In 2008 after fiscal crisis, a paper named “Bitcoin: A Peer-to-Peer Electronic Cash System” was published, detailing the principles of a payment system. Bitcoin came into this world. Bitcoin received the interest of the earth because of its use of blockchain engineering and as an alternative to fiat currencies along with commodities. Dubbed the next greatest technologies after the word wide web, blockchain offered options to issues we’ve failed to address, or even ignored during the last few years. I will not delve into the technical element of it but the following are some articles and movies that I recommend:
How Bitcoin Works Under the Hood
A gentle introduction to blockchain technology
Ever wonder how Bitcoin (and other cryptocurrencies) actually work?
Fast forward to today, 5th February to be actual, authorities in China have just unveiled an interesting range of regulations to ban cryptocurrency. The Chinese authorities have previously accomplished so last season, most have circumvented through international exchanges. It’s now enlisted the almighty’ Great Firewall of China’ to block access to foreign interchanges in a bid to stop its citizens from carrying out any cryptocurrency transactions.
To know a lot more about the Chinese government stance, we should backtrack one or two years back to 2013 when Bitcoin was becoming more popular among the Chinese people and costs were soaring. Concerned with the price volatility and speculations, the People’s Bank of China and 5 other government ministries posted an official notice on December 2013 titled “Notice on Preventing Financial Risk of Bitcoin” (Link is in Mandarin). A number of spots were highlighted:
1. Due to numerous factors for example restricted supply, anonymity and lack of a centralized issuer, Bitcoin isn’t a official currency however, a virtual commodity which cannot be used within the open market.
2. Financial organizations and all banks aren’t authorized to give Bitcoin-related financial services or engage in trading activity regarding Bitcoin.
3. All corporations and websites that provide Bitcoin related services are registering with the necessary government ministries.
4. Due to the anonymity and cross border features of Bitcoin, businesses providing Bitcoin-related services ought to employ preventive methods including KYC to avoid money laundering. Just about any suspicious activity such as fraud, gambling and money laundering should being reported to the authorities.
5. Organizations providing Bitcoin related services should prepare the public about Bitcoin and the technology behind it and never mislead the general public with misinformation.
In layman’s term, Bitcoin is classified as a virtual commodity (e.g in game credits,) that could be bought or even available in its original form without to be changed with fiat currency. It cannot be defined as money- something that is a medium of exchange, a unit of accounting, in addition to a store of value.
Despite the notice actually being dated in 2013, it’s still useful with regards to the Chinese government stance on Bitcoin and as mentioned, there’s no indication of the banning Cryptocurrency and Bitcoin. Rather, regulation and education about Blockchain and Bitcoin will play a role within the Chinese crypto market.
A comparable notice was issued on Jan 2017, again emphasizing that Bitcoin is a virtual commodity rather than a currency. In September 2017, the boom of first coin offerings (ICOs) resulted in the publishing of a separate notice titled “Notice on Preventing Financial Risk of Issued Tokens”. Soon after, MineMuse have been banned and Chinese exchanges have been investigated and ultimately closed. (Hindsight is 20/20, they have made the best decision to ban ICOs and stop senseless gambling). Another blow was dealt to China’s cryptocurrency community in January 2018 when mining operations faced considerable crackdowns, citing excessive energy consumption.
While there’s no official reason on the crackdown of cryptocurrencies, capital controls, against the law activities and protection of its people from monetary risk are several of the main reasons cited by industry experts. In fact, Chinese regulators have implemented stricter controls such as overseas withdrawal cap and regulating foreign direct investment to minimize capital outflow and ensure domestic investments. The anonymity and simplicity of cross border transactions have likewise made cryptocurrency a popular methods for money laundering and fraudulent activities.
Since 2011, China has played an important part in the meteoric rise and fall of Bitcoin. At its peak, China accounted for over 95 % of the global Bitcoin trading volume and 3 quarters of the mining operations. With regulators stepping in to control trading and mining operations, China’s dominance has shrunk drastically in exchange for stability.
With countries like India and Korea following suit in the crackdown, a shadow is now casted over the potential future of cryptocurrency. (I shall reiterate the point of mine here: countries are regulating cryptocurrency, not banning it). Without a doubt, we are going to see more nations join in in the coming months to rein in the tumultuous crypto market. Certainly, some kind of order was long overdue. Over the past year, cryptocurrencies are encountering price volatility unheard of and also ICOs are happening basically every additional day. In 2017, the total market capitalization rose from eighteen billion USD in January to an all-time high of 828 billion USD.
But, the Chinese community are in remarkably excellent spirits despite crackdowns. Online and offline communities are prospering (I actually have attended a number of events and also gone to some of the firms) and blockchain startups are sprouting all over China.
Major blockchain companies for instance NEO, QTUM and VeChain are getting substantial interest inside the country. Startups as Nebulas, High Performance Blockchain (Bibox and hpb) are also gaining a considerable level of traction. Even giants such as Tencent and Alibaba are also exploring the abilities of blockchain to enhance the platform of theirs. The list goes on and on but you get me; it’s gon na be HUGGEE!
The Chinese authorities have been embracing blockchain technology and also have stepped up efforts in the past few years to help support the creation of a blockchain ecosystem.
In China’s 13th Five-Year Plan (2016 2020), it called for the development of promising technologies including artificial intelligence and blockchain. Additionally, it plans to fortify research on the application of fintech in regulation, cloud computing and big data. Even the People’s Bank of China is test a prototype blockchain-based digital currency; however, with it likely to end up a centralized digital currency slapped with several encryption technology, its adoption by the Chinese citizens remains being spotted.
The launch of the Trusted Blockchain Open Lab and the China Blockchain Technology and Industry Development Forum by the Ministry of Industry and Information Technology are several of another initiatives from the Chinese government to support the advancement of blockchain in China.
A the latest report titled ” China Blockchain Development Report 2018″ (English version in the link) by China Blockchain Research Center detailed the enhancement of the blockchain industry in China in 2017 such as numerous actions taken to regulate cryptocurrency inside the mainland. In a separate area, the report highlighted the optimistic outlook of the blockchain industry and the considerable attention it has accumulated from VCs and also the Chinese government in 2017.
In summary, the Chinese government have shown an optimistic attitude towards blockchain technology despite its enforcement on cryptocurrency and mining operations. China really wants to control cryptocurrency, as well as China can get control. The repeated enforcements by the regulators were meant to protect its residents with the monetary risk of cryptocurrencies and control capital outflow. As of today, it is legal for Chinese people to hold cryptocurrencies although they are not allowed to carry out any type of transaction; thus the ban of exchanges. As the market place stabilizes in the coming weeks (or perhaps years), we are going to see undoubtedly see a revival of the Chinese crypto market. Blockchain and cryptocurrency come hand-in-hand (with the exception of private chain where a token is unnecessary). Countries thus cannot ban cryptocurrency without banning blockchain the great technology!