China has announced a blockchain law which will come into force in January 2020. The main goals are to enable governmental oversight of the technology and to create a legal environment for China’s digital Yuan.

Prime Minister Adrian Hasler said after the approval of Liechtenstein’s Blockchain Act that the law had received significant international attention. Blockchain industry leaders welcomed the Blockchain Act and hoped for other countries to follow Liechtenstein’s example. Last week another country announced it would also introduce a Blockchain law on January 01st, 2020. But it wasn’t one of Liechtenstein’s European neighbors; it was China.

That said, China’s Blockchain Law will look significantly different from Liechtenstein’s and won’t have the same intentions. While Liechtenstein attempted to create a comprehensive framework for a token economy, China seems to be more concerned about governmental applications.

The law defines three areas of cryptography application

The Chinese state media agency Xinhua reported the law aims at “facilitating the development of the cryptography business and ensuring the security of cyberspace and information.” It is also supposed to protect intellectual property rights in cryptography, and support scientific and technological research in the field.

Specifically, the law distinguishes three fields of cryptography: core, common, and commercial categories. Core and common are cryptography used to protect government information. Commercial cryptography refers to everything else.

The law considers the first two fields of cryptography “state secrets” – meaning these technologies will be managed by government authorities only. For example, information of the state sent over wired and wireless communications, as well as the information systems that store and dispose of this information, must use core and common cryptography for their encrypted protection and security certification.

Commercial cryptography, on the other hand, is used for protecting information that is not government-relevant. Thus, these types of encryption can be used by civilians, businesses, and non-governmental organizations.

The law also states that the development, sales, and use of encryption “must not harm the state security and public interests.” What that means exactly may be subject to interpretation. Anyone who fails to report security risks will be punished. The same goes for anyone who provides cryptographic systems for sale which “are not examined and authenticated.”

Altogether, it seems as if the law is more geared towards the government remaining in control of the technology, rather than supporting the build-up of a private crypto industry.

Creating a legal environment for China’s central bank digital currency

Another key focus of the law is to create a regulatory foundation for the roll-out of China’s state-owned digital currency. The new laws were interpreted as the biggest show of formal support for a digital currency by the government to date.

As the government wants to keep control of the currency system, it may enforce the circulation of digital currency as the only payment method in government departments or related institutions – or even in the economy as a whole. That’s a privilege that other currencies and payment systems don’t have.

Within the crypto industry, China’s legal imitative has caused different reactions. While some welcome that China is creating blockchain-specific regulations, others are concerned about increasing control and restrictions.

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