On Friday, April 24, I led a continuing legal education program along with my colleague Emilio Cazares of Sheppard Mullin in San Diego and co-founder of the San Diego Blockchain Forum. Invited by Fred Rocafort of Harris Bricken and Leonid Kisselev of the International Practice Section of the Washington State Bar Association, we attempted to explain the advent of blockchain technology, the game-changing dynamics of cryptocurrency and their geopolitical underpinnings. We endeavored to undertake this in less than 90 minutes, over an online distance learning platform, and while we are all stuck at home.
Such are some of the conditions brought about by the coronavirus. The non-health-related conditions that is. It is no secret that the United States has not effectively tested, nor quarantined those with suspected coronavirus infection and their contacts fast enough, well-established policies for preventing viral pandemics. Now the numbers of those afflicted have mounted exponentially; last week the number of deaths stateside surpassed the number of those killed in the war in Vietnam. They are now edging towards 80,000 at this writing. A newly released estimate based on the relaxation of stay at home orders in many U.S. states predicts that the number of dead from COVID-19 will surpass 134,000 in this country.
The People’s Republic of China, apparently, did not come even close to those numbers. And while Wuhan and other major cities were under various forms of COVID-19 lockdown, the testing for China’s new national digital currency, the Digital Currency/Electronic Payment (DC/EP), has continued, almost unabated. This epic project that is backed by the Renminbi, China’s national currency, is the future of payments in Asia, if not the rest of the world. There is no need for actual (potentially virus-infected) cash as all transactions are completed with our smart phones. This is Financial Technology (FinTech) which can remove the need for costly intermediaries and glacial transaction times. With China’s major banks and leading telecommunications, banks, insurance and social media companies onboard, the DC/EP is a seismic attempt at decentralizing payments, all run through the data industrial complex in the world’s second largest economy. And with China’s economic reach expanding exponentially through its Made in China 2025 policy (leading advances in artificial intelligence, robotics, gene therapy, and 5G among other industries) and its hyper trade and infrastructure investment scheme, the Belt and Road Initiative, continuing unabated, there is much growth to come. Efficiency through big data mining, resource allocation, and social engineering are all in the offing.
Stateside, President Trump, at his daily coronavirus task force briefings, has touted that his administration is removing regulations to, among other things, speed along approval of medicine to treat COVID-19, to re-credential retired doctors and nurses, and to allow telemedicine services be practiced across state lines. The administration has also injected trillions of dollars into the sagging economy through bailouts and stimulus packages. But in terms of using this pandemic to test a digital dollar, incentivize digitation of major industries, and kickstart new financial technologies, there is not much meaningful movement. Early versions of the bill that would become the Paycheck Protection Program – both in the House of Representatives and the Senate – provided for a digital dollar payment to the estimated 17 million unbanked in the United States so that money could quickly get into the hands of those who needed it the most. Those initial proposals never made it into the final legislation, leaving the U.S. to kick the FinTech can down the road a while longer.
Meanwhile, while China returns to its version of normalcy and continues to deploy its DC/EP and the commercial Blockchain-based Services Network across the country, the new technologies for finance are being road tested and leveraged. So much for the innovation economy staying in the United States. China banned cryptocurrencies and then banned them again and again since 2014, taking its time to study how they work. Chinese leader Xi Jinping championed blockchain technology all the while, reading his country’s economic for the leadership of the coming Internet 3.0 by making smart investments and incentivizing partnerships among academia, the financial sector and technologists. And then Mark Zuckerberg and David Marcus of Facebook spent some of last summer defending their company’s Libra project before lawmakers in Washington D.C. Zuckerberg threw China under the bus telling a skeptical Congressional committee that the U.S. government had better allow Libra to go forward with its proposed cryptocurrency, lest Beijing and its state-owned enterprises and affiliates take over the future of finance, and well, the new infrastructure for innovation.
The Chinese watched the hearings and its blockchain/cryptocurrency leaders and government authorities moved into high gear. By October 24, 2019 (now known as “Blockchain Day” in the PRC), the project was ready for testing in Suzhou and Shenzhen. Now, just over half a year later, the project continues its momentum. The U.S. authorities are still trying to determine whether digital tokens are securities, utilities, commodities, or currencies and which agency, if any, is tasked with their regulation. As the U.S. ponders these important issues for fear of being a first mover, it leaves the future of FinTech to others. This is the time for leadership and innovation from U.S. legislators and regulators. Besides, what else do we have to do while we are all still at home?
James Cooper is a professor at California Western School of Law, San Diego.