On February 15, 2019, the new law regulating Blockchain Service Providers (BSP) in China came into force (“New Law”).
The new Law has been issued by the Cybersecurity Administration of China (CAC) and regulates all the technologies and blockchain systems via internet or mobile apps (art.2).
The scope of application declared at art. 1 is “to regulate blockchain information service activities, safeguard national security and social public interests, protect the legitimate rights and interests of citizens, legal persons and other organizations, and promote the healthy development of blockchain technology and related services, according to the “Network Security of the People’s Republic of China“.
Blockchian service providers and rules of the blockchain service
A BSP is defined by the New Law as any corporate entity that provides blockchain services or technical support to a primary blockchain service. According to the New Law, BSP shall thus meet appropriate technical conditions, such as, maintain a sufficient number of servers and employees (art. 6).
The BSP are required to keep records of users’ information, keep records of the use of blockchain and monitor relevant contents. They must also respond to the competent authorities upon request.
According to the New Law on the blockchain everything that is done on the blockchain must be recorded and accessible by the central government.
In addition, a BSP operating in China will have to register with the National Internet Information Office (NIIO) communicating information about the service offered, the domain names and the address of the server.
In this way the BSP will receive a registration number to be published on the website or service app.
The BSP is obliged to report to NIIO any changes to this information including new products, applications or service functions. Furthermore, it must be communicated to NIIO if the service is suspended.
According to Art. 11 in fact “The blockchain information service provider shall fill in the name, service category, service form and application of the service provider through the National Internet Information Office blockchain information service filing management system within ten working days from the date of providing the service. Information such as domain and server address, and fulfill the filing procedures.
If the blockchain information service provider changes the service item or platform website, etc., it shall go through the change procedures within five working days from the date of the change. If the blockchain information service provider terminates the service, it shall go through the cancellation formalities 30 days”
The NIIO will carry out inspections on the services of the BSP.
The BSP shall formulate specific rules for utilization of the platform and is required to sign a service agreement with users.
As it happens in China for social media, the BSP is forbidden to provide services to a user who has not confirmed the ID and the BSP must verify the identity of the users of the service.
According to art. 8 “The blockchain information service provider shall, in accordance with the provisions of the “Network Security Law of the People’s Republic of China”, conduct real identity information based on the organization code, identity card number or mobile phone number for the certification of the blockchain information service users.. If the user does not perform real identity authentication, the blockchain information service provider shall not provide related services”.
The New Law also requires the BSP to maintain a record of information related to its services including content usage logs of the BSP users.
These documents must be kept for at least 6 months and must be provided to the authorities if required
The BSP shall monitor and remove contents, delete user accounts that violate the law and report illegal activities to the authorities.
According to art. 16 “The blockchain information service provider shall take measures such as warning, restriction, and account closure for users of blockchain information services that violate laws, administrative regulations and service agreements, and illegal information content. Furthermore, shall take appropriate measures in time to prevent information from spreading, keep relevant records, and report to relevant authorities”.
The New Law provides for penalties for violations of the various requirements with fines up to RMB 30,000.
The New Law does not distinguish between Chinese or foreign BSPs. It is also unclear whether a foreign BSP can register with NIIO or it will be necessary to establish a fully foreign-owned Chinese entity to complete such registestration.
Future prospects
From the foregoing it emerges that the intention of the New Law is to consider “cyberspace” as a territory that must be governed and controlled by the state.
For many observers, however, better regulation of these services will encourage Chinese start-ups and blockchain entrepreneurs.
There are sizeable Chinese blockchain initiatives that have government support and Chinese companies occupy numerous posts on the “top-100 Blochchain Enterprise Patent Rankings” list.
China has also filed the largest number of patents in the field of Blockchain worldwide.
In general, the predictions for blockchain technology in China are very optimistic and there are many emerging blochchain technology companies that attract investors and strategic partners.
