Guo Yuhang: Call on the country to pilot a special tax on Bitcoin mining to feed back blockchain technology research and development

On December 8, the Blockchain Summit Forum hosted by the China Blockchain Application Research Center was held in Beijing. The theme of this forum is very interesting, called "Prospects for the upcoming popular future blockchain in 2020", from which we can get a glimpse of the organizers' good expectations.

At the meeting, Guo Yuhang, Chairman of the China Blockchain Application Research Center, shared his views on the development trend and policy recommendations of the blockchain industry. He reviewed the industry history and policy evolution of blockchain in China over the past few years, and sincerely and bravely put forward his own suggestions:

“I hope the country will pilot a special tax on Bitcoin mining, allowing the creators and beneficiaries of Bitcoin wealth to pay taxes in compliance, so that they can put their wealth in their pockets with peace of mind, and include this special tax in the research and development of blockchain technology.”

The following is a condensed version of Guo Yuhang’s speech, compiled and published by Babbitt based on his shorthand.

Let me share an experience I had as a lawyer: In 2002, a man in his 60s returned to Shanghai from the United States. He had left Shanghai in 1948 and hurried to the United States with his family. Decades later, he returned with the title deeds from the Kuomintang era and asked for the return of his four old houses in Shanghai. I spent six years helping him find the house, but I couldn't prove that the house was his because it was difficult to completely match the title deeds from the Kuomintang era with the addresses in our new China. Until the old man passed away last year, he still couldn't get all his properties back, and only received a little compensation.

If blockchain had existed 100 years ago, and everyone's private property was recorded truthfully through nodes in different countries around the world, no matter how regimes changed or how data was destroyed, this global credibility network would still record our private property rights in an uncontrolled, undeleted, and unalterable way, truly realizing the inviolability of private property rights from a technical perspective.

The development history of China's blockchain industry

2011 was the year when the Chinese geek world began to discuss Bitcoin on a large scale. Wu Jihan translated Satoshi Nakamoto's Bitcoin white paper, and Yang Linke founded China's first Bitcoin exchange, Bitcoin China. Among these industry pioneers, there are top students from Peking University, veterans, and researchers within the system. Hong Shuning, who was still working at the Nanjing Branch of the People's Bank of China at the time, wrote an article called "Bitcoin's Unconventional Reverse Can Challenge the US Dollar's Hegemony", which did not attract much attention at the time. But eight years later, when we look back at this article, there are many very interesting views, such as: he called on the country to mine Bitcoin, and to put the production and collection of Bitcoin in the hands of the Chinese government, forming an effective impact on the hegemony of the US dollar. However, if the government had accepted Mr. Hong Shuning's opinion at the time, I believe that many blockchain entrepreneurs present here would have lost the opportunity to participate in this wealth-making process.

2013 was the year when the commercialization of blockchain in China exploded. Many well-known blockchain companies were born. For example, Canaan Creative, which just rang the bell at Nasdaq, Bitmain, founded by Zhan Ketuan and Wu Jihan, and Shenma Mining, one of the world's three largest mining machine manufacturers, account for more than half of the global Bitcoin mining industry. OKcoin, founded by Xu Mingxing, and Huobi, founded by Li Lin, are also leaders in China's virtual currency industry.

In 2014, Zhou Xiaochuan, then governor of the People's Bank of China, initiated the establishment of the "Specialized Research Group on Legal Digital Currency", the predecessor of the "Central Bank Digital Currency Research Institute". It can be said that without Governor Zhou's foresight, we would not be able to quickly launch the central bank digital currency DC/EP today. In 2016, the Central Bank Digital Currency Research Group comprehensively elaborated on the prototype architecture and technical path of the central bank digital currency. In 2019, the People's Bank of China became the first major country to release a digital currency plan.

