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China recognizes blockchain evidence, even while expanding cryptocurrency ban

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Even as China expands its widespread ban on cryptocurrencies, the country is embracing the blockchain technology that powers cryptocurrencies, with the Supreme People’s Court this week recognizing the use of blockchain evidence in legal disputes.

WebJD Bitcoin Ban

China expands its ban on Bitcoin and other cryptocurrencies, even while embracing the underlying blockchain technology.

Blockchain technology

Blockchain technology was invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin. A blockchain is a growing list of records, called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.

By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”

Blockchain evidence

The Supreme People’s Court published new rules this week allowing, among other things, the use of blockchain to authenticate evidence in legal disputes in China. The new rules took effect immediately.

Specifically, “Internet courts shall recognize digital data that are submitted as evidence if relevant parties collected and stored these data via blockchain with digital signatures, reliable timestamps and hash value verification or via a digital deposition platform, and can prove the authenticity of such technology used.”

China established its first internet court last year in Hangzhou to handle cases related to online privacy and e-commerce, and has announced plans to establish additional internet courts in Beijing and Guangzhou. The Hangzhou internet court already ruled in June that blockchain evidence was legally permissible (in that case blockchain evidence was used to establish the authenticity of an item of evidence, similarly to a traditional notarization service, in supporting a claim of copyright infringement).

The new rules are quite timely, given the increased adoption of blockchain technology in China. A report published earlier this month by iPR Daily showed China’s e-commerce giant Alibaba was the world’s leading filer of blockchain-related patent applications, topping IBM. Moreover, Chinese government entities are now adopting blockchain technology, with the city of Zhongshan using blockchain to track convicts on parole, and the city of Shenzhen using blockchain to track receipts and combat tax evasion.

Cryptocurrency ban

Yet even as China continues to embrace blockchain technology, the country is expanding its widespread ban on Bitcoin and the other cryptocurrencies that popularized blockchain. Last month Chinese regulators moved to block more than 120 overseas cryptocurrency exchanges from offering trading services to domestic Chinese investors (the People’s Bank of China (PBoC) already banned initial coin offerings (ICOs) and, effectively, cryptocurrency trading platforms within China in September 2017). Also last month the China National Internet Finance Association (NIFA), a self-regulatory organization founded by the PBoC, added a “token sales” category to its platform allowing the public to report on potentially illegal financial activities (e.g., cryptocurrency trading and ICOs). Meanwhile, Chinese internet giants Baidu, Alibaba and Tencent are cooperating with regulators in efforts to block over-the-counter (OTC) cryptocurrency trading via payments applications and are censoring online forums that distribute relevant information. Even offline, the city of Guangzhou has joined Beijing in banning local businesses from hosting any crypto-related promotions or events.

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