In 2008, following the financial crisis, a paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published, detailing the concepts of a payment system. Bitcoin was born. Bitcoin gained the world’s attention for its use of blockchain technology and as an alternative to fiat currencies and commodities. Nicknamed the next best technology after the Internet, blockchain offered solutions to problems we haven’t been able to address or that we’ve ignored over the past few decades. I will not delve into the technical aspect, but here are some articles and videos that I recommend:
How Bitcoin works under the hood
A gentle introduction to blockchain technology
Have you ever wondered how Bitcoin (and other cryptocurrencies) work?
Moving on until today, February 5 to be exact, the Chinese authorities have just introduced a new set of regulations to ban cryptocurrency. The Chinese government did so last year, but many have avoided it through foreign exchange. It has now hired the almighty “Great Firewall of China” to block access to foreign stock exchanges to prevent its citizens from conducting cryptocurrency transactions.
To learn more about the Chinese government’s stance, let’s go back a couple of years back to 2013, when Bitcoin was gaining popularity among Chinese citizens and prices were rising. Concerned about volatility and price speculation, the People’s Bank of China and five other government ministries issued an official notice in December 2013 entitled “Warning on Bitcoin Financial Risk Prevention” (link is in Mandarin) . Several points were highlighted:
1. Due to various factors, such as limited supply, anonymity, and the lack of a centralized issuer, Bitcoin is not an official currency, but a virtual commodity that cannot be used in the free market.
2. Not all banks and financial organizations are allowed to offer Bitcoin-related financial services or conduct Bitcoin-related business activities.
3. All companies and websites that offer Bitcoin-related services must register with the necessary government ministries.
4. Due to the anonymity and cross-border characteristics of Bitcoin, organizations providing Bitcoin-related services should implement preventive measures such as KYC to prevent money laundering. Authorities should be informed of any suspicious activity, including fraud, gambling and money laundering.
5. Organizations that provide Bitcoin-related services should inform the public about Bitcoin and the technology behind it and not mislead the public with misinformation.
In its own terms, Bitcoin is classified as a virtual commodity (e.g., in-game credits) that can be bought or sold in its original form and not exchanged for fiat currency. It cannot be defined as money, which serves as a means of exchange, as a unit of accounting, and as a storehouse of value.
Although the warning was dated in 2013, it is still relevant in terms of the Chinese government’s stance on Bitcoin and, as mentioned, there are no indications of a ban on Bitcoin and cryptocurrency. Rather, regulation and education on Bitcoin and blockchain will play a role in the Chinese cryptocurrency market.
A similar warning was issued in January 2017, again highlighting that Bitcoin is a virtual commodity and not a currency. In September 2017, the rise in initial coin offerings (ICOs) led to the publication of a separate notice entitled “Notice on the prevention of the financial risk of issued tokens”. Shortly afterwards the ICOs were banned and Chinese exchanges were investigated and finally closed. (In retrospect it’s 20/20, they’ve made the right decision to ban ICOs and stop playing nonsense). It was again given to China’s cryptocurrency community in January 2018, when mining operations suffered severe crackdowns, citing excessive electricity consumption.
Although there is no official explanation for the repression of cryptocurrencies, capital controls, illegal activities and the protection of their citizens from financial risk are some of the main reasons mentioned by experts. In fact, Chinese regulators have implemented stricter controls such as the overseas withdrawal limit and the regulation of foreign direct investment to limit capital outflows and secure domestic investments. The anonymity and ease of cross-border transactions have also made cryptocurrency a preferred medium for money laundering and fraudulent activities.
Since 2011, China has played a crucial role in the rise and fall of Bitcoin. At its peak, China accounted for more than 95% of the global trading volume of Bitcoin and three-quarters of mining operations. With regulators intervening to control trade and mining operations, China’s dominance has shrunk significantly in exchange for stability.
With countries like Korea and India following suit in the crackdown, a shadow is now being cast over the future of the cryptocurrency. (I reiterate my point here: countries regulate cryptocurrency, not ban it). We will no doubt see more nations coming together in the coming months to curb the tumultuous crypto market. In fact, some sort of order had long been expected. Over the past year, cryptocurrencies have experienced unprecedented price volatility and ICOs are literally occurring every two days. In 2017, total market capitalization went from $ 18 billion in January to an all-time high of $ 828 billion.
Still, the Chinese community has a surprisingly good spirit despite the crackdowns. Online and offline communities are flourishing (I’ve personally attended quite a few events and visited some of the companies) and emerging blockchain companies are emerging all over China.
Major blockchain companies such as NEO, QTUM and VeChain are receiving a lot of attention in the country. Startups like Nebulas, High Performance Blockchain (HPB) and Bibox are also gaining a lot of traction. Even giants like Alibaba and Tencent are also exploring blockchain capabilities to improve their platform. The list goes on and on, but you get me; it will be a HUGGEE!
The Chinese government has also been adopting blockchain technology and has intensified efforts in recent years to support the creation of a blockchain ecosystem.
China’s 13th Five-Year Plan (2016-2020) called for the development of promising technologies such as blockchain and artificial intelligence. It also plans to strengthen research on the application of fintech in regulation, cloud computing and big data. Even the People’s Bank of China is also testing a prototype blockchain-based digital currency; however, with the likelihood that it will be a centralized digital currency with some encryption technology, it remains to be seen its adoption by Chinese citizens.
The launch of the Trusted Blockchain Open Lab as well as the China Blockchain Technology and Industry Development Forum by the Ministry of Industry and Information Technology are some of the other initiatives by the Chinese government to support the development of the blockchain in China. .
A recent report entitled “China Blockchain Development Report 2018” from the China Blockchain Research Center detailed the development of the blockchain industry in China in 2017, including the various measures taken to regulate the cryptocurrency in the part continental. In a separate section, the report highlighted the optimistic outlook for the blockchain industry and the massive attention it has received from capitalists and the Chinese government in 2017.
In summary, the Chinese government has shown a positive attitude towards blockchain technology despite its application in cryptocurrencies and mining operations. China wants to control the cryptocurrency and China will control it. The repeated applications of regulators were aimed at protecting their citizens from the financial risk of cryptocurrencies and limiting capital outflows. At this time, it is legal for Chinese citizens to have cryptocurrencies, but they are not allowed to make any form of transaction; hence the ban on exchanges. As the market stabilizes in the coming months (or years), we will no doubt see a resurgence of the Chinese cryptocurrency market. Blockchain and cryptocurrency come hand in hand (except for the private chain where a token is not required). Therefore, countries cannot ban cryptocurrency without banning the blockchain of amazing technology.
One thing we can all agree on is that the blockchain is still in its infancy. Many exciting developments await us, and right now is definitely the best time to lay the groundwork for a blockchain-compatible world.
Last but not least, HODL!