Blockchain may be hot but beware if you are using it to provide services in China!
On 19 October 2018, the Cyberspace Administration of China (CAC) released a draft regulation concerning blockchain information service for public consultation. The consultation will end on 2 November 2018.
The draft regulation is promulgated pursuant to, among other laws, the Regulation on the Administration of Internet Information Service and the Cyber Security Law, and outlines several proposed new rules that would apply to any China-based companies and entities which would be regarded as a "blockchain information service provider" under the proposed regulation.
A quick snapshot of the new draft regulation is set out below:
1. Which business is this new draft regulation aimed at?
The draft regulation is aimed at "blockchain information service provider". In the draft regulation, blockchain information service providers are defined to mean "entities or nodes" that provide information services to the public, including both institutions and individuals, using blockchain technology through websites and apps.
The CAC does not draw a clear line as to exactly what type of blockchain entities would be bound by its definition, but the general industry understanding is that the regulation will also affect supernodes of particular blockchain networks.
2. What obligations are blockchain information service providers expected to comply with?
A number of obligations are imposed on the blockchain information service providers by the draft regulation, including:
- They are required, within 10 working days from the date of providing the service, to complete the "blockchain information service registration form" using a national filing system. The information required to be filed will include the identity of the service providers, service categories, service forms, fields of application, server addresses etc. Once all information is received, the CAC will have 20 working days to decide if the filing is accepted.
- If accepted, a "beian" (filing) number will be issued to the blockchain information service providers. As with the current requirement for all information service providers, the filing number will need to be displayed publicly on their platforms (apps or websites).
- In certain highly regulated fields and sectors in China, such as news reporting, publishing, education and the pharmaceutical industry, the regulated entities are required to obtain requisite licences and approvals prior to registration with the CAC.
- Reinforcing the obligation under the Cyber Security Law and other existing regulations, the regulated entities are required to authenticate users' identity and personal information, through their national ID card numbers and mobile phone numbers.
- The regulated entities are not allowed to use blockchain technology to "produce, duplicate, publish and disseminate" prohibited information or content under existing Chinese laws.
- Consistent with the requirement under the Regulation on the Administration of Internet Information Service, the regulated entities must retain the logs and content published by users of their blockchain services for six months to allow inspection by authorities when required.
The proposed regulations also set out in detail the various sanctions which the public authorities can impose in the event any supervision or inspection reveals any non-compliance.
Although regulations aimed at regulating the blockchain industry are still under development, this proposed regulation demonstrates China's continued attempt to regulate the internet by law. Most of the requirements however are already embedded in existing laws and regulations and should not present a surprise to businesses interested in using blockchain to provide information services in China.