In 2008, after the financial crisis, a paper entitled “Bitcoin: Peer-to-Peer Electronic Cash System” was published, which described in detail the concepts of the payment system. Bitcoin was born. Bitcoin has attracted the attention of the world because of its use of blockchain technology and as an alternative to fiat currencies and commodities. Named the next best technology after the Internet, blockchain has offered solutions to problems we have failed to solve or ignored in the last few decades. I won’t go into the technical aspect of it, but here are a few articles and videos I recommend:
How Bitcoin works under the hood
A gentle introduction to blockchain technology
Have you ever wondered how Bitcoin (and other cryptocurrencies) actually work?
To date, on February 5, the authorities in China have just presented a new set of regulations banning cryptocurrency. The Chinese government already did that last year, but many bypassed it through exchange rates. He has now hired the almighty “Great Wall of China” to block access to foreign exchanges in an attempt to prevent its citizens from conducting any cryptocurrency transactions.
To learn more about the attitude of the Chinese government, let’s go back a few years to 2013, when Bitcoin became more and more popular among Chinese citizens, and prices rose. Concerned about price volatility and speculation, the National Bank of China and five other government ministries released an official notice 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 the lack of a centralized issuer, Bitcoin is not an official currency but a virtual commodity that cannot be used on the open market.
2. Not all banks and financial organizations are allowed to offer Bitcoin-related financial services or engage in Bitcoin-related trading activities.
3. All companies and websites offering Bitcoin-related services must register with the required 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. Any suspicious activity, including fraud, gambling and money laundering, should be reported to the authorities.
5. Organizations providing Bitcoin-related services should educate the public about Bitcoin and the technology behind it and not mislead the public with misinformation.
In layman’s terms, Bitcoin is categorized as a virtual commodity (e.g. 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, a unit of account and a storehouse of value.
Although the notice is dated 2013, it is still relevant to the Chinese government’s position on Bitcoin and as mentioned, there are no indications of a ban on Bitcoin and cryptocurrency. Instead, regulation and education about Bitcoin and blockchain will play a role in the Chinese crypto market.
A similar notice was issued in January 2017, reiterating that Bitcoin is a virtual commodity, not a currency. In September 2017, the initial coin offer (ICO) boom led to the publication of a special notice entitled “Notice on the prevention of financial risk of issued tokens”. Shortly afterwards, ICOs were banned, and Chinese stock exchanges were investigated and eventually closed. (Hindsight is 20/20, they made the right decision to ban ICOs and stop pointless gambling). Another blow was dealt to the Chinese cryptocurrency community in January 2018, when mining operations were faced with serious restrictions, citing excessive electricity consumption.
Although there is no official explanation on the suppression of cryptocurrencies, capital control, illegal activities and protection of citizens from financial risk are some of the main reasons cited by experts. Indeed, Chinese regulators have implemented stricter controls such as limiting withdrawals from abroad and regulating foreign direct investment to limit capital outflows and secure domestic investment. The anonymity and ease of cross-border transactions have also made cryptocurrency a favorite means of money laundering and fraudulent activities.
Since 2011, China has played a key role in the meteoric rise and fall of Bitcoin. At its peak, China accounted for over 95% of global bitcoin trade and three-quarters of mining operations. With regulators entering control of trade and mining operations, China’s dominance has declined significantly in exchange for stability.
Given that countries like Korea and India followed this attempt, a shadow has now been cast on the future of cryptocurrency. (I will repeat my point here: countries regulate cryptocurrencies, not ban them). Without a doubt, we will see more nations join in the coming months to curb the turbulent crypto market. Indeed, some kind of order is long overdue. In the past year, cryptocurrencies have experienced unprecedented price volatility, and ICOs happen literally every other day. In 2017, total market capitalization rose from $ 18 billion in January to a record $ 828 billion in history.
Nevertheless, the Chinese community is in a surprisingly good mood despite the suffocation. Online and offline communities are booming (I’ve personally attended a lot of events and visited some of the companies), and blockchain startups are springing up all over China.
Major blockchain firms such as NEO, QTUM and WeChain are receiving huge attention in the country. Startups like Nebulas, High Performance Blockchain (HPB) and Bibox are also gaining quite a bit of power. Even giants like Alibaba and Tencent are also exploring blockchain opportunities to improve their platform. The list goes on and on, but you understand me; it will be HUGGEE!
The Chinese government is also embracing blockchain technology and has stepped up efforts in recent years to support the creation of blockchain ecosystems.
China’s 13th Five-Year Plan (2016-2020) calls for the development of promising technologies including blockchain and artificial intelligence. It also plans to strengthen research on the application of fintech in regulation, cloud computing and big data. Even the National Bank of China is also testing a prototype digital currency based on blockchain; however, given that it is likely to be a centralized digital currency with some encryption technology, it remains to be seen how it will be adopted by Chinese citizens.
The launch of the Trusted Blockchain Open Lab, as well as the China Forum on Blockchain Technology and Industry Development by the Ministry of Industry and Information Technology, are some of the other Chinese government initiatives to support blockchain development in China.
A recent report entitled “China Blockchain Development Report 2018” (English version on the link) by the China Blockchain Research Center described in detail the development of the blockchain industry in China in 2017, including various measures taken to regulate cryptocurrency on land. In a separate section, the report highlighted the optimistic outlook of the blockchain industry and the tremendous attention it received from the WC and the Chinese government in 2017.
In short, the Chinese government has shown a positive attitude towards blockchain technology despite its application to cryptocurrencies and mining operations. China wants to control cryptocurrencies, and China will gain control. The repeated measures of the regulator were aimed at protecting their citizens from the financial risk of cryptocurrencies and limiting the outflow of capital. From now on, it is legal for Chinese citizens to have cryptocurrencies, but they are not allowed to perform any form of transaction; hence the prohibition of exchange. As the market stabilizes in the coming months (or years), we will undoubtedly see a revival of the Chinese crypto market. Blockchain and cryptocurrency go hand in hand (with the exception of the private chain where the token is unnecessary). Countries therefore cannot ban cryptocurrencies without banning blockchain fantastic technology!
One thing we can all agree on is that the blockchain is still in its infancy. Many exciting events await us and right now is definitely the best time to lay the foundations for a world that supports blockchain.
Last but not least, HODL!