In 2008, following the financial crisis, a document entitled “Bitcoin: Peer-to-Peer Electronic Cash System” was published, detailing the concepts of a payment system. Bitcoin was born. Bitcoin has attracted worldwide attention with the use of blockchain technology and as an alternative to fiat currencies and commodities. Named the next best technology after the Internet, blockchain offers solutions to problems we haven’t been able to address or ignore in the last few decades. I will not go into the technical aspect of this, but here are some articles and videos that I recommend:
How bitcoin works under the hood
Gentle introduction to blockchain technology
Have you ever wondered how bitcoin (and other cryptocurrencies) actually work?
Fast forward to today, February 5, the Chinese authorities have just introduced a new set of regulations banning cryptocurrencies. The Chinese government did so last year, but many have been bypassed through foreign exchanges. He has now used China’s all-powerful Great Wall of Defense to block access to foreign exchanges in an attempt to prevent its citizens from making any cryptocurrency transactions.
To learn more about the Chinese government’s position, let’s go back a few years 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 a formal statement 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. All banks and financial institutions are not allowed to offer financial services related to bitcoin or to engage in commercial activities related to bitcoin.
3. All companies and websites that offer bitcoin-related services must register with the necessary government ministries.
4. Due to the anonymity and cross-border characteristics of bitcoin, organizations providing bitcoin-related services should apply preventive measures such as KYC to prevent money laundering. Any suspicious activity, including fraud, gambling and money laundering, must be reported to the authorities.
5. Organizations providing bitcoin-related services must 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 (eg in-game credits) that can be bought or sold in its original form and not exchanged for fiat currency. It cannot be defined as money – something that serves as a medium of exchange, a unit of account and a means of storing value.
Although the notice is from 2013, it is still relevant to the Chinese government’s position on bitcoin and, as mentioned, there is no indication of a ban on bitcoin and cryptocurrency. Rather, 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 supply boom (ICO) led to the publication of a separate notice entitled “Notice on the prevention of financial risk from issued tokens”. Soon after, ICOs were banned and Chinese stock exchanges were investigated and eventually closed. (The back point is 20/20, they made the right decision to ban ICO and stop pointless gambling). Another blow was dealt to the cryptocurrency community in China in January 2018, when mining operations faced severe repression, citing excessive electricity consumption.
Although there is no official explanation for the repression 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 introduced tighter controls, such as a cap on foreign withdrawals and regulation of foreign direct investment, to curb 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 fraud.
Since 2011, China has played a crucial role in the rapid rise and fall of bitcoin. At its peak, China accounted for more than 95% of global bitcoin trade and three-quarters of mining operations. After regulators intervened to control trade and extraction operations, China’s dominance shrank significantly in exchange for stability.
With countries like Korea and India following suit in the crackdown, the future of the cryptocurrency is now being overshadowed. (I will repeat my opinion here: the parties regulate the cryptocurrency, not ban it). No doubt we will see more nations join in the coming months to take over the turbulent crypto market. Indeed, an order was long overdue. In the last year, cryptocurrencies have experienced unprecedented price volatility and ICOs occur literally every other day. In 2017, the total market capitalization rose from $ 18 billion in January to the all-time high of $ 828 billion.
However, the Chinese community is in a surprisingly good mood despite the repression. Online and offline communities are thriving (I have personally attended many events and visited some of the companies) and blockchain startups are springing up all over China.
Large blockchain companies such as NEO, QTUM and VeChain are attracting a lot of attention in the country. Startups like Nebulas, High Performance Blockchain (HPB) and Bibox are also gaining in popularity. Even giants like Alibaba and Tencent are also exploring blockchain capabilities to improve their platform. The list goes on and on, but you understand me; will be HUGGEE!
The Chinese government has also embraced blockchain technology and stepped up its efforts in recent years to support the creation of a blockchain ecosystem.
In China’s 13th Five-Year Plan (2016-2020), he called for the development of promising technologies, including blockchain and artificial intelligence. He also plans to step up research into 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 a blockchain; However, since it is likely to be a centralized digital currency with some encryption technology, it remains to be seen whether it will be accepted by Chinese citizens.
The launch of the Trusted Blockchain Open Lab, as well as the Chinese 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” from the China Blockchain Research Center details the development of the blockchain industry in China in 2017, including the various measures taken to regulate cryptocurrency in China. the mainland. In a separate section, the report highlighted the optimistic outlook of the blockchain industry and the huge attention it received from VC and the Chinese government in 2017.
In summary, the Chinese government has shown a positive attitude towards blockchain technology despite its application to cryptocurrencies and digging operations. China wants to control the cryptocurrency, and China will gain control. Repeated regulations by regulators were aimed at protecting their citizens from the financial risk of cryptocurrencies and limiting capital outflows. For now, it is legal for Chinese citizens to hold cryptocurrencies, but they are not allowed to make any form of transaction; hence the ban on 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 come hand in hand (except for the private chain, where the token is not needed). That way, countries can’t ban cryptocurrency without banning great technology blockchain!
One thing we can all agree on is that the blockchain is still in its infancy. Many exciting developments await us and right now is definitely the best time to lay the foundations of a world-activated blockchain.
Last but not least, HODL!