Peoples Bank of China

CBDCs should protect privacy, not be a surveillance tool: Former CFTC chair

Former CFTC Chair Christopher Giancarlo says that Anti-Money Laundering and Know Your Customer measures are both outdated and constitutionally questionable and that crypto technology could do better.

The United States should lead the development of central bank digital currencies (CBDCs) away from being “surveillance coins” and toward being “freedom coins,” says the former chair of the Commodity Futures Trading Commission.

In a March 13 op-ed in The Hill, Christopher Giancarlo said that the U.S. “must influence” CBDC development toward protecting “democratic values like freedom of speech and the right to privacy,” leveraging current technology used by some cryptocurrency protocols.

My op-ed in @theHIll with @Jim Harper: the question is not whether #CBDCs can be stopped (they can’t), but whether sovereign AND non-sovereign #digitalcurrency will enslave or liberate citizens of free societies. https://t.co/h1oT14NalK

— Chris Giancarlo (@giancarloMKTS) March 13, 2023

Nicknamed “Crypto Dad” for his pro-crypto outlook, Giancarlo is co-founder of the Digital Dollar Project, which focuses on researching the implications of a U.S. CBDC. He elaborated on his concerns about privacy in a March 1 report for policy think tank the American Enterprise Institute that he co-authored with API fellow Jim Harper.

He said the U.S. must advocate for a “freedom coin” — a CBDC that guarantees a high level of privacy.

Giancarlo and Harper argued in the paper that CBDCs offer an opportunity “to reassess contemporary financial surveillance activities” and could possibly enhance constitutional protections.

To achieve this, a CBDC could take advantage of crypto technology, such as “zero-knowledge proofs, homomorphic encryption, and multiparty computation, that enable parties to prove an encrypted proposition is true without revealing the underlying information,” they said.

My report today w/@AEI’s @JimHarper: #CBDC & #stablecoins must preserve privacy & security, economic liberty, free speech & personal autonomy. https://t.co/pB8uaA3KIT

— Chris Giancarlo (@giancarloMKTS) February 28, 2023

These technologies would make “intelligent enforcement” of crime prevention possible, the authors argued.

First, the U.S. would have to reexamine current financial surveillance policies. The authors took issue specifically with one recent document published by the administration of U.S. President Joe Biden:

“The White House Office of Science and Technology Policy’s (OSTP) recent Technical Evaluation for a U.S. Central Bank Digital Currency System shows that financial surveillance in the West is more like China’s than many would like to admit.”

The OSTP paper showed an “unwillingness to evolve beyond today’s constitutionally suspect financial surveillance system,” they said.

Giancarlo and Harper pointed to the OSTP’s proposed Anti-Money Laundering (AML) and Know Your Customer (KYC) measures as problematic, saying they allowed too much surveillance without probable cause.

If a CBDC’s privacy is not guaranteed, there is a risk of it being used as it is in China, they argued.

There, the e-yuan “will allow the Chinese government to link political conformity to individual prosperity and relegate political dissenters to poverty” by making all transactions visible to the People’s Bank of China, they opined.

The authors’ thoughts have much in common with concerns expressed by U.S. Senator Tom Emmer, a vocal opponent of a U.S. CBDC who introduced the CBDC Anti-Surveillance Act in 2022.

Emmer has expressed concern over a CBDC that “tracks transaction level data down to the individual user” and can be programmed “to choke out politically unpopular activity.” Emmer is also co-chair of the U.S. Congressional Blockchain Caucus.

China’s Hainan to boost NFT oversight as digital yuan trial ramps

Hainan’s market regulator wants to promote NFTs as part of the digital economy, but will actively work to weed out bad actors and speculative behavior.

Authorities from the Hainan province in southern China have vowed to increase oversight on the nonfungible token (NFT) sector to “promote the healthy development” of the sector and to stomp out fraud and other associated risks.

In a separate announcement, the People’s Bank of China (PBoC) also announced that it is working on new features for its Central Bank Digital Currency (CBDC) pilot program, referred to as the digital yuan or eCNY.

NFT oversight

In a public notice posted on Jan. 29, Hainan’s market regulator and nine other agencies from the province outlined a lengthy plan to tackle the NFT sector moving forward.