2017 was a huge turning point. On September 4, five ministries and commissions issued a ban, and centralized digital currency exchanges were shut down and moved overseas. From today's perspective, this has a very positive side. It killed the fundraising method of pyramid scheme fraud and infringement of the rights of ordinary people through ICO. But it failed to avoid the one-size-fits-all practice of "let it go and it will be chaotic, and it will be dead if it is caught" in the process of financial innovation. The 9.4 ban forced a large number of entrepreneurs to go overseas, causing immeasurable losses in talent loss. In the face of the chaos of financial innovation, how to distinguish the true from the false and protect real entrepreneurs is an unavoidable topic in future institutional construction. The United States has a system of exemption letters for financial innovation. As long as you start a business for the welfare of the people and your information disclosure is complete, in the absence of a regulatory sandbox, entrepreneurs can be given a certain degree of exemption without being punished later. This is an effective institutional means to protect the enthusiasm for innovation.

In 2018, the General Secretary actually pointed out the core value of blockchain technology at a meeting of academicians of the two academies, saying that it represents the accelerated breakthrough application of new generation information technology. However, this speech was limited in scope and did not attract widespread attention.

2019 has become the year of blockchain's reputation. In April, the National Development and Reform Commission included Bitcoin mining in the list of industries to be eliminated, but deleted it in the final version released in November. In June, Facebook's Libra white paper was released, reflecting the subversive power of blockchain. In October, the Central Political Bureau collectively studied blockchain, which was both unexpected and reasonable. Recently, the world's first blockchain stock was born in China. The day before Canaan Creative went public, the light show in Hangzhou issued an advertisement of "I love BTC, I love Bitcoin". Hangzhou, which is at the forefront of China's innovation and is known as the "Silicon Valley of China", can have such an inclusive attitude. This is the hope for China's future innovation. In December, the Supreme People's Procuratorate cracked down on the criminal behavior of blockchain currency issuance and relocation. I hope that this time our supervision will take timely action, and while promoting the development of blockchain technology, it will also crack down on scammers and bad phenomena, and not cause the sad consequence of bad money driving out good money again.

The evolution of China’s blockchain-related policies

We can also review the evolution of blockchain-related policies. The 18th government leadership team conducted 43 collective studies of the Politburo of the Central Committee, none of which involved specific technologies, and only twice talked about general technologies. In the study process of the 19th Politburo of the Central Committee, we saw that only three of the 18 studies mentioned very specific technologies, including big data, artificial intelligence, and blockchain.

Big data was born in 2004 and was included in the learning objectives in 2017 after 13 years of development. Artificial intelligence was included in the collective learning 68 years after its birth. However, blockchain has received great attention from the central government in just 10 years. There are both external and internal factors behind this.

The external cause was Libra. Less than ten days after the release of the white paper on June 18, our China Blockchain Application Research Center received unanimous requests from various ministries, including the All-China Federation of Industry and Commerce and the United Front Work Department. We quickly prepared and held two analysis meetings on Libra in Shanghai and Beijing, inviting regulators to understand the impact Libra might have on China. At the same time, the central bank quickly organized the four major banks, Tencent, and Alibaba to study Libra. We are delighted to find that China's regulatory and management departments have greatly improved their sensitivity to new technologies. In order to win the hearing of the US Congress, Zuckerberg mentioned the threat of China 21 times at the hearing. He said that if China's financial system becomes the choice of more and more countries, the US sanctions on the world will be greatly hindered. How can we not pay attention to the technology and digital currency when a technology development is elevated to such a high political level?

The internal cause is the huge demand for China's development and governance. At the just-concluded Fourth Plenary Session, there is one point that the media did not elaborate on very well. That is, data has begun to become a factor of production. Some of our labor, capital, land, knowledge, technology, and management have been basically liberalized. Although some have not been liberalized, such as land, there is no possibility of full liberalization in the short term. For the economy to develop further, it is necessary to find new driving forces, and data will become an important factor in national strategy. Recently, many data companies have been arrested for criminal offenses. The country has begun to have a deeper understanding of the use and acquisition of crawler data and has raised it to a strategic level.

