee depart: Brian McNulty, a managing director and head of global services; and Lauren Carroll, chief administrative officer.
France Won’t Launch Cryptocurrency Anytime Soon: PwC Blockchain Exec
France’s central bank won’t issue its own digital currency anytime soon because doing so would be a complex undertaking that could hurt the country’s flailing economy. That’s the assessment of Pauline Adam Kalfon, a blockchain and cryptocurrency partner at PwC France.
PAULINE KALFON: BITCOIN IS GREAT, BUT COOL YOUR HEELS
Kalfon admits there’s growing interest in bitcoin and blockchain in France.
However, she warned against unchecked over-exuberance, saying the virtual currency economy needs to be battle-tested to ensure that investors are protected from scams, Forbes reported.
“Having said this, Banque de France could seize technological leadership by following European Central Bank guidance.”
“It is clear that a European-level project would be very complex and challenging governance-wise, requiring alignment and the political consensus of all relevant stakeholders from each Member State.”
CRYPTO SHOULD BE ‘BATTLE-TESTED’ BY CORPORATIONS
Kalfon says rather than have France’s central bank issue a cryptocurrency first, it might be a better idea to have corporations such as Facebook or JPMorgan “battle-test” this experiment first.“This would reduce the likelihood of potentially negative consequences on the economy arising from any central bank issuing a digital currency.”
“The underlying rationale is…to achieve the right balance between investor protection and technology friendliness.”
FRANCE’S FINANCE MINISTER ONCE HATED BITCOIN BUT NOW EMBRACES IT
Interestingly, French finance minister Bruno Le Maire was once a vocal bitcoin opponent. He changed his mind in 2018 and started wholeheartedly embracing cryptocurrencies and blockchain.“I was a neophyte a year ago [in 2017], but now I’m passionate. It took me a year. Let us show a lot of pedagogy with our fellow citizens to make France the first place of blockchain and crypto-active innovation in Europe.”
However, Le Maire says the cryptocurrency revolution in France cannot happen without appropriate regulation to protect the public against the numerous scams that have roiled the industry.
Part of the reason for French politicians’ abrupt reversal on crypto has to do with their hopes that France can harness blockchain technology to bolster its anemic economy.
Pro-Crypto French MPs Want to Invest 500 Million Euros to Make France ‘Blockchain Nation’ https://t.co/H4gxrZQKwJ
— CCN.com (@CCNMarkets) December 13, 2018
POLITICIANS: FRANCE MUST BECOME A ‘BLOCKCHAIN NATION’
In December 2018, two members of the French Parliament urged the government to invest up to 500 million euros in blockchain programs to transform France into a “blockchain nation.”
To this end, Deputies Jean-Michel Mis and Laure de La Raudière outlined 20 proposals to promote the mainstream adoption of blockchain, as CCN reported.
“2019 will be the year of the blockchain in France,” Jean-Michel Mis said. “This 10-year technology is moving out of the experimental stage into industrial implementation. The public will see the emergence of its uses in their daily lives.”
Conférence de presse à @AssembleeNat suite à la présentation de notre rapport sur la #Blockchain. Occasion de montrer que les élus peuvent travailler ensemble sur des sujets innovants et aux potentiels essentiels pour notre pays #numérique #technologie #souveraineté #formation pic.twitter.com/JID6awOX8m
— Jean-Michel MIS (@JeanMichelMIS) December 12, 2018
Similarly, Laure de La Raudière admonished France to wake up and capitalize on the blockchain revolution before its rivals China and the United States beat them to the punch.
“France must have a conquering philosophy on this subject. I’m sounding the alarm: It is time to invest. We must accelerate with French and European public money.”