Blockchain Industry Practitioner Call for a Pilot of Special Tax on Bitcoin Mining in China
Guo Yuhang, director of China Blockchain Application and Research Center, recently delivered a speech themed “The Development Trend and Policy Suggestions on the Blockchain Industry”, in which he looked back on the blockchain development in the country, and proposed a pilot of bitcoin mining tax and put this revenue back into the development of blockchain technology.
The following is some excerpts of Guo’s speech.
Let me start with an experience I had as a lawyer. In 2002, an elderly man in his 60s returned to Shanghai from the U.S. He left Shanghai in 1948 for the United States with his family. Decades later, he returned with the land deeds issued when the place was ruled under the Kuomintang government and demanded the return of his four aged villas in Shanghai. It took me six years to help him find the house, but I couldn’t prove it belongs to him, because the Kuomintang issued land deeds didn’t exactly match the new China address. Until the old man deceased last year, he still did not get all his property back, only to get some compensation.
If we had had blockchain 100 years ago, everyone’s private property should have recorded via nodes in different countries around the world, no matter regime change or data destroy, the record on the credible global network would not be affected, deleted, nor tampered, which could technically preserve the property rights of the individual person.
The development of China’s blockchain industry
2011 was the year that China’s geek world started talking about bitcoin on a massive scale. In that year, Jihan Wu translated Satoshi Nakamoto’s Bitcoin Whitepaper, Yang Linke founded China’s first bitcoin exchange BTCChina. These pioneers, from top Peking University graduate, veterans to researchers at public institutions. Hong Shuning, who served at the Nanjing branch of the People’s Bank of China, wrote an article titled “Bitcoin Is Extraordinary and Can Challenge the Hegemony of the U.S. Dollar” that year, which did not make a splash at that time. However, eight years later, when we look back on this article, there are many interesting points, for example, he called on the state to mine bitcoin, and put the production and collection of bitcoin in the hands of the Chinese government, thus forming an effective impact on the hegemony of the U.S. dollar. In other words, if the government had taken Hong’s advice, it is believed that many blockchain entrepreneurs present here would have lost the opportunity to participate in the process of wealth making from bitcoin.
In 2013, China’s blockchain commercialization broke out, and many well-known blockchain companies were born, for example, bitcoin mining hardware manufacturer Canaan, which has just rang the bell at Nasdaq, and Bitmain, founded by the famous duo – Micree Ketuan Zhan and Jihan Wu, as well as OKCoin, founded by Star Xu Mingxing, and Huobi, founded by Leon Li Lin, both top crypto exchanges in the country/world.
In 2014, Zhou Xiaochuan, governor of the People’s Bank of China back then, launched a special research group on legal digital currency, the predecessor of the central bank’s digital currency research institute. It can be said that without the foresight of Zhou, we could not have launched the central bank digital currency DCEP so fast. In 2016, the digital currency research group of PBoC comprehensively elaborated on the prototype framework and technical path of the DCEP; In 2019, PBoC became the first country to launch a digital currency program.
2017 was a huge turning point for the industry. On September 4th, PBoC, together with seven ministries, issued a ban on ICOs and crypto trading services. Crypto exchanges thus either shut down or moved overseas. It actually has a very positive effect by strangling pyramid schemes and frauds under the name of ICO. But it has failed to avoid the one-size-fits-all ritual when problems come out of financial innovations, which led to losses in the brain drain by forcing large numbers of entrepreneurs to leave the country. In the face of the chaos of financial innovations, how to identify the false and protect the real entrepreneurs is an unavoidable task in the future system construction. In comparison, the United States has an exemption letter for financial innovation – as long as you start a business for the benefit of the people and your information disclosure is complete, in the absence of regulatory sandbox, entrepreneurs can also be granted a certain degree of exemption. This is an effective means to protect initiatives in innovation.
In 2018, China’s President Xi Jinping has pointed out the core value of blockchain technology at the meeting of academicians of the Chinese Academy of Sciences and the Chinese Academy of Engineering, which represents the accelerated breakthrough of the new generation of information technology. But this speech, kept in a small filed, did not cause widespread attention.
2019 is the year of blockchain. In April, the country’s top economic planner National Development and Reform Commission planned to include bitcoin mining into the industries that shall be eliminated but finalized to remove it in November; In June, Facebook released its cryptocurrency Libra white paper, embodying the disruptive power of blockchain. In October, the Political Bureau of the Central Committee of the Communist Party of China collectively learned about blockchain, which came all of a sudden but is understandable; Of late, the world’s first blockchain company was publicly listed in the U.S. On the eve of Canaan’s listing, the light show along the Qiantang River read “I love BTC, I love Bitcoin” in Hangzhou where Canaan was born; In December, authorities in the country issued notices cracking down on illegal activities under the name of blockchain.
