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Recently, the Cyberspace Administration of China (“CAC”) has issued regulations for the management of blockchain information services, the introduction of the supervision of virtual assets in Hong Kong, and the formal legislation of the Singapore "Payment Services Act". The author believes that this signals that the blockchain industry has entered a regulatory era.

What are the regulatory differences among the three regions?

First of all, let us look at the issuers of the three new policies: Mainland China is the Internet regulatory authority, and Hong Kong and Singapore are the financial regulatory authorities. In my opinion, this difference is caused by their divergent understanding on the attributes of blockchain. For example, the financial regulatory authority in Mainland China has made it very clear that ICOs and disguised ICOs were forbidden in Mainland China, so it was impossible to introduce a regulatory policy on an illegal matter.

Secondly, look at the timing. The Securities and Futures Commission (SFC) was the earliest issuer, on 1 November, last year. The CAC issued a consultation draft in October last year. It was formally introduced in January this year and implemented in February. The Monetary Authority of Singapore (MAS) has also officially introduced in January this year. In fact, these regions started their research on blockchain as early as in 2014 and 2015. I believe that the recent intensive supervision is not just a response to the chaos in the blockchain and cryptocurrency industry arose since 2017 to 2018, it is also an inevitable process in the implementing of supervision.

Thirdly, look at the subjects under the supervision of the three new policies. In Mainland China, it is a blockchain tech-based information provider; and in HK, it is a digital asset trading agency and a fund investing in digital assets. The policy in Singapore covers the most areas (because it is an integration of previous policies), and it affects players in all aspects of the payment field. It includes not only companies that use blockchain technology, but also companies that use electronic payments, such as Alipay and WeChat, etc.

What are the strength and weakness of Singapore and HK?

I am not a policy maker, but I speculate that the regions that have introduced policies must hope to regulate the industry, so that relevant enterprises can flourish in the jurisdiction, with more government revenue being generated, more jobs created and more contribution to national and regional economic development made. As two financial centers in Asia, Hong Kong and Singapore are endowed with unique geographical, cultural and resource advantages. They have become the gateway for Western projects to enter the Greater China market and the choice for Greater China projects to attract European and American resources. Comparing the two regions, their respective advantages are also obvious: Hong Kong relies on the Mainland and Northeast Asia, benefiting from the Guangdong-Hong Kong-Macau Greater Bay Area; while Singapore is closer to Southeast Asia and South Asia, backed by emerging economies such as Malaysia, Indonesia, the Philippines and India. Both governments are also aware of the mixed relation of competition and cooperation between each other and the blockchain industry is also a newly emerging thing, and therefore, with the controllable range, preferential policies such as sandboxes and exemption from supervision under certain payment limits to attract relevant companies to land locally.

Will STO become the mainstream?

On January 24, the MAS announced that it had banned a local Initial Coin Offering (ICO) project company from launching a Security Token Offering (STO) project. As far as I am concerned, not a single country in this world has developed a regulatory framework specifically for STO, and no such STO project has reached the stage of public trading. Case by case, some STO projects were put under supervision the same as security issuance. In fact, under the current regulatory status, regulators around the countries are looking on and “benchmarking”, and none of them want to be the first to issue a license or become the first crab eater. Regulator are advancing cautiously, so the STO would not be easier than the traditional IPO.

In fact, the industry has different opinions on where the blockchain should head for. Those who believe that the STO is the future of the blockchain are considered radicals, and they believe that securitization has the advantages of fast settlement, low implementation costs, automated compliance, global liquidity and fragmented ownership. Others believing technology empowering the real economy is the future of the blockchain and is considered as a reformist. The reason why they are not optimistic about the STO is the public blockchain cannot provide users with high added value, the transaction cost is not cheaper than IPO, the operation speed is not necessarily faster, the originally low-value assets would not be more valuable just because of the blockchain, and the liquidity is still governed by law. Industry participants think and do differently on this subject, and some discussions are also good for the development of the industry.

Will getting listed in HK stock market become a norm in the blockchain community?

Huobi and oKEx have successively bought shell resources from the listed companies in Hong Kong stock market. These behaviors can be interpreted as an inevitable stage of guiding capital inflows and expanding influence. We can expect that more and more blockchain public companies will appear. However, it is uncertain whether it will appear in Hong Kong, because the SFC is one of the most conservative regulatory authorities, and it only approves things that have been successfully run elsewhere.

Can “anti-money laundering” improve the negative image of “cryptocurrency is the primary tool for money laundering”?

If money laundering tools become the mainstream of digital currency application scenarios, we have the reason to believe that one day digital currency will be reset to zero. Because although Satoshi Nakamoto's vision may be that the digital currency is under no government supervision, the 10-year-old digital currency industry actually tells us that the government will not disappear and regulation will always exist.

Indeed, the technology itself means no good or evil, and the application scenarios are still chosen by the person using the tool. We cannot exclude the fact that the speculative activities conducted by a few people have negatively impressed the digital currency, but I believe that as more and more people have correctly recognized the blockchain and digital currency, this impression will probably be changed.

What difficulties are the supervision sandbox facing

The mechanism for supervision sandbox is feasible for giving the opportunity to relevant companies to try and error and giving regulators the opportunity to learn.

Of course, to steadily advance this progress, and the related policies will inevitably be adjusted continuously. Taking HK as the example, even if the new policy has been implemented for three months, not a single institution has announced its entry into to the sandbox supervision. Therefore, even entering the sandbox is not easy, not to mention the regulation after the entry. Is it appropriate for the government to set such a threshold? Are reflection and correction necessary? I think there will be some changes.

What is direction of supervision in Mainland China in the future?

In my view, China’s “one-size-fits-all” prohibition policy in the past few years has effectively avoided systemic financial risks, and the supervision over the blockchain was very timely and decisive during the irrational exuberance of the blockchain. Times shifts easily, and conditions are changed as well. At present, the total market value of global digital currency is just a little more than US$100 billion, and the daily trading volume is only US$5 billion. The total market value is at the same level of China's few listed companies. Even with the most optimistic estimates, digital currency addresses owners around the world are at the tens of million people level, and a considerable proportion of it come from Asia. It is also a fait accompli that many practitioners in Mainland China choose other countries and regions to develop their business in order to comply with regulations.

Some provinces and cities in Mainland China have noticed the significance of the blockchain and written it into the government work report. The Mainland China may look upon the blockchain with a more open attitude.