In 2008 following the financial crisis, a paper titled”Bitcoin: A Peer-to-Peer Electronic Cash System” was published, detailing the concepts of a payment method. Bitcoin was born. Bitcoin gained the interest of the entire world for its usage of both blockchain technology and instead to fiat currencies and commodities. Dubbed the following best technology following the internet, blockchain offered answers to issues we’ve neglected to tackle, or ignored over the past few decades. I Won’t delve into the technical aspect of it but here are some videos and articles that I advocate:
- 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, police in China have just unveiled a new set of regulations to prohibit cryptocurrency. The Chinese government have done so a year ago, but a lot of them have circumvented through foreign exchanges. It’s now enlisted the almighty’Great Firewall of China’ to obstruct access to foreign exchanges in an attempt to prevent its citizens from taking any Ico transactions.
To know more about the Chinese government stance, let us backtrack a few years back to 2013 when Bitcoin was gaining popularity among the Chinese citizens and prices were soaring. Concerned with the cost volatility and speculations, the People’s Bank of China and five other government ministries published an official note on December 2013 branded”Notice on Preventing Financial Risk of Bitcoin” (Link is at Mandarin). A number of points were emphasized:
1. Due to different factors like limited distribution, anonymity and lack of a centralized issuer, Bitcoin isn’t a official currency but a digital commodity that can’t be used in the open market.
2. All financial and banking organizations are not permitted to provide Bitcoin-related monetary services or engage in trading activity associated with Bitcoin.
3. All companies and sites that provide Bitcoin-related services would be to register with the necessary government ministries.
4. As a result of anonymity and cross-border features of Bitcoin, organizations supplying Bitcoin-related services need to implement 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 supplying Bitcoin-related services need to educate the public about Bitcoin and the technology behind it and not deceive the public with misinformation.
In layman’s term, Bitcoin is categorized as a digital commodity (e.g in-game credits,) that may be bought or sold in its initial form rather than to be traded with fiat currency. It can’t be defined as cash – something that functions as a medium of exchange, a unit of bookkeeping, and a store of value.
Regardless of the notice being dated in 2013, it’s still relevant with respect to the Chinese authorities stance on Bitcoin and as mentioned, there is no indication of the banning Bitcoin and cryptocurrency. Instead, education and regulation about Bitcoin and blockchain will play a part in the Chinese crypto-market.
A similar note has been issued on Jan 2017, again emphasizing that Bitcoin is a virtual commodity rather than a money. Shortly after, ICOs were prohibited and Chinese exchanges were researched and finally closed. (Hindsight is 20/20, they’ve made the right decision to ban ICOs and stop senseless gambling). Another blow was dealt with China’s cryptocurrency community in January 2018 when mining operations faced serious crackdowns, citing excess electricity consumption.
Even though there is no official explanation on the crackdown of cryptocurrencies, capital controls, illegal actions and security of its citizens from financial risk are some of the main reasons cited by specialists. Indeed, Chinese authorities have implemented stricter controls such as overseas withdrawal cap and regulating foreign direct investment to limit capital outflow and ensure national investments. The ideology and simplicity of cross-border transactions have also made cryptocurrency a favorite means for money laundering and fraudulent actions.
Since 2011, China has played a crucial part in the meteoric rise and collapse of Bitcoin. At its peak, China accounted for over 95% of the global Bitcoin trading quantity and three quarters of their mining operations. With regulators stepping into control mining and trading operations, China’s dominance has shrunk significantly in exchange for stability.
With nations like Korea and India following suit from the crackdown, a shadow is now casted over the future of cryptocurrency. (I will reiterate my point here: countries are regulating cryptocurrency( not banning it). Without a doubt, we’ll see more nations join in in the coming months to rein in the tumultuous crypto-market. Indeed, some kind of arrangement was long overdue. Over the last year, cryptocurrencies are experiencing cost volatility indicative of and ICOs are happening literally every other moment.
Nonetheless, the Chinese community are in amazingly good spirits despite crackdowns. Offline and online communities are booming (I personally have attended quite a few events and seen some of the firms) and also blockchain startups are sprouting all over China.
Major blockchain firms like NEO, QTUM and VeChain are getting enormous attention in the nation. Even giants such as Alibaba and Tencent will also be investigating the capacities of blockchain to enhance their platform. The list goes on and on but you get me; it’s likely to be HUGGEE!
The Chinese authorities have also been embracing blockchain technology and also have stepped up efforts in recent years to support the creation of a blockchain ecosystem.