In the aftermath of the financial crisis in 2008, a document called “Bitcoin: A Peer-to-Peer Electronic Cash System” was published, which outlined 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 on the Internet, blockchain has provided solutions to problems we haven’t solved or ruled out in decades. I won’t go into the technical side of it, but here are some of the articles and videos I recommend:
How it works under Bitcoin
A smooth introduction to blockchain technology
Have you ever wondered how Bitcoin (and other cryptocurrencies) work?
As of today, February 5, the Chinese authorities have just introduced a new regulation banning cryptocurrencies. The Chinese government did so last year, but many have avoided it through foreign exchange. It has now taken the all-powerful ‘Great Fire of China’ to block access to foreign exchange to prevent its citizens from making cryptocurrency transactions.
To learn more about the attitude of the Chinese government, let’s go back a couple of years to 2013 when Bitcoin was gaining popularity among Chinese people and prices were rising. Concerned about price volatility and speculation, the People’s Bank of China and five other government ministries issued an official announcement in December 2013 entitled “Bitcoin’s Financial Risk Prevention Warning” (link in Mandarin). Several points were highlighted:
1. Due to a number of factors, such as limited supply, anonymity, and a lack of a centralized issuer, Bitcoin is not an official currency, but a virtual product that cannot be used in the open market.
2. Not all banks and financial institutions may offer financial services related to Bitcoin or engage in trading activities related to Bitcoin.
3. All companies and websites that offer Bitcoin-related services must register with the required government ministries.
4. Due to the anonymity and cross-border nature of Bitcoin, organizations that provide Bitcoin-related services should implement precautionary 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 that provide Bitcoin-related services should educate the public about Bitcoin and the technology behind it, and not mislead the public with misinformation.
According to Layman, Bitcoin is classified as a virtual asset (e.g., gambling credits) that can be bought or sold in its original form and is not exchanged for reliable currency. It cannot be defined as money: something that serves as a medium of exchange, a unit of accounting, and a storehouse of value.
Although the notification is dated to 2013, it is still relevant to the Chinese government’s stance on Bitcoin and as mentioned, 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.
A similar note was issued in January 2017, again emphasizing that Bitcoin is a virtual asset and not a currency. In September 2017, the initial coin offering (ICO) boom released a separate note called “Warning to Avoid the Financial Risks of Issued Tokens”. Shortly afterwards, ICOs were banned and Chinese exchanges were investigated and eventually closed. (Looking back at 20/20, they have made the right decision to ban ICOs and stop senseless gaming). In January 2018, another blow struck the Chinese cryptocurrency community when mining operations suffered severe crackdowns, citing excessive electricity consumption.
Although there is no official explanation for the crackdown on cryptocurrencies, some of the main reasons cited by experts are capital controls, illegal activities and the protection of citizens from financial risks. In fact, Chinese regulators have imposed stricter controls, such as restricting foreign withdrawals and regulating foreign direct investment to limit capital outflows and ensure domestic investment. The anonymity and ease of cross-border transactions have made cryptocurrency a favorite way to launder money and fraudulent activities.
Since 2011, China has played a key role in the rise and fall of Bitcoin. At its peak, China accounted for more than 95% of global Bitcoin trading volume and accounted for three-quarters of mining operations. With the introduction of regulators to control trade and mining operations, China’s dominance has been significantly reduced in exchange for stability.
Following repression by countries like Korea and India, there is now a shadow over the future of cryptocurrency. (I will repeat my account here: countries regulate cryptocurrency, not ban it). We will certainly see more nations in the coming months to sustain the turbulent crypto market. In fact, it was a long-standing order. Over the past year, cryptocurrencies have been experiencing volatility in unknown prices, and ICOs are literally happening every other day. In 2017, total market capitalization rose from $ 18 billion in January to $ 828 billion.
However, the Chinese community is in a very good mood despite the repression. Online and offline communities are flourishing (I’ve personally attended a number of events and visited some companies) and blockchain launches are emerging all over China.
Major blockchain companies like NEO, QTUM and VeChain are receiving a lot of attention in the country. Startups like Nebulas, High Performance Blockchain (HPB) and Bibox are also gaining momentum. Giants like Alibaba and Tencent are also exploring blockchain capabilities to improve their platform. The list goes on but you understand me; It will be a hug!
The Chinese government is also embracing blockchain technology and has stepped up efforts in recent years to create a blockchain ecosystem.
China’s 13th Five-Year Plan (2016-2020) called for the development of promising technologies such as blockchain and artificial intelligence. Fintech also plans to strengthen its research into regulations, cloud computing and big data applications. The People’s Bank of China is also testing a blockchain-based digital currency prototype; however, it is likely to be a centralized digital currency that has been hit with some encryption technology, which is yet to be seen by Chinese citizens.
The Trusted Blockchain Open Lab and the launch of the Chinese Blockchain Technology and Industry Development Forum by the Ministry of Industry and Information Technology are other initiatives by the Chinese government to support the development of the blockchain in China.
The latest report by the China Blockchain Research Center entitled “China Blockchain Development Report 2018” (link to English version) detailed the development of the blockchain industry in China in 2017, including various measures taken to regulate the mainland cryptocurrency. In a separate section, the report highlighted the optimistic outlook of the blockchain industry and the massive attention received by VCs 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 intended to protect its citizens from the financial risk of cryptocurrencies and to limit capital outflows. So far, it is legal for Chinese citizens to have cryptocurrencies, but they have not made any transactions; hence the ban on exchanges. As the market stabilizes in the coming months (or years), we will no doubt see a resurgence in the Chinese crypto market. Blockchain and cryptocurrency go hand in hand (except for a private chain where a token is not required). So countries can’t ban cryptocurrency without banning the wonderful blockchain technology!
One thing we can all agree on is that the blockchain is still in its infancy. A lot of exciting developments await us and now is definitely the best time to lay the groundwork for a blockchain-enabled world.