China Gov’t Tightens Blockchain Rules, But It’s Not That Simple

China Gov’t Tightens Blockchain Rules, But It’s Not That Simple

The Chinese government’s top internet watchdog has finalized a new set of blockchain rules. The new regulations will force local blockchain platforms and related companies to “censor content” and “allow authorities access to stored data and … the identity of users.” Yet blockchains are designed to foster psuedoanonymity and to be censorship resistant. Will the new laws lead to a rift between Chinese blockchains and the rest of the world?

Also read: How Your Bitcoin Losses in 2018 Could Be a Win… At Tax Time

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Telling Fish Not to Swim …

Blockchains are, by their very definition, designed to be resistant to traditional forms of systemic interference from third parties.

When Satoshi Nakamoto first created Bitcoin, they knew if it became successful people would target it and try to shut it down. That’s why Bitcoin was created with its decentralized design. The goal was for there to be so many nodes propagating blocks that the distributed ledger could not be centrally tampered with.

That design fosters the property of immutability, insofar as transactions made on a blockchain are designed to never be undone.

This dynamic is important because it means there should never be a central authority that can make decisions on which transactions therein are valid and which are not, e.g. for the purposes of censorship.

Any system that allows for transaction reversals or denials based on content, origin, or destination are — alas! — not true blockchains.

Blockchain Rules About Ensuring Control

The goal of the Chinese Communist Party (CCP) is to maintain tight control over all domestic communication mediums and networks. That reality is why all television, radio, and websites are heavily monitored and censored in contemporary China.

Indeed, the specter of censorship there is so pervasive that most companies just choose to self-censor to remain on the right side of the government.

Secondly, all companies in China must allow for complete and total backdoor access to the police or other government branches. This means that all email providers, chat programs, banks, and beyond all need to give total back-office access upon request.

This is where blockchains, and companies that work in and around them, are naturally problematic for the CCP.  Blockchains are resistant to “backdooring” due to their reliance on cryptography.

Yet, per the new blockchain rules from China’s internet watchdog, distributed ledger companies that wish to operate in China will be forced to rethink their operations as they try to foster blockchains while still following the laws that require backdoor access.

The regulations also require censorship powers. That means transactions will even be expected to be reversible.

If these kinds of actions are possible, then the system in question is literally not a blockchain.

Today, almost all blockchain projects reuse some or all of the original Bitcoin code. When the laws in question hit the books next month, China-based companies will seemingly not be able to use the Bitcoin code as it stands today.

A Growing Divide

Have you ever used Baidu, Tudou, Youku, Weibo or Weixin? If you are not from China, odds are pretty high that you have never used any of these sites or apps.

Yet these sites have hundreds of millions of users per month and are some of the most popular in the world.

So how is it that you’ve likely never heard of them or used them? That’s because these are websites that are designed to be clones of popular international sites, and the original sites have all been blocked in China. For instance, YouTube has been blocked in China for many years, and so most Chinese internet users cannot use it.

Some have referred to this internet that only exists within China as the “Chinternet“. Not only are the sites not designed for an international audience, but they are also hosted behind what’s known colloquially as the Great Firewall of China, which significantly reduces access speeds and load times to international users, making it virtually useless.

In some cases, one could argue that today we have two separate internets: one that exists behind the Great Firewall, and one that does not. The two do interact with each other, but with great difficulty and at very low throughput speeds.

With the new rules coming, China-based blockchain enterprises could become the sole domain of the so-called Chinternet.

You Can’t Stop Bitcoin

The good news is that this regulation could only directly impact blockchains that are launched by Chinese companies and registered entities. For example, there is very little that could be done to prevent individual bitcoin transactions already occurring within the country.

When it came to China’s previous crackdown on cryptocurrency exchanges, what we saw was a mass exodus of these companies as many relocated to Hong Kong or other territories.

It’s entirely possible that to bypass this regulation, existing blockchain companies could choose just to pull up stakes and move on from the Asian superpower. That remains to be seen, however.

What’s your take? Are these new Chinese blockchain rules outrageous? Let us know in the comments section below. 

Images via Pixabay