In an extensive report on digital currencies by Yao Qian, Deputy Director of the Science and Technology Department at PBoC, Ethereum’s smart contracts development is discussed with the director stating Ethereum is working in the right direction.
According to a rough translation, the director says that because of eth’s smart contracts breakthrough, ethereum might surpass bitcoin’s market cap. He further says that Ethereum is the blockchain of artificial intelligence as “you can open a real intelligent business application.”
“Because of this, smart contract technology is in rapid development,” he says, with ethereum and smart contracts promoting each other in a mutual manner.
This is the first official comment on ethereum from China and seemingly suggest that they may take a more welcoming and accommodating attitude towards ethereum as opposed to their fairly confrontational approach towards bitcoin.
In particular, the director suggests that China may establish a regulatory sandbox for ICOs and token sales, following Britain’s approach to its establishment of a FinTech sandbox.
He says one approach would be to set-up an ICO platform which is committed to investors education, giving risk tips, project reviews, qualifications, analyzing funds custody, urge information disclosures and maybe even inspect funds as well as any potential anti-money laundering activities.
He says ICOs can be beneficial as long as tokens are valued based on the underlying project, rather than just speculation which may turn it into a ponzi scheme if fundamentals are ignored.
The director emphasizes that there must be a regulatory framework, but strikes a note of caution regarding regulatory arbitrage, stating that there needs to be a “coordination mechanism of financial supervision.”
That’s probably unlikely at this very early stage as everyone is still figuring out what might be the long term implications of these many inventions with some embracing the blockchain space while others appear more cautious.
As such, some jurisdictions are taking a competitive approach, whether intentionally or otherwise, seeing opportunity where others do not.
That was the case in 2014 after New York’s Bitlicense debacle, with London fully using the opportunity to show itself as a far more welcoming jurisdiction for businesses and innovation, earning them the title of Fintech’s Capital of the World.
Likewise, the more astute in China have probably observed that Japan and South Korea have jumped at the opportunity of welcoming innovation after China seemingly cracked down on bitcoin exchanges.
Any global co-ordination, therefore, is very unlikely at this stage as countries need to figure out how this space serves their specific needs and how best to attract innovators who are currently in very high demand, but in extremely short supply.
A regulatory sandbox is one good approach towards that end, but the details would be important. However, it may be too early even for that as this space needs some room to develop both conceptually and experimentally. Moreover, we haven’t seen much misbehavior.
Overall, the best regulators can do at this stage is to say that they support this innovative experimentation and they will not take any action unless there is clear criminal behavior such as fraud or intentional deception.
Then, once the space develops further and matures somewhat, reasonable guidelines can be laid out after public consultation with widely debated suggestions.