A translation of the document reveals that the regulator is placing emphasis on promoting NFTs as part of the digital economy, particularly as a way to attract foreign investment in the Hainan Free Trade Port.

The province agencies however said they want to oversee the NFT market in a way that restricts “market chaos” such as misleading information, speculation, copyright theft, fraud, money laundering and fictitious value.

Some measures outlined include “severely” cracking down on false propaganda under current frameworks such as the “anti-unfair competition law,” preventing copyright infringement by guiding and urging internet platforms to remove such content, and cracking down on fraud.

An emphasis has also been placed on educating the public by conveying the “risks and laws” of the sector so that they “purchase cautiously” and avoid losses due to wild speculation on NFTs.

The Chinese government has had a unique outlook on the NFT sector since it boomed in popularity, while the asset class has not copped major blanket bans unlike private cryptocurrencies, state agencies have often been quick to deter any sort of speculative behavior.

Digital yuan adds bells and whistles

According to an announcement shared via Baidu on Jan. 30, the People’s Bank of China (PBoC) plans to add new features to its long-running pilot trails of the digital yuan.

The bank suggested that it is developing a QR code-based transaction system so that “ consumers can ‘scan with one code’” to make the CBDC more user-friendly.

It also emphasized that such tech integrations will help China “realize the interconnection between the digital renminbi system and traditional electronic payment tools.”

Another touted benefit of the QR code system is that merchants will be able “support various transactions” while limiting the increase of costs to consumers.

The PBoC emphasized that in 2022 it had piloted the CBDC across 17 provinces, and rolled out around 30 digital yuan red “envelope activities” in which it airdropped small amounts of the asset to citizens.

The campaign was used to promote the use of the asset, particularly concerning payments for “low-carbon travel” such as public transport.

Earlier this month, the eCNY network received a key upgrade via the integration of smart contracts.

According to a report from local crypto media outlet 8btc, smart contract features were launched via the food and retail focused delivery app from Meituan.

When users place and order and pay with their e-CNY wallet, a smart contract triggers and searches for keywords and purchased items in their order. If a user buys something on the list of keywords for the day, they go in the draw to win part of a prize worth around $1,300.

China’s Hainan to boost NFT oversight as digital yuan trial ramps

Hainan’s market regulator wants to promote nonfungible tokens as part of the digital economy, but will actively work to weed out bad actors and speculative behavior.

Authorities in the Hainan province in southern China have vowed to increase oversight on the nonfungible token (NFT) space to “promote the healthy development” of the sector and to stomp out fraud and other associated risks.

Separately, the People’s Bank of China (PBoC) has announced that it is working on new features for its central bank digital currency (CBDC) pilot program, known as the digital yuan or e-CNY.

NFT oversight

In a public notice posted on Jan. 29, Hainan’s market regulator and nine other agencies from the province outlined a lengthy plan to tackle the NFT sector moving forward.

The provincial authorities, however, want to oversee the NFT market in a way that restricts “market chaos” such as misleading information, speculation, copyright theft, fraud, money laundering and fictitious value.

An emphasis has also been placed on educating the public about the “risks and laws” of the sector so that they “purchase cautiously” and avoid losses due to wild speculation.

The Chinese government has had a unique outlook on the NFT sector since it boomed in popularity. While the asset class has not copped blanket bans like the ones China has imposed on private cryptocurrencies, state agencies have often been quick to deter any sort of speculative behavior.

Digital yuan adds bells and whistles

Meanwhile, according to an announcement shared via Baidu on Jan. 30, the PBoC plans to add new features to its long-running trials of the digital yuan.

The central bank said that it is developing a QR code-based transaction system so that “consumers can ‘scan with one code’” to make the CBDC more user-friendly.

It emphasized that such tech integrations will help China “realize the interconnection between the digital renminbi system and traditional electronic payment tools.”

Another touted benefit of the QR code system is that merchants will be able “support various transactions” while limiting the increase of costs to consumers.

The PBoC emphasized that in 2022 it had piloted the CBDC across 17 provinces and rolled out around 30 digital yuan red “envelope activities” involving airdroppingsmall amounts of the asset to citizens.

The campaign was used to promote the use of the digital yuan, particularly concerning payments for “low-carbon travel” such as public transport.

Earlier this month, the e-CNY network received a key upgrade via the integration of smart contracts.

