Following a prolonged game of cat and mouse between Chinese bitcoin exchanges and the PBOC, its central bank and financial regulator, some clarity finally seems to be emerging.
Earlier this week, Zhou Xuedong, director of the PBOC’s Business Administration unit, was reported by local media as saying the regulator would “adopt a forgiving attitude” toward domestic bitcoin exchanges for now, and establish an “observation period” to give them time to ensure they are compliant with financial regulations. Xuedong also said that eventually the PBOC would begin blacklisting exchanges that fail to correct any infringements.
The PBOC went on to specify the violations that would cause an exchange to be blacklisted. While some of these criteria relate to existing regulations, others are more bitcoin-specific. They include:
- Offering leverage and margin trades
- Artificially inflating trading volumes by not charging fees on bitcoin trades
- Violating anti-money laundering (AML) or foreign exchange laws
- Allowing customers to substitute bitcoin for fiat currency to purchase goods
- Tax evasion
- False advertising and participating in Ponzi schemes
- Offering credit, securities, and futures trading without an appropriate license
That the PBOC has started providing clarity on what constitutes an infringement is a first step toward a clearer regulatory environment. The next likely step will be the implementation of an official regulatory framework for bitcoin exchanges. We might even see the creation of a specific license for these players.
Blockchain technology, which is best known for powering Bitcoin and other cryptocurrencies, is gaining steam among finance firms because of its potential to streamline processes and increase efficiency. The technology could cut costs by up to $20 billion annually by 2022, according to Santander.
That’s because blockchain, which operates as a distributed ledger, has the ability to allow multiple parties to transfer and store sensitive information in a space that’s secure, permanent, anonymous, and easily accessible. That could simplify paper-heavy, expensive, or logistically complicated financial systems, like remittances and cross-border transfer, shareholder management and ownership exchange, and securities trading, to name a few. And outside of finance, governments and the music industry are investigating the technology’s potential to simplify record-keeping.
As a result, venture capital firms and financial institutions alike are pouring investment into finding, developing, and testing blockchain use cases. Over 50 major financial institutions are involved with collaborative blockchain startups, have begun researching the technology in-house, or have helped fund startups with products rooted in blockchain.
Jaime Toplin, research associate for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on blockchain technology that explains how blockchain works, why it has the potential to provide a watershed moment for the financial industry, and the different ways it could be put into practice in the coming years.
Here are some key takeaways from the report:
- Spending on capital markets applications of blockchain is expected to grow at a 52% compound annual growth rate (CAGR) through 2019, according to Aite Group, to reach $400 million that year.
- Banks and major financial institutions are working both collaboratively and independently to develop blockchain tech. Over 50 major financial institutions are involved with collaborative blockchain startups, like R3 CEV or Chain. And many are investing in the technology on their own as well.
- Putting blockchain to use for real-world transactions is likely not that far off. If working groups’ tests are successful, firms could be using it to transact real value as early as the end of this year and we could see widespread industry application within the next few years.
In full, the report:
- Examines the funding increases that are pouring into blockchain
- Assesses why blockchain is becoming so popular and what factors are driving up increased research and development
- Explains in full how blockchain technology work and what assets make it valuable and vulnerable
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- Demonstrates the challenges to mainstream adoption and their potential solutions
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