The Chinese have banned Bitcoin and “Initial Coin Offerings” (ICOs) that was probably wise as many ICOs are “dressed-up ponzi schemes”. Nobody needs that, especially China, a country in which about 500 million people remain relatively uneducated rural residents, but where mobile internet access is increasing at exponential rates. China has an “Anti-Pyramid Scheme” law which dates back decades, that is why China prohibits traditional multi-level marketing.
Bitcoin, Blockchain and related distributed ledger technologies have been a hot topic here in China just like the rest of the world. Seems gamers are already using STEEM.it which is a distributed gaming ledger which functions across nations. Multiple non-gaming industries are exploring possibilities and new blockchain applications especially in finance. In China as a blockchain lawyer cases are emerging almost every day, we live in exciting times.
Well, what is Blockchain?
Blockchain technology is the technology which created Bitcoin/Ethereum cryptocurrencies. Essentially blockchain solved “the double pay problem” whereby a digital coin could be used to pay for two separate items at nearly the same time. Blockchain is an open ledger of information used to record and track transactions, and which is exchanged and verified on a peer-to-peer network. This means all transactions are logged in near real-time and opportunity for “double-pay” exploits is significantly reduced.
Blockchain and other distributed ledger technologies create a trustworthy and transparent record by allowing multiple parties to a transaction to verify what will be entered onto a ledger in advance without any single party having the ability to change any ledger entries later on. It creates/generates trust between users by the fact the transactions are verified across diverse open ledgers (other computers who are performing mathematical problems/mining simultaneously creating an inter-dependency and verifiable kind of indirect “forced” trust network).
How is this trust network created? Each transaction or “block” is transmitted to all the participants in the open network and must be verified by each participant “node” solving a complex mathematical puzzle (the crypto “mining” you may have heard about). Once the block is verified, it is added to the ledger or chain.
From the perspective of information, the real innovation of distributed ledger technology is that it ensures the integrity (trust) of the ledger by crowdsourcing oversight and removes the need for a central authority.
In other words, transactions are verified and validated (ironically called a “trustless network”) by the multiple computers (mostly unrelated strangers/miners) that host the blockchain.
For this reason, it is seen as “near unhackable,” because to change any of the information on it, a cyber-attack would have to strike (nearly) all copies of the ledger simultaneously (mathematically/statistically unlikely).
While the traditional concept of blockchain is an open and anonymous network, there are also “private” blockchains which pre-screen who is allowed to administer the ledger this article now being undertaken by world-wide big financial institutions in many different ways to create a frictionless economic transactions (among other things).
While some believe China has cracked down on all cryptocurrencies and blockchain functions, this is not the case. China sees the potential in blockchain and encourages investment and innovation in this sector. Many Chinese banks already have blockchain related patents believe it or not. China’s key concern is about protecting citizens from losing money via speculating by placing all their life savings into Bitcoin (which is unstable and may end up significantly decreasing in value) or by investing in unregulated ICO’s under circumstances in which it is very difficult to clearly distinguish between legitimate opportunities and what are basically scams.