A Peer-to-Peer Electronic Cash System” was published, detailing the concepts of a payment system. Bitcoin was created. Bitcoin gained the attention of the world because of its use of blockchain technology and as an alternative to fiat currencies and commodities. Dubbed another best technology following the internet, blockchain offered answers to issues we have failed to address, or ignored over the past few decades. I will not explore the technical aspect of it but here are a few articles and videos 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 exact, authorities in China have just unveiled a fresh set of regulations to ban cryptocurrency. The Chinese government have previously done so this past year, but many have circumvented through foreign exchanges. It has enlisted the almighty ‘Great Firewall of China’ to block access to foreign exchanges in a bid to avoid its citizens from carrying out any cryptocurrency transactions.
To know more concerning the Chinese government stance, let’s backtrack a couple of years back to 2013 when Bitcoin was gathering popularity among the Chinese citizens and prices were soaring. Worried about the purchase price volatility and speculations, the People’s Bank of China and five other government ministries published an official notice on December 2013 titled “Notice on Preventing Financial Risk of Bitcoin” (Link is in Mandarin). Several points were highlighted:
1. Due to various factors such as limited supply, anonymity and lack of a centralized issuer, Bitcoin isn’t a official currency but a virtual commodity that cannot be found in the open market.
2. All banks and financial organizations aren’t allowed to offer Bitcoin-related financial services or take part in trading activity linked to Bitcoin.
3. All companies and websites offering Bitcoin-related services are to join up with the required government ministries.
4. Because of the anonymity and cross-border features of Bitcoin, organizations providing Bitcoin-related services must implement preventive measures such as KYC to prevent money laundering. Any suspicious activity including fraud, gambling and money laundering should to be reported to the authorities.
5. Organizations providing Bitcoin-related services ought to educate the general public about Bitcoin and the technology behind it and not mislead the general public with misinformation.
In layman’s term, Bitcoin is categorized as a virtual commodity (e.g in-game credits,) that can be bought or sold in its original form rather than to be exchanged with fiat currency. It can’t be defined as money- something that serves as a medium of exchange, a unit of accounting, and a store of value.
Regardless of the notice being dated in 2013, it is still relevant based on the Chinese government stance on Bitcoin and as mentioned, there is absolutely no indication of the banning Bitcoin and cryptocurrency. Rather, regulation and education about Bitcoin and blockchain will are likely involved in the Chinese crypto-market.
An identical notice was issued on Jan 2017, again emphasizing that Bitcoin is really a virtual commodity and not a currency. In September 2017, the boom of initial coin offerings (ICOs) resulted in the publishing of a separate notice titled “Notice on Preventing Financial Threat of Issued Tokens”. Soon after, ICOs were banned and Chinese exchanges were investigated and eventually closed. (Hindsight is 20/20, they have made the right decision to ban ICOs and stop senseless gambling). Another blow was dealt to China’s cryptocurrency community in January 2018 when mining operations faced serious crackdowns, citing excessive electricity consumption.
Since there is no official explanation on the crackdown of cryptocurrencies, capital controls, illegal activities and protection of its citizens from financial risk are a number of the main reasons cited by experts. Indeed, Chinese regulators have implemented stricter controls such as for example overseas withdrawal cap and regulating foreign direct investment to limit capital outflow and ensure domestic investments. The anonymity and simple cross-border transactions also have made cryptocurrency a favorite means for money laundering and fraudulent activities.
Since 2011, China has played an essential role in the meteoric rise and fall of Bitcoin. At its peak, China accounted for over 95% of the global Bitcoin trading volume and three quarters of the mining operations. With regulators stepping in to control trading and mining operations, China’s dominance has shrunk significantly in trade for stability.
With countries like Korea and India following suit in the crackdown, a shadow is currently casted on the future of cryptocurrency. (I shall reiterate my point here: countries are regulating cryptocurrency, not banning it). Certainly, we will see more nations join in in the coming months to rein in the tumultuous crypto-market. Indeed, some kind of order was long overdue. Over the past year, cryptocurrencies are experiencing price volatility unheard of and ICOs are happening literally every other day. In 2017, the total market capitalization rose from 18 billion USD in January to an all-time most of 828 billion USD.
Nonetheless, the Chinese community are in surprisingly good spirits despite crackdowns. Online and offline communities are flourishing (I personally have attended quite a few events and visited a number of the firms) and blockchain startups are sprouting all over China.
Major blockchain firms such as NEO, QTUM and VeChain are receiving huge attention in the country. Startups like Nebulas, POWERFUL Blockchain (HPB) and Bibox may also be gaining a fair quantity of traction. Even giants such as Alibaba and Tencent may also be exploring the capabilities of blockchain to improve their platform. The list continues on and on nevertheless, you get me; it’s going to be HUGGEE!
The Chinese government have also been embracing blockchain technology and also have stepped up efforts in recent years to support the creation of a blockchain ecosystem.