After the financial crisis, in 2008, a document called “Bitcoin: Peer-to-Peer Electronic Cash System” was published, outlining the concepts of a payment system. Bitcoin was born. Bitcoin has gained worldwide attention for its use of blockchain technology and as an alternative to fiat currency and commodities. Named the next best technology after the Internet, the blockchain has provided solutions to problems we haven’t addressed or neglected in recent decades. I won’t delve into the technical side of it but here are some articles and videos I recommend:
How does Bitcoin work under the hood
A smooth introduction to blockchain technology
Have you ever wondered how Bitcoin (and other cryptocurrencies) work?
To date, until February 5, specifically, the Chinese authorities have just introduced a new regulation banning cryptocurrency. The Chinese government did so last year, but many have avoided it through foreign exchange. It has now hired an all-powerful “Chinese firewall” to block access to foreign exchange in an attempt to stop citizens from making cryptocurrency transactions.
To learn more about the attitude of the Chinese government, let’s go back a couple of years back to 2013, when Bitcoin was gaining popularity among Chinese citizens and prices were rising. Concerned about price volatility and speculation, the People’s Bank of China and five other government ministries issued an official note in December 2013 entitled “Bitcoin Financial Risk Prevention Note” (link is in Mandarin). Several points were highlighted:
1. Due to several factors, such as limited supply, anonymity and lack of a centralized issuer, Bitcoin is not an official currency, but a virtual commodity that cannot be used in the open market.
2. Not all banks and financial institutions may provide financial services related to Bitcoin or conduct trading activities related to Bitcoin.
3. All companies and websites that offer Bitcoin-related services must register with the necessary government ministries.
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4. Due to the anonymity and cross-border nature of Bitcoin, organizations that provide Bitcoin-related services should implement preventive measures such as KYC to prevent money laundering. Suspicious activities including fraud, gambling and money laundering must be reported to the authorities.
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5. Organizations that provide Bitcoin-related services should educate citizens about Bitcoin and the technology behind it and not mislead people with misinformation.
In Layman’s terms, Bitcoin is classified as a virtual commodity (e.g., game credits) that can be bought or sold in its original form and should not be exchanged for fiat currency. It cannot be defined as money: something that serves as an exchange, an accounting unit, and a storehouse of value.
Although the release dates back to 2013, it is still important in terms of the Chinese government’s stance on Bitcoin and as I said, there is no indication of a ban on Bitcoin and cryptocurrency. In contrast, regulations and education on Bitcoin and blockchain will play a role in the Chinese crypto market.
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A similar release was issued in January 2017, again emphasizing that Bitcoin is a virtual commodity and not a currency. In September 2017, the rise in the initial coin offering issued a separate note entitled “Note to Prevent the Financial Risk of Issued Tokens”. Soon after, ICOs were banned and Chinese exchanges were investigated and eventually shut down. (The retrospective is 20/20, they have made the right decision to ban ICOs and stop the senseless game). Another blow was dealt to the Chinese cryptocurrency community in January 2018, when mining operations were severely repressed, citing excessive electricity consumption.
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Although there is no official explanation for the measures against cryptocurrencies, capital controls, illegal activities and the protection of citizens from financial risk are some of the main reasons cited by experts. In fact, Chinese regulators have imposed stricter controls, such as a foreign exit restriction and the regulation of foreign direct investment to limit capital outflows and ensure domestic investment. The anonymity and ease of cross-border transactions have made cryptocurrency a favorite resource for money laundering and fraudulent activities.
Since 2011, China has played a key role in the meteorological rise and fall of Bitcoin. At its peak, China accounted for 95% of the global Bitcoin trading volume and three-quarters of its mining operations. When regulators take steps to control trade and mining operations, China’s dominance has been significantly reduced in exchange for stability.
As countries like Korea and India continue to oppose repression, there is a shadow over the future of cryptocurrency. (I will repeat my opinion here: countries regulate cryptocurrency, not ban it). We will certainly see more nations coming together in the coming months to control the turbulent crypto market. In fact, the demand was kind of long overdue. Over the past year, cryptocurrencies have never heard of price volatility and ICOs literally happen every other day. In 2017, total market capitalization rose from $ 18 billion to $ 828 billion in January.
However, the Chinese community is very good, despite the repressions. Online and offline communities are flourishing (I’ve personally attended quite a few events and visited a few companies) and blockchain startups are sprouting up across China.
Major blockchain companies like NEO, QTUM and VeChain are getting a lot of attention in the country. Startups like Nebulas, High Performance Blockchain (HPB) and Bibox are also getting quite traction. Giants like Alibaba and Tencent are also exploring blockchain capabilities to improve their platform. The list goes on but you get me; It will be HUGGEE!
The Chinese government has also embraced blockchain technology and has stepped up efforts in recent years to help create a blockchain ecosystem.
In China’s 13th Five-Year Plan (2016-2020), it called for the development of promising technologies including blockchain and artificial intelligence. Fintech also plans to strengthen research on application regulation, cloud computing and big data. The People’s Bank of China is also testing a prototype digital currency based on the blockchain; however, it is likely to be a centralized digital currency that has been trampled with some encryption technology, yet to be seen by Chinese citizens.
The launch of the Blockchain Trusted Open Laboratory and the China Blockchain Technology and Industry Development Forum are other initiatives by the Chinese Ministry of Industry and Information Technology to support the Chinese government in the development of the blockchain.
A recent report by the China Blockchain Research Center entitled “China Blockchain Development Report 2018” (link to English version) outlined the development of the blockchain industry in China in 2017 including various measures taken to regulate cryptocurrency on the continent. In a separate section, the report highlighted the optimistic outlook of the blockchain industry and the massive focus on VC and the Chinese government in 2017.
In summary, the Chinese government has shown a positive attitude towards blockchain technology despite its involvement in cryptocurrency and mining operations. China wants to control cryptocurrency, and China will gain control. Repeated enforcement by regulators was to protect citizens from the financial risk of cryptocurrencies and to limit capital outflows. So far, legally, Chinese citizens are allowed to have cryptocurrencies but are not allowed to make any transactions; hence the ban on exchange. As the market stabilizes in the coming months (or years), we will certainly see a resurgence of the Chinese crypto market. Blockchain and cryptocurrency come hand in hand (except for a private chain where a token is not required). Countries can’t ban cryptocurrency without banning great blockchain technology!
One thing we can all agree on is that blockchains are still in their infancy. We have many exciting developments ahead of us and right now is the best time to lay the foundations for a world enabled by blockchain.
Last but not least, HODL!