According to a report from local crypto media outlet 8btc, smart contract features were launched via the food and retail focused delivery app from Meituan.

Wuhan omits NFTs from metaverse plan amid regulatory uncertainty in China

The Chinese government has shown a keen interest in developing a metaverse economy, but its stance on NFTs hasn’t been very clear.

The Chinese city of Wuhan had reportedly shelved its aspirational nonfungible tokens (NFTs) plans amid growing regulatory uncertainty around the crypto and Web3 technologies in the country.

Wuhan first announced its plans to support metaverse and NFTs in the aftermath of the coronavirus breakout as a measure to boost its economy ruined by the pandemic. The city was the epicenter of the COVID-19 breakout.

The Wuhan government’s draft industrial plan for the city’s metaverse economy development included a line about NFTs. However, that part has now been omitted from the latest version, according to a report by South China Morning Post. The report noted that the revised version still encourages businesses to focus on decentralized tech and Web3 but makes no mention of NFTs.

Under the newly revised plan, Wuhan aims to foster more than 200 metaverse companies and build at least two metaverse industrial estates by 2025.

Looking at the revised version of the draft, the Chinese government seems to do away with anything that involves the exchange of tokens or digital properties. The stance has been clear over the years as the government development plans have included metaverse-related technologies. For example, several Chinese cities, including the capital city of Beijing and Shanghai, have announced metaverse innovation plans, but any private business or tech giants involved with NFTs have faced government hostility.

At the start of the year, China was aiming to separate NFTs from cryptocurrencies in a bid to help the nascent industry grow despite a blanket ban on the latter. This resulted in a peak of interest among Chinese communities as NFT marketplace Opensea was flooded with listings from Shanghai during COVID lockdowns.

However, with the rise in popularity, the number of fraudulent activities rose as well, leading to several government warnings to investors against NFT trade.

China was very clear with its stance on crypto use in the country and eventually imposed a blanket ban in 2021 after several years of numerous restrictions. However, the government’s stance on emerging Web3 technologies, especially those that involve the exchange of tokens or digital collectibles, or NFTs, seems far from clear at the moment.

Chinese central bank exec says digital yuan will offer ‘controllable anonymity’

China’s digital yuan is one of the earliest CBDCs whose pilot phase has expanded to include millions of users and billions in transaction volume.

Chinese central bank governor Yi Gang, in a recent speech at Hong Kong Fintech Week, talked about the progress of their national digital currency called the digital yuan. He outlined the progress and the adoption of the national digital currency.

During his speech, Yi noted that the digital yuan is being positioned as an alternative to cash in China, a country with a robust digital payment infrastructure. He added that “privacy protection is one of the top of the issue on our agenda.”

He went on to describe the two-layer payment system that would offer controllable anonymity to the users. At tier one, the central bank supplies digital yuan to the authorized operators and processes inter-institutional transaction information only. At tier two, the authorized operators only collect the personal information necessary for their exchange and circulation services to the public.

Yi promised that data will be encrypted and stored and, personal sensitive information would be anonymized and not shared with third parties. Users can also make anonymous transactions up to a certain amount, and there will be specialized e-wallets to facilitate those transactions. The central bank governor noted that anonymity is a two-faced sword and thus must be dealt with carefully, especially in the financial ream and explained:

“We recognize that anonymity and transparency are not black and white, and there are many nuances that need to be carefully weighed. In particular, we need to strike a precise balance between protecting individual privacy and combating illegal activities.”

Yi’s comments are in line with the central bank digital currency (CBDC) program head Mu Changchun, who in July reiterated a similar stance saying CBDC doesn’t have to be as anonymous as cash. Mu had said that a completely anonymous CBDC would interfere with the prevention of crimes like money laundering, terrorism financing, tax evasion and others.

China started its CBDC program as early as 2014 and, after years of development, launched the pilot in 2019. Since then, the program has expanded to millions of retail customers across the country. In 2022, the CBDC testing has expanded to some of the most populous provinces. The extent of the CBDC trail can be estimated from the fact that the total digital yuan transaction volume crossed $14 billion by the third quarter of 2022.

Bank of China: Digital yuan transactions volume crossed $14B mark

The largest CBDC pilot in the world is going to expand on citizen payments and cross-border operations with Hong Kong.

