November 15th – A local financial supervisory bureau and the Shanghai Headquarters of the People’s Bank of China jointly issued a notice regarding the risks of cryptocurrency and exchanges in China.

China recently announced their intent to develop and adopt blockchain solutions, as well as plans to launch DCEP, a proposed national digital currency. With many people learning about cryptocurrency and distributed ledger technology for the first time, it comes as no surprise that officials will be on high alert for potential scams and illegal activity.

The new warning noted that blockchain technology can be used for speculation and illegal financial activities. They focused on three specific activities:

Organizing cryptocurrency transactions (Exchanges and OTC) Using blockchain application scenarios to issue virtual currency, or raise funds Providing publicity or assisting overseas virtual currency projects

This noticed included instructions to immediately withdraw from organizations violating these rules, and to report the offending internet company to the responsible authority. And if anyone was doubting whether there’d be a response, the following day Twitter-clone Weibo responded by blocking the accounts of Binance and Tron.

Pro-Blockchain, Anti-Cryptocurrency

So what are the ramifications? It would certainly be unwise for any project with a token to get too comfortable, but it’s likely that established projects like VeChain (which happens to be one of the only successfully registered public blockchain project in the country) will escape any fallout from this, considering their commitment to compliance and ties to top agencies and multinational enterprises.

https://twitter.com/BenYorke/status/1111936522310213633?

A Tale of Two Outlooks

There are two scenarios I see plausible. The first, and more pessimistic scenario, involves all local projects keeping a low profile for the time-being until the crackdown passes by and business resumes as usual. For a large and complex country like China, the focus is direct but can change quickly, making it easy for potential rule-breakers to slip through the cracks.

A second scenario would be a strong reaction from the authorities, in an attempt to clean up the industry before launching DCEP and virtual currency related-services. This suffocating effect would make it extremely difficult for future projects to get registered with the token + public blockchain model, essentially clearing the way for existing projects like VeChain to corner the market. Of course, VeChain still must compete with private chain-services from behemoths like Alibaba and Baidu, but at the moment, they hold a huge positional advantage as the earliest compliant public blockchain.

Cleaning up the Mess

This week, a “focus interview” from state-run media powerhouse CCTV exposed the state of blockchain in China. Wu Zhen, of the National Internet Emergency Center revealed their research discovered around 32,000 listed companies that included blockchain as one of their services. After investigating further, only about 10% of those actually use blockchain in actual business activity.

Without a doubt, the blockchain industry as a whole could benefit from a “cleaning up” process, but nowhere is that more obvious than in China, where scam coins, ponzi-schemes, and vaporware run rampant. If the fraudulent and incompetent players were cleaned up and banned from entering the market, VeChain could have a much easier task of educating enterprises and SMBs about the benefits of public blockchain applications.