In 2008, after the financial crisis, an article entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published, detailing the concepts of payment systems. Bitcoin was born. Bitcoin has attracted worldwide attention using 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 haven’t been able to solve or see in the last few decades. I’m not going to explore the technical side of this, but some of the articles and videos I recommend are:
How Bitcoin works under the hood
A subtle introduction to blockchain technology
Have you ever wondered how Bitcoin (and other cryptocurrencies) actually works?
To date, to be precise, on February 5, Chinese authorities have introduced a new set of rules banning cryptocurrency. The Chinese government has already done so last year, but many have prevented it with foreign currencies. It has now launched a powerful “Great Wall of China” to block access to foreign currencies to prevent its citizens from conducting any cryptocurrency transactions.
To learn more about the Chinese government’s position, let’s go back to 2013, when bitcoin became popular among Chinese citizens a few years ago 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. Bitcoin is not an official currency, but a virtual commodity that cannot be used in the open market due to various factors such as limited supply, anonymity and lack of a centralized issuer.
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 websites offering 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, must be reported to the authorities.
5. Organizations that provide Bitcoin-related services should inform the public about Bitcoin and the technology behind it, and should not confuse the public with misinformation.
In Layman’s language, Bitcoin is classified as a virtual commodity (for example, in-game loans), which 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, a unit of account, and a storehouse of value.
Although the announcement was made in 2013, it is still relevant in relation to the Chinese government’s attitude towards Bitcoin, and as noted, there is no indication that Bitcoin and cryptocurrency will be banned. Instead, regulation and education about Bitcoin and blockchain will play a role in the Chinese crypto market.
A similar announcement was made in January 2017, emphasizing once again that Bitcoin is a virtual commodity, not a currency. In September 2017, the initial coin offer (ICOs) boom led to the publication of a separate statement entitled “Financial Risk Prevention Notice for Issued Tokens”. ICOs were soon banned and Chinese stock exchanges were investigated and eventually closed. (Hindsight 20/20, they made the right decision to ban ICOs and stop pointless gambling). Another blow to China’s cryptocurrency community came in January 2018, when mining operations faced severe pressure due to excessive electricity consumption.
Although there is no official explanation for the cryptocurrency crackdown, capital controls, illegal activities and protection of citizens from financial risk are among the main reasons cited by experts. Indeed, Chinese regulators have tightened controls to limit capital inflows and to limit domestic inflows, such as exit limits and regulating foreign direct investment. 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. With the advent of regulators to control trade and mining operations, China’s dominance has diminished significantly in exchange for stability.
Countries such as Korea and India are following these pressures, and now the future of cryptocurrency is being overshadowed. (I will repeat my point here: countries regulate and do not ban cryptocurrencies). Undoubtedly, in the coming months we will see more countries join to curb the stormy cryptocurrency market. Indeed, some kind of order was long overdue. Over the past year, cryptocurrencies have experienced unprecedented price volatility, and ICOs literally happen every day. In 2017, total market capitalization rose from $ 18 billion in January to $ 828 billion.
Nevertheless, the Chinese community is in a surprisingly good mood, despite pressure. Online and offline communities are flourishing (I have personally attended several events and visited some firms) and blockchain startups are booming 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 quite attractive. Even giants like Alibaba and Tencent are exploring the possibility of blockchain to improve their platforms. The list goes on and on, but you understand me; It will be GOOD!
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.
In China’s 13th Five-Year Plan (2016-2020), he called for the development of promising technologies, including blockchain and artificial intelligence. It also plans to strengthen research on regulation, cloud computing and the application of fintech in big data. Even the People’s Bank of China is testing a prototype blockchain-based digital currency; however, it is still being accepted by Chinese citizens, presumably to be a centralized digital currency stuck with some encryption technology.
The launch of the Secure Blockchain Open Laboratory by the Ministry of Industry and Information Technology, as well as the China Blockchain Technology and Industry Development Forum, is another initiative of the Chinese government to support the development of blockchain in China.
The latest report by the China Blockchain Research Center, “China Blockchain Development Report 2018” (English version at the link), details the development of the blockchain industry in China in 2017, including various measures taken to regulate cryptocurrency on the mainland. In a separate section, the report highlighted the optimistic outlook of the blockchain industry and the massive 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 to cryptocurrency and mining operations. China wants to control cryptocurrency, and China will gain control. The re-introduction of regulators was aimed at protecting citizens from the financial risk of cryptocurrencies and limiting capital inflows. Currently, it is legal for Chinese citizens to keep cryptocurrencies, but they are not allowed to carry out any form of transaction; therefore, the exchange is prohibited. As the market stabilizes in the coming months (or years), we will no doubt see a revival of the Chinese crypto market. Blockchain and cryptocurrency go hand in hand (except for the private chain where the token is unnecessary). So countries can’t ban cryptocurrency without banning the awesome blockchain technology!
One thing we can all agree on is that the blockchain is still in its infancy. We have a lot of exciting developments ahead of us, and now is definitely the best time to lay the foundation for a blockchain world.