China’s central bank digital currency (CBDC) project has reached the mark of close to $14 billion, or 100.04 billion yuan, of made transactions during its pilot phase. It makes digital yuan, the e-CNY, the most widely adopted CBDC in the world.

As the Bank of China reported in the post on its official WeChat page on Oct. 10, by the end of the summer, the number of transactions made in 15 provinces within the CBDC pilot framework had reached 360 million. More than 5.6 million merchant stores already support the digital yuan as a legal tender, according to the post.

The pilot is expanding among some state institutions as well, covering a wide range of citizen payments:

“Multiple e-government service platforms have opened digital renminbi payment services, supporting online and offline channels to handle various public utility payments, using digital renminbi to issue tax rebate funds, special funds for monthly medical insurance payment, funds for helping people in need, and ‘specialized, special and new’ enterprise support funds, etc.”

The financial regulator shared its plans for the project development, which include launching the cross-border payments between Hong Kong and mainland China, actively exploring the multilateral cross-border option in collaboration with the Bank for International Settlement and following the principle of “anonymity for small amounts and traceability of large amounts” to protect the user’s personal data.

With its first CBDC trials launched in April 2020, China’s central bank has been aiming to eventually replace cash with the digital yuan. In September 2022, it shared plans to expand the deployment of the e-CNY to four of the country’s provinces, including Guangdong (earlier, the pilot ran only in separate cities).

Interestingly enough, the Bank of China reported about $13 billion (87.5 billion yuan) worth of transactions by January 2022 — with the fresh update, it could mean that in the last seven months, the overall amount of new transactions didn’t exceed $1 billion.

China accounts for 84% of all blockchain patent applications, but there’s a catch

China’s push for blockchain technology gained steam after 2019 when President Xi Jinping called for corporations from tech giants to become industry leaders in the nascent tech.

China accounts for 84% of all blockchain applications filed worldwide, according to the latest data shared by the country’s government official.

China has steered clear of the cryptocurrency market. However, the Beijing government has been supportive of the underlying blockchain technology. The country has actively promoted the use of blockchain tech over the years, and thus the high percentage of blockchain patents isn’t surprising.

President Xi Jinping has also played a key role in promoting the nascent blockchain technology. In 2019, the president called upon citizens, tech companies and stakeholders of the ecosystem to actively participate and innovate with the nascent tech as it would play a key role in the future of the next industrial revolution.

As Cointelegraph reported earlier, Chinese companies had filed 4,435 blockchain patents within one year of President Xi Jinping’s endorsement of the industry. According to another study, China accounted for roughly 60% of the world’s blockchain patent applications from 2015 to June 2021, followed by the United States and South Korea.

The figure was released on Tuesday by Wang Jianwei, deputy director of the Ministry of Industry and Information Technology. However, the figures didn’t include a timeframe in which these patent applications were filed.

While China accounts for the highest number of blockchain patent applications, the approval rate is significantly low, with only 19% of the total filed applications getting approved, reported South China Morning Post.

Another important thing to note here is that China is not very big on decentralization, which is the principle on which blockchain tech is based. This was evident from the country’s digital yuan development, where the central bank developed the digital national currency on the curated version of a blockchain with full control over its functioning rather than using the traditional distributed network approach.

Possession of Bitcoin still legal in China despite the ban, lawyer says

Crypto holders in China are protected by the law in case of theft, misappropriation or breach of a loan agreement despite the ban on crypto.

Despite enforcing a major cryptocurrency ban one year ago, the Chinese government still protects local crypto investors as crypto is recognized as virtual property protected by the law.

One of the world’s most hostile countries toward Bitcoin (BTC), China has not yet banned the possession of cryptocurrencies, according to David Lesperance, founder of Lesperance & Associates law firm.

Crypto holders in China are protected by the law in case of theft, misappropriation or breach of a loan agreement, Lesperance told Cointelegraph. He emphasized that crypto exchanges are still banned in China.

The lawyer referred to a recent Chinese court case involving a breach of a loan made in the Litecoin (LTC) cryptocurrency. Defendant Ding Hao failed to fully pay back all 50,000 LTC that he borrowed from Zhai Wenjie in 2015, which became a major court precedent involving cryptocurrency in China.

Since 2015, the price of Litecoin has jumped roughly 1,800%, as the cryptocurrency was trading at around $3 seven years ago, according to data from CoinGecko.

