In a recent ruling in China’s Jiangsu province, Mr. Xu, a lender, found himself at a disadvantage when the court declared that his 341 Bitcoin loan to Mr. Lin was not protected by law. The loan was made through a peer-to-peer agreement using Bitcoin, as Mr. Xu lacked fiat funds at the time. However, when Mr. Lin defaulted on the loan, Mr. Xu’s attempts to seek legal action were dismissed. According to Vice-Magistrate Ming Wang, Bitcoin is considered a digital commodity and does not hold the same legal status as traditional currencies. This ruling raises concerns about the risks involved in lending cryptocurrency, as lenders bear full responsibility in such transactions.
China has taken a firm stance on cryptocurrencies, with all forms of cryptocurrency ownership and transactions currently being illegal. The government has cracked down on private blockchain initiatives in favor of promoting centralized blockchain, particularly through the development of the digital yuan CBDC. However, there have been exceptions to this strict stance. The Hangzhou Internet Court, in a ruling dated November 29, has recognized digital assets like nonfungible tokens (NFTs) as “online virtual property” protected under Chinese law. This discrepancy in the treatment of different forms of digital assets adds further complexity to the legal landscape of cryptocurrencies in China.
Multichain, a prominent Chinese cross-chain bridge in the decentralized finance (DeFi) sector, faced a significant setback when its co-founder, Zhaojun He, was arrested by Chinese police. This arrest had detrimental consequences for the protocol, as Zhaojun held control over Multichain’s server and private keys. As a result, the protocol had to be shut down, leaving investors concerned about the fate of the enterprise funds. Some speculate that the Chinese police may have been involved in transferring the assets out of the protocol. Asset swaps for stablecoins and the use of privacy coins have been identified, leading to frozen transactions linked to Multichain worth over $63 million. This incident showcases the vulnerability of centralized systems and highlights the risks associated with relying on a single individual’s control over a platform.
The crackdown on Multichain is not an isolated incident but part of a broader pattern in China’s efforts to centralize and regulate blockchain technology. Earlier this year, offices of the offshore-yuan stablecoin issuer CNHC were raided, and its executive was reportedly detained. Similar to Multichain, no updates have been provided on their status since. The Chinese government’s intensified focus on state-controlled blockchain initiatives has created an environment of uncertainty and fear among blockchain projects and investors. These actions have raised questions about China’s approach to blockchain innovation and the potential implications for the industry in the region.
Recent rumors about the arrest of senior executives at cryptocurrency exchange Huobi have caused speculation and concern in the industry. While the exchange denied these reports as “fake news,” allegations of Huobi staff being under criminal investigation have surfaced. Blockchain personality Justin Sun, who is associated with Huobi, has also faced accusations of withdrawing $60 million from the exchange following the news. These allegations, if true, raise doubts about the stability and reputation of Huobi. Additionally, the decline in the exchange’s USDT reserves and total assets further contributes to the uncertainty surrounding its operations.
The developments in East Asia’s blockchain industry reflect a complex and evolving landscape. The case of Mr. Xu and Mr. Lin highlights the legal challenges associated with lending and borrowing cryptocurrencies. China’s strict stance on cryptocurrencies, coupled with exceptions for certain digital assets, creates ambiguity and inconsistency in the legal framework. The Multichain saga serves as a cautionary tale about the risks of centralization and reliance on single individuals in blockchain projects. The crackdown on blockchain initiatives and the controversy surrounding Huobi raise concerns about the regulatory environment and stability of cryptocurrency exchanges in the region.
As the blockchain industry continues to develop and mature, it is crucial for regulators, investors, and industry participants to navigate these challenges and adapt to the changing landscape in East Asia. By addressing legal uncertainties, promoting innovation, and promoting decentralized systems, the region has the potential to become a hub for blockchain technology and set the stage for its future growth and adoption.