The DLT: Disguises, Left, Temasek (28 Oct 2018)
By: Ong Kar Jin
Tags: Tech, Distributed Ledgers, Blockchain, Newsletter, Bitcoin

DISGUISES GONE?

Looks like the cryptic part of cryptocurrencies is under threat in China. There's anew law to regulate blockchain in China (English translation here) and the Chinese authorities clearly didn't get the memo from Bitcoin libertarians about decentralisation: the regulations will require blockchain users to register using their government IDs (Article 10), mandate that service providers remove "illegal information" (Article 13), and allow for the suspension of any service deemed an "information security risk" (Article 21).



To top it all off, the regulator for the blockchain industry is going to be the Cyberspace Administration of China (国家互联网信息办公室)...which includes a department called the "Illegal and Unhealthy Information Reporting Center". In most countries, the chief regulator for blockchain is the central bank or securities commission (see Bank Indonesia's crackdown on bitcoin in Bali), because blockchain is seen as a disruptive fintech.



China on the other hand, seems to look at blockchain as an internal security threat.Well okay they did also ban cryptocurrency exchanges...but honestly, seeing as the likes of Alibaba and Wechat have been developing blockchain solutions, my hunch is that they will open the space soon: the money and fear of being technologically left behind is too big. China wants blockchain's financial capabilities, just without all that political nonsense, ya know (shoutout to Deng Xiaoping). Not surprising, since the immutable property of blockchain has been used to evade censorship: student activists in China's version of the #MeToo movement have preserved their grievances on the chain. Reminds me of this article on how social media turned from democratizing to creating authoritarians: "Power always learns, and powerful tools always fall into its hands".

LEFT ALONE?

This week, the Japanese Financial Services Agency gave the cryptocurrency industry "self-regulatory status". But before all y'all start quoting Ayn Rand at me remember this: this self-regulation is in addition to already existing rules, and on top of all that, experts believe self-regulation will result in stricter (but hopefully more on the ground and responsive) guidelines.



This isn't an unprecedented move: in the USA, the Financial Industry Regulatory Authority (FINRA) and National Association of Realtors are self-regulators, expected to punish and sanction their own members if they step out of line.



Now, whether self-regulation works or doesn't is a whole other debate. Myself, I like the conclusions made in this study of the self-regulating private security and military industry: it's not about whether self-regulation is inherently good or bad, it's about how it's structured. The article goes on to say there needs to be a bottom-up strategy directed at individual firms to create positive incentives to comply, and there needs to be more punitive options than simply exclusion or suspension of the offending firm. If the incentives don't line up, firms will collude (oh hello subprime mortgages); if the only measure a regulator is going all-out nuclear, then it limits responses to only the most blatant offenses.

TEMASEK DIVING INTO CRYPTO?

Okay clickbaity but it's actually Vertex, a venture capital fund backed by Temasek Holdings (owned by Singapore's government), which has invested an undisclosed amount into Binance, one of the world's largest cryptocurrency exchanges (more than USD1 billion daily trading volume).



Binance has stated it will set up a "fiat-to-crypto exchange mainly catering to Singapore residents". In the same Medium article, it said that "there’s no better gateway to Southeast Asia than Singapore" (booooo says the Malaysian).



While my inner Malaysian may bristle, I can't deny that institutional support and anchoring such an exchange in Singapore will help the adoption of blockchain tech across the region. This could spur the "wait and see" attitudes of most central bankers in SEA into action...but it may not be a full embrace of the decentralised blockchain: last year Malaysia's central bank published a paper on Central Bank Digital Currencies. China, Singapore, and Japan have also looked into it.



Tan Nyat Chuan (now Assistant Governor of Malaysia's central bank) said in akeynote at Malaysia Fintech Expo 2018:

“I suppose if it does get to a level where it becomes more ubiquitous in the use of it, as a means of making payments, then the central banks have a big problem.”

“They will have to counter the use of cryptocurrencies that are more decentralised to those that are issued by the sovereign. And to back those sovereign cryptocurrencies with tangibles—gold, or something that is of value.”