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China’s Central Bank Says Bubble In Blockchain Financing Is Obvious

China’s central bank reiterated its long-standing stance on cryptocurrency and blockchain in a recent working paper by saying that the bubble in blockchain investment and financing is obvious, and called on the government to strengthen supervision to ward off financial risks.

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The Research Bureau of the People’s Bank of China, the country’s central bank, released a working paper titled ‘What Can a Blockchain Do and Can’t Do’ on November 6.

The research unit outlined some generic blockchain functionality from an economic point of view, analyzed the pros and cons of four application scenarios of blockchain, and detailed the roles the token play in the blockchain platform.

The central bank still takes a measured view on blockchain technology. In conclusion, the paper stated three problems facing the emerging industry.

First, few blockchain projects generate social benefits, so do not exaggerate or blindly believe the function of blockchain. Some industry practices in years since the advent of the technology have proven that some blockchain applications are not feasible. So far, no technological innovation has had a disruptive impact on the financial system, and blockchain is no exception.

But the central bank does see potential advantages where the technology can offer efficiency.For example, blockchain technology helps solve the problem the decentralization of China’s bill market.

Second, blockchain projects should be grounded in reality and not pursue Utopian fantasies. For example, replacing regime and trust with technologies is not easy. Both distributed ledger technology (DLT) and traditional centralized one have their own applications respectively, and the decentralized is not superior to the centralized.

Third, the bubble in the blockchain investment and financing is apparent. Speculation, market manipulation and other legal transgressions become common in the country, especially  token projects involved initial coin offerings. Hence relevant government departments should strengthen supervision to fend off financial risks.

The working paper comes several days after the central bank said it will continue to crack down all kinds of disguised ICOs to help protect the interest of investors in its recent annual financial stability report. Chinese financial regulators seeks to extend its regulatory scrutiny to crypto airdrop where tokens are given out for free to participants.

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