Abstract
Blockchain technology, which has been actualized with the dawn of cryptocurrency use, is now being used in many fields such as finance, supply chain management, healthcare, insurance, entertainment, and intellectual property protection. The experiment and implementation of blockchain technology in many fields necessitate the needfor applicable policies and regulations. Before articulating new policies or regulations, a critical step, as well as a missing step, is to assess how existing policies and regulations work. This article fills the gap by providing a retrospective assessment of China’s existing blockchain policies and regulations. It first summarizes China’s blockchain policies and regulations, and then assesses the impacts of these policies and regulations. The assessment consists of three steps by asking the following: (1) What were the problems before any policies and regulations were issued? (2) What are the objectives of the existing policies and regulations? (3) Have these objectives been fulfilled? Following this framework, the assessment begins by identifying three major problems in the blockchain space: (1) cryptocurrency and ICO-related crimes; (2) poor quality of early-staged blockchain products and services; and (3) a lack of consumer and investor protection mechanisms. The assessment then spots two primary objectives — market stability and safety, and technology innovation — by examining the government’s policy and regulatory reaction to these problems. Each primary objective includes three secondary objectives. These six secondary objectives are used as indicators to assess policy and regulatory impacts, as well as to answer whether the primary objectives have been satisfied.

I. Introduction

Blockchain technology, also known as blockchain or distributed ledger technology, is a distributed database system. This system creates a time-stamped series of immutable and transparent data records that are managed by a cluster of computers not owned by any single entity. It allows for sharing valuable data in a secure, tamperproof way among untrusted parties and also provides a simple yet ingenious way of passing data in a fully automated and safe manner. Blockchain thus can be used to reduce transaction costs, increase efficiency, and provide accurate records and transparency. These appealing features are valued in many areas; therefore, blockchain has the potential to revolutionize many industries. This potential has extended beyond the bounds of cryptocurrencies and secure payments to give rise to additional applications in supply chain management, social welfare, healthcare, government records, and entertainment industries, among other fields.

Meanwhile, vibrant blockchain applications in various industries present novel problems that require regulatory responses. This urgent need for regulatory responses places policymakers and regulators in a dilemma because legal solutions cannot always keep up with technology development. Regulators, academics, and the business world have been arguing whether new policies or regulations are needed to target blockchain applications. However, to properly understand whether new policies or regulations are needed, a prerequisite is to evaluate how existing policies and regulations work. An ex post assessment of the existing rules tells regulators how well or badly they are doing, whether desired outcomes have been achieved, what the problems with the existing policies and regulations are, and what is needed to improve future legislation. A systematic examination of the impacts of the existing regulatory regime also contributes to good governance and reforms.

Any discussion assessing policies and regulations should begin by clarifying key terms and concepts. Policy means a high-level overall plan embracing the general goals of a government, and it also refers to the procedures and practices that govern the regulatory process. Regulation may take different forms in the social, political, and economic domains. Even if used in the same domain, this concept may have different interpretations in different jurisdictions. In general, policy or regulation is an effort by a government authority to control certain aspects of the private sector with an attempt to produce outcomes which might not otherwise occur. The relation between policy and regulation is that policy, as a high-level government plan, guides and leads to regulation, which is a more detailed and specific set of rules.

For the purpose of this article, policy refers to a high-level government plan, which may or may not be backed by a specific threat of consequence. Regulations refer to “rules or norms adopted by government and backed up by some threat of consequences, usually negative ones in the form of penalties.” In the next session explaining China’s blockchain regulatory landscape, government whitepapers, working guidance, five-year plans, and joint statements fall into the category of policies. Any violation of policies may or may not result in administrative punishment. Specific blockchain regulations issued by the State Council and the judicial interpretation issued by the Supreme People’s Court fall into the category of regulations, the violation of which will cause penalties.

To assess the impacts of applicable policies and regulations, the framework this article uses is the regulatory impact assessment (RIA). The Cabinet Office of the UK defines RIA as a tool which informs policy decisions. It is an assessment of the impact of policy options in terms of the costs, benefits, and risks of a proposal. The European Commission, in its Impact Assessment Guidelines, defines RIA as a set of logical steps to be followed when preparing policy proposals. It is a process that prepares evidence for political decision-makers on the advantages and disadvantages of possible policy options by assessing their potential impacts. The Cabinet Office of the UK and European Commission seem to emphasize RIA as a critical tool for assessing policy proposals, since they use RIA before any policy or regulation is adopted or comes into effect.

However, I would argue that RIA is an equally useful tool to assess the actual results of policy or regulation after adoption. Therefore, Colin Kirkpatrick and David Parker have a more accurate definition of RIA for this article. They define it as “a method of policy analysis, which is intended to assist policymakers in the design, implementation, and monitoring of improvements to regulatory systems, by providing a methodology for assessing the likely consequences of the proposed regulation and the actual consequences of existing regulations.”

The framework of RIA involves both ex-post evaluation of existing policies and regulations, and ex-ante estimation for a proposed policy and regulation. This article concentrates solely on the first part, to present a retrospective assessment of China’s existing blockchain policies and regulations. The retrospective assessment consists of three questions: (1) What were the problems before any policies and regulations were issued? (2) What are the objectives of the existing policies and regulations? (3) Have these objectives been fulfilled?

This article proceeds as follows. Part I summarizes the overall blockchain regulatory landscape, which includes the following: (1) some of the most significant policies and regulations published by the executive organ at the central government level— the State Council and its affiliated ministries and commissions, including the Ministry of Industry and Information Technology (MIIT) and People’s Bank of China (PBOC); and (2) one judicial interpretation by the judicial organ at the central level — the Supreme People’s Court.

Part II presents a retrospective RIA consisting of three steps. It begins by identifying salient problems in the absence of policies and regulations. This article singles out three of the most severe and eye-catching problems in the blockchain space — cryptocurrency and ICO crimes, poor quality of early-staged blockchain products and services, and a lack of consumer and investor protection mechanisms.

The second step is to identify the objectives of existing policies and regulations. The European Commission’s RIA system requires that objectives should be “SMART” (specific, measurable, achievable, realistic, and time-dependent) It also suggests a three-level objective framework: general objectives, specific objectives, and operational objectives. Depending on the need for the regulation, the nature of the institution, and the implementation of the regulation, objectives can also be set in a two-level model: macro-level objectives and micro-level objectives. It is not necessary to follow the same pattern, but the point is to have objectives set in a logical order. There should be a connection between different levels of objectives. These requirements and suggestions are the underlying principles for setting out the objectives.

The last step is to examine if these objectives have been fulfilled. This is the process that policymakers need to assess the extent to which the policy is achieving its objectives, and whether the implementation is “on track.” It is the preliminary and necessary step to carry out the next step of rulemaking, such as changing certain rules based on the impact assessed or continuing certain rule enforcement to maximize its positive impacts. The following question is how to assess the results of these policies and regulations. The assessment requires identifying indicators of the objectives to provide information in this regard. Indicators could provide a broad outline of possible monitoring and evaluation arrangements, which will be addressed in the last section.