Following the financial crisis, an article entitled “Bitcoin: Peer-to-Peer Electronic Cash System” was published in 2008 detailing the concepts of a payment system. Bitcoin was born. Bitcoin has gained worldwide attention because of its use of blockchain technology and as an alternative to fiat currencies and commodities. Called the next best technology after the Internet, blockchain has offered solutions to issues we have not been able to solve or ignore in the last few decades. I won’t go into the technical details, but here are some recommended articles and videos:
How Bitcoin works under the hood
An elegant introduction to blockchain technology
Ever wondered how Bitcoin (and other cryptocurrencies) really works?
To date, as quickly as February 5, Chinese authorities have introduced a number of new regulations to ban cryptocurrencies. The Chinese government had already done so last year, but many have bypassed foreign exchange. It has attracted the ‘Great Firewall of China’, which is capable of doing everything possible to block access to foreign exchanges to stop its citizens from carrying out any cryptocurrency transactions.
To learn more about the Chinese government’s position, let’s go back to a few years before 2013, when Bitcoin became popular among Chinese citizens and prices rose. Concerned about price volatility and speculation, the People’s Bank of China and five other government ministries issued an official statement in December 2013 entitled “Bitcoin Financial Risk Prevention Notice” (Link in Mandarin). Several points were highlighted:
1. Due to various factors such as limited supply, anonymity and lack of a centralized issuer, Bitcoin is not an official currency, but a virtual commodity that cannot be used in the open market.
2. All banks and financial institutions are prohibited from offering Bitcoin-related financial services or engaging in Bitcoin-related trading activities.
3. All companies and sites that offer Bitcoin-related services must be registered with the appropriate government ministries.
4. Due to the anonymity and cross-border nature of Bitcoin, organizations that provide Bitcoin-related services should take preventive measures, such as KYC, to prevent money laundering. Any suspicious activity, including fraud, gambling and money laundering, should be reported to the authorities.
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.
By project term, Bitcoin is classified as a virtual commodity (such as in-game loans) that can be bought or sold in its original form and cannot be exchanged for Fiat currency. It cannot be defined as money – something that serves as a medium of exchange, an accounting unit, and a storehouse of value.
Although the announcement was made in 2013, it is linked to the Chinese government’s connection to Bitcoin, and as noted, there is no indication that Bitcoin and cryptocurrency will be banned. Rather, regulation and education related to Bitcoin and blockchain will play a role in the Chinese crypto market.
A similar announcement was made in January 2017, again emphasizing that Bitcoin is not a currency, but a virtual commodity. In September 2017, the boom of the first coin offerings (ICO) led to the release of a separate notice entitled “Notice of Financial Risk Prevention of Issued Tokens”. ICOs were soon banned and Chinese exchanges were investigated and eventually closed. (Hindsight 20/20, they made the right decision to ban ICOs and stop meaningless gambling). The Chinese cryptocurrency community suffered another blow in January 2018 when mining operations came under severe pressure due to severe electricity consumption.
Although no official announcement has been made about the abolition of cryptocurrencies, capital controls, illegal activities and protection of citizens from financial risks are among the main reasons cited by experts. Indeed, Chinese regulators have tightened controls, such as the limit on foreign investment and the regulation of foreign direct investment, to limit capital inflows and ensure domestic investment. The anonymity and ease of cross-border transactions have made cryptocurrency a favorite tool for money laundering and fraud.
Since 2011, China has played a key role in the meteoric rise and fall of Bitcoin. At its peak, China accounted for more than 95% of global Bitcoin trading and three-quarters of mining operations. As regulators began to manage trade and mining operations, China’s power was significantly reduced in exchange for stability.
As countries such as Korea and India continue to crack down, the future of cryptocurrency has been overshadowed. (I will repeat my point here: countries regulate and do not ban cryptocurrencies). Undoubtedly, we will see more nations participate in the coming months to dominate the mixed crypto market. Indeed, some kind of order was long overdue. Over the past year, cryptocurrencies have experienced unprecedented price volatility, and ICOs occur literally every day. In 2017, total market capitalization rose to an all-time high of $ 828 billion from $ 18 billion in January.
Nevertheless, Chinese society is in a surprisingly good mood despite the pressure. Online and offline communities are evolving (I personally attended many events and visited some companies) and blockchain startups are sprouting all over China.
Large blockchain companies such as NEO, QTUM and VeChain are attracting a lot of attention in the country. Startups like Nebulas, High Performance Blockchain (HPB) and Bibox are also gaining traction. Giants like Alibaba and Tencent are also exploring the possibility of a blockchain to expand their platforms. The list goes on and you understand me; will be great!
The Chinese government is also adopting blockchain technology and has stepped up its 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, including blockchain and artificial intelligence. Fintechin also plans to strengthen research on regulation, cloud computing and big data applications. The People’s Bank of China is also testing a digital currency based on a prototype blockchain; However, with the possibility of a centralized digital currency colliding with some encryption technology, its adoption by Chinese citizens has yet to be seen.
The launch of the Trusted Blockchain Open Laboratory, as well as the China Blockchain Technology and Industry Development Forum by the Ministry of Industry and Information Technology, is another initiative taken by the Chinese government to support the development of the blockchain in China.
A recent report, China Blockchain Development Report 2018 (English version at the link), prepared by the China Blockchain Research Center, details the development of the blockchain industry in China in 2017, including various measures taken to regulate cryptocurrencies on the mainland. In a separate section, the report highlighted the optimistic outlook of the blockchain industry and the great attention it received in 2017 from VCs and the Chinese government.
In summary, the Chinese government has shown a positive attitude towards blockchain technology, despite its application in cryptocurrency and mining operations. China wants to control cryptocurrency and China will have control. The re-introduction by regulators was to protect its citizens from the financial risk of cryptocurrencies and to limit capital inflows. From now on, it is legal for Chinese citizens to own cryptocurrencies, but they are not allowed to carry out any transactions; hence the exchange ban. As the market stabilizes in the coming months (or years), we will no doubt see a revival in the Chinese crypto market. Blockchain and cryptocurrency go hand in hand (except for a special chain where a token is unnecessary). So countries can’t ban cryptocurrency without banning awesome technology blockchain!
One thing we can all agree on is that the blockchain is still in its infancy. Many exciting developments await us, and this is definitely the best time to lay the foundation of a world secured by a blockchain.
Last but not least, HODL!