Blockchain is the foundation of the data world. The late Professor Zhang Shousheng mentioned the status of blockchain as an infrastructure in many public speeches. His ideal is that everyone owns their own data and can generate data value. Data is not monopolized by Internet giants, but returned to the hands of each of us data producers and owners.

Future expectations of breaking the monopoly of Internet giants

It is one of the dreams of every practitioner that blockchain challenges Internet giants. Why can it be done? Because it really solves a huge problem in our transaction process, which is trust. In the two or three decades when the previous generation of Internet technology flourished, the adverse consequence of centralized trust was the monopoly of data, which caused greater competition oppression.

We frequently use WeChat, which brings value to Tencent, but the ownership of WeChat accounts and data does not belong to us, but to Tencent; Alipay once promoted e-commerce transactions, but its monopoly on data today has an indelible inhibitory effect on new entrepreneurs; Didi has solved the trust problem in the sharing economy, but do we need a monopolistic Internet giant that constantly uses a God's perspective to control each of our travels and obtain more than 25% of each transaction? I think this phenomenon will no longer exist after the popularization of blockchain. Peer-to-peer transactions will eliminate all monopolies and all the shadows that monopolies bring to us.

Supervision and innovation, both hands must be strong. The Ministry of Industry and Information Technology and the Cyberspace Administration of China have recently issued positive policies related to blockchain and digital currency. After the general secretary's speech in November, the China Blockchain Application Research Center opened three sub-centers. Within a month, sub-centers were opened in Fujian, Jiangsu and Sichuan. The main leaders of the local governments attended the unveiling. We have seen the importance of blockchain at all levels of government, but what problems can blockchain technology solve? In fact, it is still relatively vague and needs to be clarified.

Proposed pilot program for special tax on Bitcoin mining

Regarding future policy recommendations, we propose: be prudent and inclusive, use technology to regulate technology, resolutely crack down on illegal fundraising in the name of blockchain, strengthen industry self-discipline, set up regulatory sandboxes, and call for blockchain special zones... These are all commonplace policy recommendations. But there is one last one, which I think is relatively more likely to be implemented and is a relatively bold policy recommendation:

“We believe that not only should Bitcoin mining not be included in the list of eliminated industries, but a special tax on Bitcoin mining should be introduced on a trial basis, and this special tax item should be included in the research and development of blockchain technology.”

Looking back at the development of blockchain technology, we see a phenomenon that most of those who invest in blockchain technology that does not make money are extreme believers who gained wealth freedom in Bitcoin mining in the early days. They know that the day when blockchain technology matures and the business model is profitable is still a long way off. But they firmly believe that blockchain technology can benefit mankind and have invested the wealth they have obtained from Bitcoin in the research and development of blockchain technology. With the national policy advocating blockchain technology, local government guidance funds have begun to take an interest in this field, but we are always worried that the entry of capital led by the state into this new technology field may not necessarily have a completely 100% positive impact. We also look forward to allowing the creators and beneficiaries of Bitcoin wealth to pay taxes in compliance with regulations, so that their wealth can be safely kept in their pockets, and this part of the tax can be used to invest in the research and development of blockchain technology. We also hope to see more blockchain models that generate profits and cash income in the future, which are rare at present.

In 2020, policies have been blowing warm winds, but spring does not necessarily mean flowers will bloom. Between 2015 and 2017, there was a short-lived so-called bull market, but most blockchain entrepreneurs were more down-to-earth in the cold winter and focused on developing technology. When the policy warm wind suddenly came overnight, we were worried that more noise and more scammers who confused concepts would be rampant, which would cause the technology to be killed without being fully mature. At the same time, we also saw the lack of capital entry, including the dilemma of state-owned capital trying to find the door but not being able to enter. We look forward to blockchain technology taking root and blooming in the spring!