(Yicai Global) April 15 -- The integration of blockchain and finance in China is still in the preliminary stages and there are challenges in related technologies and regulation, according to a report from the National Internet Finance Association.

Rising demand for financial business will increase requirements for system performance, the report said, adding that Chinese companies need to develop an in-depth understanding of business logic and programming to implement complex business functions and avoid vulnerabilities and transaction errors.

Some blockchain applications lack authoritative third-party evaluations and others are less efficient than traditional database technologies, the NIFA added, saying this would be a waste of resources and have an adverse impact on operations.

The legal validity of assets and smart contracts on a blockchain is ambiguous and this makes it difficult to seek legal help when disputes arise, the report continued. Some systems are highly autonomous and their data encryption systems can hide illegal financial undertakings from regulators.

Watchdogs must strengthen analysis of the risks blockchain poses and monitor development trends to build a regulatory system that fosters development but has cryptocurrency rules to prevent cross-border capital flow, terrorism financing, money laundering and tax evasion.

China must take a tough stance on illegal behavior to maintain financial order, it added.

Editor: James Boynton