The Control - Issue #25
China regulation has dominated the headlines this week. Here are a few thoughts on it:
1.) The Chinese government is one of the most controlling in the world
The concept of China banning digital asset exchanges is not surprising given all of the other empowering technologies the Chinese government has banned over the years (Facebook, Google, Twitter, etc).
I believe the People's Bank of China (PBOC) is not likely to ban exchanges outright and may instead simply put new regulation in place to enable exchanges that have close ties to the government to operate. Even in an extreme scenario where they ban digital asset exchanges completely though, other major governments are not likely to follow; the Chinese government has a history of being much more controlling of communication, data, and money than most.
2.) By definition, decentralized p2p networks like Bitcoin can’t be stopped by regulators
Regulators can certainly continue to go after centralized players (companies and individuals) and slow down adoption of decentralized networks as a result, but they can’t stop them. There is no central point of failure in the Bitcoin network and this feature is highlighted when central parties take actions against it.
While 80%+ of Bitcoin trading volume was from China 8 months ago (which was misleading because of no-fee trading), less than 30% of trading volume has been from China over than past month. Even a complete ban of digital exchanges in China is unlikely to be a major negative in the long-term. Other ways for Chinese citizens to acquire digital assets will persist (mining, localbitcoins, earning via services like 21 and 1protocol, etc).
3.) There are different categories of tokens, some of which are securities and some of which likely aren’t
Some jurisdictions may lump all tokens together while others will take a more thoughtful and nuanced approach. China specifically put out harsh guidance on ICOs on September 4th and the first exchange that announced it is closing shop, BTCC, offered ICO coins, which were unregistered securities. It makes sense that such an exchange would be forced to shut down. I believe that the same thing could happen to exchanges in the US that enable the trading of what the SEC deems to be unlicensed securities.
It's likely that jurisdictions like the US recognize the difference between usage tokens, work tokens, and traditional equity tokens and don't lump them all together.
4.) Decentralized exchanges and decentralized stablecoins are coming
The PBOC taking a more aggressive stance against the existing centralized digital asset exchanges highlights the benefits of decentralized exchanges which remove counterparty risk for users and can't be stopped by any centralized actors. It also highlights the need for decentralized stablecoins, which have the volatility characteristics of the USD combined with the decentralization of Bitcoin. Look out for projects in these categories to take off in the coming months.
Required reading this month
The first token-based social network — 21.co
21.co allows you to earn digital currency by replying to emails and completing tasks. They announced a token yesterday and more details will be revealed soon. I'm excited to see more token-based projects focusing on product usage rather than fundraising in the future.
Chamath Palihapitiya on bitcoin: The genie has been let out of the bottle — www.cnbc.com
Chamath makes the bull case for bitcoin in the wake of Jamie Dimon's fraud comments,
Accelerating Evolution Through Forking — medium.com
A fork is an important mechanism for a blockchain to evolve and this piece makes a case for potential improvements that could be implemented to better align incentives.
Mark Cuban's Blockchain Project Mercury Protocol Arrives — fortune.com
Mercury is a digital service that provides secure, private communication to applications. Look out for more details on Mercury to be revealed soon.
Introducing the Hard Spoon — blog.cosmos.network
A "hard spoon" is a new technical concept that Cosmos plans to roll out later this year. Cosmos is an interesting project that seeks to make different blockchains interoperable.