On Aug. 31, the Beijing No. 1 Intermediate Court ruled that the defendant owed Zhai the remaining amount of Litecoin, rejecting Ding’s argument that the People’s Bank of China (PBoC) officially banned crypto transactions last year.

“The court has upheld that cryptocurrencies like Litecoin are ‘property’ even though they are created in the virtual realm,” Lesperance said. He emphasized that the crypto community “shouldn’t draw any particular positive inferences” from the case as it was a “very ordinary” commercial loan dispute that was settled under normal property law rules, stating:

“To date, possession of crypto in China has not been banned. […] It does not make the commercial trading of this type of property legal, as the government has specifically banned crypto exchanges in China.”

While Lesperance says that crypto exchanges are banned in China, some local crypto enthusiasts are confident that the PBoC has never explicitly banned individuals from trading cryptocurrencies.

“It’s true that China doesn’t want individuals to trade crypto. But this is never being written in any formal document,” a person linked to the crypto industry in China told Cointelegraph.

According to the source, many mainland users see their bank cards frozen if they use them for crypto over-the-counter (OTC) transactions. However, trusted OTC channels still allow crypto transactions in China.

“So even though trading crypto is not illegal, we don’t want to waste our time arguing with banks because obviously, they think everything about crypto is illegal,” the person said.

The latest news brings yet another piece of evidence that crypto has not been totally suppressed in China since the government announced a coordinated crackdown on crypto in September 2021. As previously reported, China returned its position as the second-largest Bitcoin hash rate provider as of January 2022.

Salary payments in USDT stablecoin ruled as illegal in the Chinese court

Tether USDT stablecoin cannot be used for salary payments, a Chinese court ruled, citing the country’s blanket ban on all types of crypto transactions.

Despite the Chinese government banning all kinds of cryptocurrency transactions last year, some firms apparently still use stablecoins like Tether (USDT) to pay their employees.

Beijing’s Chaoyang District People’s Court has ruled that stablecoins like USDT cannot be used for salary payments, the local news agency Beijing Daily reported on Wednesday.

The Chinese court stated that virtual currencies like USDT cannot circulate in the market as a currency, which requires all employers to only pay their workers using the official currency, renminbi (RMB).

The ruling came as part of a court case involving a staff member at a local blockchain firm suing his employer for not agreeing to pay his wages in RMB. The plaintiff argued that instead of paying him in RMB, the firm had paid his salary and bonuses in the USDT stablecoin.

Citing China’s blanket ban on crypto enforced in September 2021, the court pointed out that digital currencies like USDT do not have the same legal status as legal tender. The court noted that the plaintiff’s request to be paid wages and bonuses in the form of RMB fully complies with local laws and the court supports it.

As such, the court ordered the defendants to pay a total of more than 270,000 RMB ($40,000) in wages, performance bonuses and annual bonuses owed to the plaintiff.

As previously reported by Cointelegraph, the People’s Bank of China officially announced a set of measures to fight against crypto adoption in China in September 2021. The action involved 10 Chinese state authorities establishing a new mechanism to prevent financial players from participating in any cryptocurrency transactions.

Despite the ban, some local blockchain executives are positive about stablecoins like USDT. Yifan He, CEO of Red Date Technology — a tech firm involved in the Blockchain Service Network (BSN), China’s major blockchain project — told Cointelegraph last month that stablecoins would do just fine only if properly regulated.

“USDC or USDT are payment-related currencies, not speculative assets. Once they are fully regulated, they are fine,” he said.

Addressing the latest news from China, He noted that all USDT transactions are illegal in China. However, banning such transactions may be too difficult for regulators, the exec suggested. “There is no way to ban USDT payments technically in any country,” He said. The expert also believes that USDT and its major rival USD Coin (USDC) are “not popular at all in China.”

Tether USDT is a major stablecoin pegged by the U.S. dollar on a 1:1 ratio, backed by U.S. dollars held in U.S. treasury reserves, cash deposits and other assets.

USDT is the third-largest cryptocurrency after Bitcoin (BTC) and Ether (ETH) in terms of market capitalization and is the biggest digital asset in terms of daily trading volumes. At the time of writing, USDT’s daily trading volumes stand at $57 billion, or 247% more than the entire daily trading volumes of Bitcoin.