China is Teaching the United States a Lesson on Blockchain Policy

What is blockchain, and why does it matter? Satoshi Nakamoto, a mysterious entity, developed the foundational technology to create a decentralized, open-source, verifiable, and immutable ledger for Internet transactions. However, the concept of a distributed peer-to-peer Internet where power and control are determined by a decentralized consensus directly contradicts the current Chinese model of Internet governance. While everyone acknowledges the importance and power that blockchain technology promises, there are differing opinions on managing it. As a result, the United States and China have different approaches to regulating this technology.

Cryptocurrency is at the heart of most of the discussion when legislating for technical regulation. Governments across the globe have been slow to react to the blockchain, with policymakers paralyzed by what could be categorized as a lack of understanding. Perhaps the sheer quantity of use cases for blockchain can be overwhelming. However, blockchain technology is incredibly versatile and can be implemented in various sectors. Let’s examine how the United States and China have attempted to structure regulatory frameworks for this emerging technology.

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Generally speaking, federal agencies and policymakers have praised the technology as an important part of the U.S.’s future infrastructure and stressed the need for the U.S. to maintain a leading role in developing the technology. Some agencies have acknowledged the risk of over-regulating and cautioned policymakers from passing legislation that would drive investment in the technology overseas. Essentially the less regulation, the more the private sector can experiment and innovate using blockchain without the impediment of stringent rules.


However, the United States has yet to create a blanket policy at the federal level instead of leaving it to the state legislature to decide the appropriate regulation. “There’s no U.S. government strategy for blockchain,” according to an op-ed in The Washington Post. However, the Chamber of Digital Commerce recognizes the technology’s massive potential and issued a National Action Plan for Blockchain, urgently identifying the “need for a comprehensive, coordinated, pro-growth approach to developing blockchain technology in the United States.”

This has led to certain states in the U.S. adopting more favorable policies towards technology. For example, Wyoming recently passed a bill exempting cryptocurrencies from property taxation. Colorado state legislature has passed a bipartisan bill authorizing the use of blockchain for government record keeping. Arizona has considered accepting state taxes in the form of cryptocurrency. The traceability and security of blockchain technology have highlighted tax collection as one of the most impactful potential use cases.

Arizona has become the first state in the U.S. to adopt a “regulatory sandbox” to practice and iterate developing and iterating blockchain for use in emerging industries like fintech, blockchain, and crypto. The law will grant regulatory relief for innovators in these sectors who desire to bring new products to the state. Under the program, which will take effect later this year, companies can test their products for up to two years and serve as many as 10,000 customers before applying for formal licensure. This lax regulatory legislation is meant to improve not only local economies but public services as well.

New York has adopted a contrasting approach to blockchain, creating such stringent regulations about using the technology that many blockchains and cryptocurrency-based companies have left New York searching for regulatory environments more conducive to blockchain technology. One could summarize the state of American blockchain regulation as scattershot at best, with various state-level legislatures attempting to introduce productive law. China’s approach to technology is, well, more organized.


Simply put, China dominates the United States regarding blockchain governance and preparation for widespread implementation. Last year Chinese President Xi Jinping delivered an address that accentuated China’s desire to lead in global innovation, specifically citing blockchain, A.I., and the Internet of Things. China has significantly more patents related to blockchain than any other country in the world. Chinese firms, including Bitmain and BAT (Baidu, Alibaba, and Tencent), are some of the most well-known names in the blockchain and cryptocurrency industry. Blockchain has become a national priority in China. The Chinese State Council included research and development in its 13th Five-Year Plan. On March 30, the CAC released a list of 197 registered blockchain firms, including units from Alibaba, Tencent, and Baidu.

Two-thirds of blockchain-related patents come from China, while the nation controls 72% of Bitcoin’s global mining power capacity. At a private roundtable by the Penn Wharton China Center, one participant noted, “China is very pro-blockchain technology, and the government has positioned itself to dominate the blockchain space in the world.” This ambition to develop and dominate the blockchain-powered future of technology is present in more than just political rhetoric. For example, China’s central bank, the People’s Bank of China, reportedly tested blockchain-based fintech products in Shenzhen.

However, it seems counterintuitive that the Chinese government would endorse a new system of Internet transactions where security is determined by a distributed consensus rather than a central management system. But comments on China Central Television clarify the party’s stance: Blockchain in China is not about decentralization but “de-intermediarization. There is no way to get rid of the center.” The Chinese government’s regulations on blockchain stipulate that the state should have access to any information stored on blockchain-powered networks or products if required.

In addition, the Chinese government will require real-name authentication to operate and participate in blockchain ecosystems. At the same time, not a new practice in Chinese technology (you need real-name authentication to use WeChat); blockchain networks and cryptocurrencies are often used in Western countries for anonymous transactions, often in the gray legal territory. The Chinese government has clearly outlined that any use of blockchain technology to circumvent Chinese laws will be punished and traceable due to the government’s access to hash encryption.

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