A Peer-to-Peer Electronic Cash System” was published, detailing the concepts of a payment system. Bitcoin was created. Bitcoin gained the eye 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 didn’t address, or ignored over the past few decades. I’ll not explore the technical aspect of it but here are some articles and videos that I recommend:
How Bitcoin Works Beneath the Hood
A gentle introduction to blockchain technology
Ever wonder how Bitcoin (along with other cryptocurrencies) actually work?
Fast forward to today, 5th February to be exact, authorities in China have just unveiled a new set of regulations to ban cryptocurrency . The Chinese government have previously done so last year, but many have circumvented through foreign exchanges. It has enlisted the almighty ‘Great Firewall of China’ to block usage of foreign exchanges in a bid to stop its citizens from carrying out any cryptocurrency transactions.
To know more about the Chinese government stance, let’s backtrack a couple of years back to 2013 when Bitcoin was gaining popularity on the list of Chinese citizens and prices were soaring. Worried about the 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 Threat 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 is not a official currency but a virtual commodity that can’t be found in the open market.
2. All banks and financial organizations are not permitted to offer Bitcoin-related financial services or engage in trading activity related to Bitcoin.
3. All companies and websites that offer Bitcoin-related services are to register with the required government ministries.
4. Due to the anonymity and cross-border features of Bitcoin, organizations providing Bitcoin-related services ought to implement preventive measures such as KYC to avoid money laundering. Any suspicious activity including fraud, gambling and money laundering should to be reported to the authorities.
5. Organizations providing Bitcoin-related services must educate the public about Bitcoin and the technology behind it rather than 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 and not to be exchanged with fiat currency. It can’t be defined as money- a thing that serves as a medium of exchange, a unit of accounting, and a store of value.
Despite the notice being dated in 2013, it is still relevant with regards to the Chinese government stance on Bitcoin so when mentioned, there is 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.
A similar 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”. Immediately after, ICOs were banned and Chinese exchanges were investigated and eventually closed. (Hindsight is 20/20, they will 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 overseas withdrawal cap and regulating foreign direct investment to limit capital outflow and ensure domestic investments. The anonymity and ease of cross-border transactions have also made cryptocurrency a favorite means for money laundering and fraudulent activities.
Since 2011, China has played a crucial 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 directly into control trading and mining operations, China’s dominance has shrunk significantly in exchange for stability.
With countries like Korea and India following suit in the crackdown, a shadow is now casted on the future of cryptocurrency. (I will reiterate my point here: countries are regulating cryptocurrency, not banning it). Without a doubt, we will have more nations join in in the coming months to rein in the tumultuous crypto-market. Indeed, some type 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 full total market capitalization rose from 18 billion USD in January to an all-time high of 828 billion USD.
Nonetheless, the Chinese community are in surprisingly good spirits despite crackdowns. Online and offline communities are flourishing (Personally, i have attended several events and visited some 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 amount of traction. Even giants such as Alibaba and Tencent may also be exploring the capabilities of blockchain to enhance their platform. The list continues on and on nevertheless, you get me; it will likely be HUGGEE!
The Chinese government have also been embracing blockchain technology and also have stepped up efforts in recent years to aid the creation of a blockchain ecosystem.