Renmin University scholar: Bitcoin trading platforms cannot escape regulation no matter which country they are in

On September 14, Bitcoin China, the first domestic Bitcoin trading platform, announced that it would stop all digital asset trading business on September 30. Influenced by this news, Bitcoin fell to $3,238. On September 15, in accordance with the requirements of Beijing regulators, the three major Bitcoin trading platforms in China, which account for 60% of the market share, all announced the suspension of virtual currency trading business. Zhao Xijun, IMI academic committee member and vice president of the School of Finance and Economics of Renmin University of China, believes that the popular Bitcoin or other virtual currencies now emphasize decentralization, without national credit endorsement, and their issuance is based on a certain algorithm. From a purely technical perspective, this algorithm has a lot of room for improvement and is highly replicable, so it needs to be regulated by a special agency. He pointed out that the surge in Bitcoin has brought many hidden dangers. First, the risk brought by price fluctuations to investors, and second, the destruction of the standardized operation order of the financial market, and it has also contributed to many illegal activities on the Internet. The supervision of Bitcoin trading platforms can create a better and fairer environment for normal and compliant financial transactions. Perhaps Bitcoin traders will move abroad, but unregulated transactions are not normal and legal transactions, so Bitcoin trading platforms are difficult to escape supervision, whether at home or abroad.

The following is the full text:

1. Why are all Chinese Bitcoin trading platforms shut down?

On September 14, the People's Bank of China and more than a dozen ministries and commissions jointly issued a document. According to this document, there is a requirement for Bitcoin trading platforms in China to stop their business, requiring these platforms to stop their trading business and Bitcoin trading business before September 30, and properly handle some follow-up matters.

In modern society, currency is clearly defined by law, and is usually issued by institutions specified by law, which stipulate that there is only one legal currency in the country. In history, there has been private issuance of currency, especially during the gold standard when gold was used as currency. But now, currency is uniformly issued by the state or its authorized institutions, usually the central bank. In other words, there is only one center for currency issuance.

Bitcoin and other virtual currencies that are popular on the Internet now emphasize decentralization. They are not credit granted by the state, but rely more on a technology. This technology is not hardware technology, but software technology, that is, a certain algorithm. The currency is designed, generated and formed according to a certain algorithm. After improving and adjusting the algorithm, another virtual currency such as Litecoin or Ethereum will be generated. Its replicability is very strong and there is almost no cost.

From a purely technical perspective, there is a lot of room for the advancement and improvement of this technology. This will bring about a problem. The amount of replicable products it will generate in the future will become larger and larger, and without anyone to control it, it will require professional institutions to manage and control its scale. It will also be difficult for it to serve as a means of storage, let alone a policy tool for implementing monetary policy.

If Bitcoin does not function as a currency issued by a central bank, it can serve as a means of fundraising or financing, such as crowdfunding through the Internet, raising funds from potential investors you do not know. As long as you raise funds from unknown investors, you must go through approval procedures.

2. What are the hidden dangers behind the surge in Bitcoin prices?

As you can see, the price of Bitcoin changes on the Bitcoin trading platform in the United States. In the earliest time, five years ago, the price of Bitcoin was very low, just over four US dollars per Bitcoin. But in recent days, such as on September 1st, the highest point reached more than 4,900 US dollars per Bitcoin. In just five years, its price has increased a thousand times. A large amount of funds and various speculators have entered the Bitcoin speculation market and pushed up the price. This surge has actually brought many hidden dangers.

First, price fluctuations bring huge risks to investors. In addition, this surge has damaged the normal and standardized operation of the existing market and financial market. Similarly, this surge and plunge, unregulated speculation, has fostered the speculative mentality of getting rich overnight.

There are many imitations and derivatives around Bitcoin and this technology. Various altcoins have also emerged. And because these coins are traded with current legal tender, they can be exchanged for current currency. However, Bitcoin and its various altcoins are not regulated, and their transactions are out of regulation. Hackers deliberately create some viruses to infect the computers of some normal computer users and hijack the users' computers. Users need to pay a ransom to restore the system. The ransom payment requires Bitcoin or other similar virtual currencies. Why Bitcoin? Because Bitcoin can be exchanged for legal tender that can be used in reality, we can make a simple guess that there may be various illegal transactions, and various transactions that violate our human moral civilization may exist. In a sense, its existence and its use have contributed to the illegal behavior of some people on the Internet.

The monetary authorities of Singapore, the United States, the United Kingdom and some other countries have all taken regulatory measures to curb speculation in Bitcoin. The three major domestic trading platforms, Bitcoin China, Huobi.com and Bitcoin K, have also taken regulatory measures, ordering them to stop trading before September 30. From a small perspective, it can prevent investors who are unaware of the truth from being deceived and suffering economic losses. From a higher level, this regulation can create a better and fairer environment for normal and compliant financial transactions.

Bitcoin traders will move abroad and trade on some foreign trading platforms. Some trading platforms may change their business, or they may also move abroad to become platforms. As for the transfer of these trading platforms and these traders, how will they develop? Whether it is domestic or foreign, domestic or foreign, unregulated transactions are not normal and legal, and such development will definitely be restricted.

Can the use and development of Internet-based or Internet-related technologies play a better role in the field of currency? There is no doubt about this issue. The People's Bank of China has special research institutions and researchers doing research on electronic currency. This research also indicates that after the new technology is developed, it can be better used by our users, consumers, investors, and traders. At the same time, when using and trading this electronic currency, it will be better and safer. Legal protection, so we can expect that Internet-based technology and corresponding new financial products developed will have more and better use as long as they meet the requirements of laws and regulations.