Bubbling away

“Hands up if you want me to sing Bubble”: Hong Kong star G.E.M

Investors are sometimes a superstitious lot, so it was surprising that Hong Kong singer G.E.M. was rumoured to be performing her hit single Bubble at the World Block-chain Conference in Macau late last month. Featuring lyrics such as, “You promised so much, but were too weak to deliver,” it was hardly an auspicious anthem for an industry that some believe is about to burst.

As it turned out, G.E.M wisely omitted the single from her performance at the conference – which was organised by investors from the so-called “3am Sleepless Blockchain Group” (see WiC400). But other ill omens were still being spotted during the three-day event which an estimated 10,000 people attended. For one, a large number of dama turned up.

Dama are a category of older Chinese ladies known to love speculation and get-rich-quick type schemes. Their presence, one popular blogger quipped on Sina Weibo, was a clear sign of a bubble: “I am still not sure what blockchain is yet, but damas have already attended a ‘world-class’ meeting. It seems it’s time for me to stay far away from blockchain.”

Blockchain is most recognised as the technology that underlies digital currencies, such as Bitcoin. Developed in 2008, its popularity surged last year when companies began using it to mint their own virtual currencies, which they then sold to investors in ICOs, or “initial coin offerings”.

ICOs are risky because many of the “coins” aren’t widely traded, so buying them can be a little like purchasing ‘Monopoly money’. The Chinese government banned ICOs last year (see WiC379) and has since cracked down on other blockchain businesses, including banning online exchanges where digital money can be converted to a fiat currency.

But the government isn’t entirely opposed to blockchain and its derivatives. What it doesn’t like is the lack of regulation and the resultant risk. To get ahead of this problem, the Chinese government is investing in the technology itself.

The People’s Bank of China (PBoC) created its own Digital Currency Research Institute last June and, according to data from IPRdaily, registered 33 blockchain-related patents by the end of the year.

Provincial governments have offered support for the blockchain industry as well. Last month, the Shenzhen government backed a Rmb500 million fund for blockchain re-search. Two weeks earlier, the Hangzhou government supported a massive Rmb10 billion ($1.6 billion) fund, announcing its launch at the opening of Zhejiang province’s first ‘Blockchain Industrial Park’.

But blockchain is designed to operate without oversight from a central authority, which is partly why the recent World Blockchain Conference was held ‘offshore’ in Macau, where PBoC regulation does not apply. Holding such conferences on the mainland carries risks for organisers: a similar event held in Shanghai last August was shut down by the police, because they suspected one of the promoters was engaged in ‘multi-level marketing activities’ (code in Chinese for a suspected pyramid scheme).

According to the South China Morning Post, Yu Hong, a co-host of the “3am Sleepless’ WeChat discussion group, warned attendees during his opening speech in Macau about the risk of investing in companies exhibiting at the event. “This conference is only a platform,” he told the audience. “The roadshows are mixed with good and bad, true and false. Please be careful.”

But Macau may not be a blockchain haven for too long. The territory’s monetary authority issued its own warning on ICOs just days before the conference was held. It was prompted by reports alleging that Cambridge Analytica (now infamous for mining Facebook user data) had helped promote a digital coin developed by Macau Dragon Group. According to the New York Times, the cryptocurrency was “supposed to make it easier for people to get their money to casinos in Macau,” a move that flies in the face of the central government’s crackdown on mainland capital flight.

The Monetary Authority of Macau responded by reiterating that “any institution providing regulated financial services such as currency exchange, cross-border fund transfer and financial exchange platforms without permission violates relevant provisions of the Financial Systems Act”.

The incident highlighted some of the challenges blockchain poses to government. But, last Friday, in an op-ed for CBN, the head of the PBoC’s Digital Currency Research Institute wrote that the Chinese government might have to accept it can’t regulate blockchain products completely.

“We can predict that in the future a new domain will exist in between the two poles of centralisation and decentralisation,” Yao Qian wrote. “Each blockchain system will re-quire a different degree of non-centralisation in order to satisfy the requirements of individual scenarios.”

Yao concluded his op-ed by calling for the “conscientious implementation” of Xi Jinping Thought, so it seems more likely future blockchain regulation will err on the side of centralisation, especially since its potential as a protest tool was recently tested.

The protest occurred last month when an anonymous user arranged a transaction of $0 with himself on Ethereum (which describes itself as a “decentralised platform without any possibility of fraud, censorship or third-party interference”). In the notes section of the transaction, the user attached a copy of an open letter penned by Yue Xin, a student at Peking University.

In the letter, Yue denounces the university for pressuring her to stop investigating a rape claim made against a professor in the 1990s (for our first mention of this case see WiC404). According to Yue’s letter, a university counsellor brought Yue’s mother to her dorm room late at night and demanded that she delete any files she had gathered related to the case. Yue was then taken home.

Yue’s letter was originally shared on social media, but it’s easy for censors to find and delete content there. However data saved on a blockchain ledger is nearly impossible to eradicate, because it becomes an inextricable part of that blockchain’s history. The fact that Ethereum automatically masks the poster’s identity is another benefit to would-be protesters, wary of reprisal.

But although the letter can’t be deleted, it is still not easy to find. Any mainland Chinese who wants to view it will first need access to Ethereum – and China’s Great Firewall could easily restrict that. Even if a user skirted the firewall, finding the letter amidst all of Ethereum’s records is a hassle many won’t be willing to undertake.

So for now the protest was largely symbolic. That said, Quartz reports that on a discussion board related to the transaction, excited users were calling it “historic”.

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