China’s blockchain-related policies
The leadership of the 18th government administration had conducted 43 collective studies, while none of them involved specific technologies, only two of which touches on technology in general. In the studies of the political bureau of the 19th CPC central committee, we saw that only three out of the 18 sessions discussed about specific technologies, including big data, artificial intelligence and blockchain.
Big data was born in 2004 and was included in the learning subject in 2017 after 13 years of development, and it took 68 years for artificial intelligence to be included in CPC’s collective study after its birth. Blockchain, which has only been around for 10 years, has been highly valued by the central government. There are both external and internal reasons behind this.
The external reason is Libra. Days after the Libra whitepaper was released on June 18, our Chinese Blockchain Application and Research Center received unanimous requirements from various authorities and ministries, including the All-China Federation of Industry and Commerce and the United Front Work Department. We made a quick preparation and held two meetings analyzing Libra in Shanghai and Beijing, inviting regulators to learn about the potential impact of Libra on China. In the meanwhile, the central bank quickly invited the country’s four major banks, Tencent and Alibaba to study Libra. We are pleased to see that Chinese regulators are much more responsive to new technologies these days. In his bid to win a congressional hearing, Libra’s creator Zuckerberg warned of China threat 21 times, saying that if China’s financial system became the choice of more and more countries, U.S. sanctions against the world would be greatly hampered.
The internal cause is the huge demand from China’s development and governance. At the freshly-concluded fourth plenary session of the central committee, there is one point that the media failed to spread out and elaborate on. That is, data is beginning to become a means of production. Some of our labor, capital, knowledge, technology and management have been basically liberalized, while others, such as land, have not been liberalized, and we cannot see the possibility of its full liberalization in the short run. To further develop the economy, new driving forces need to be found, and data will exactly become an important element in the state strategy. A number of companies have recently been investigated for criminal offenses involving in data crawler.
Blockchain is a foundation for the data world. Zhang Shousheng, the renowned physics professor who passed away in 2018, had mentioned the status of blockchain as an infrastructure in many public speeches. His ideal was that everyone has ownership of their own data and be able to generate value from it. Data shall not be monopolized by Internet giants, but return to each of us.
Hope for blockchain breaking internet giants’ monopoly
Blockchain challenging Internet giants is one of every practitioner’s dreams, why can it be done? Because it does solve a huge problem in our trading process, that is trust. In the boom of the last-gen Internet technology, the undesirable consequence of centralized trust was the monopoly of data, which led to greater competitive oppression.
Our frequent use of WeChat (instant messaging social media) brings value to Tencent, but the ownership of our WeChat accounts and data does not belong to us, but to Tencent; Alipay promotes e-commerce transactions, but its monopoly on data today has a dampening effect on new entrepreneurs; Didi (car-hailing app) solves the problem of trust in the sharing economy, but do we really need an Internet giant that constantly grasps everyone’s journey from the perspective of god and gets more than 25% of commission from every transaction? I think this phenomenon will no longer exist after the massive adoption of blockchain. The peer-to-peer transactions will remove all monopoly and all the shadow that monopoly brings to us.
Both regulation and innovation need to be tough. The Ministry of Industry and Information Technology (MIIT) and the Cyberspace Administration of China (CAC) have recently issued active policies related to blockchain and digital currency. After President Xi’s blockchain endorsement in October, China Blockchain Application and Research Center has opened three sub-centers within a month in cities in Fujian, Jiangsu and Sichuan, with the major leaders of local governments attending the unveiling. We have seen governments at all levels attach great importance to blockchain, but what problems can blockchain technology solve? In fact, it is currently still relatively vague and wait to be seen.
Pilot special tax on bitcoin mining
As for the suggestions for future policies, it should be prudent and inclusive. To use technology to regulate technology, resolutely crack down on illegal financing in the name of blockchain, strengthen industry self-discipline, set up a regulatory sandbox, and call for blockchain special zones… These are all well-worn policy proposals. But there’s one last piece of policy advice that I think is relatively more likely to be implemented, and a bit bolder
“We think that the regulators not only should not include bitcoin mining in the eliminated industries, but also should pilot a special tax on bitcoin mining and put the tax revenue to the research and development of blockchain technology.”