The Perplexing State of Cryptocurrency in China

Blockchain technology is an often heralded as the dawn of a new technological age, with the promise of creating a secure method and permanent record of transaction between parties - thereby effectively eliminating the need for a third-party intermediates such as banks. The advent of this technology can be traced back to a paper published ten years ago. Its author (or authors) remain anonymous; it was written under the pseudonym ‘Satoshi Nakamoto’. The title of the paper was ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. No further introduction needed.

Bitcoin’s proliferated growth in the subsequent years has seen the rise of a multitude of other cryptocurrencies, and an ever-greater public interest. This was no higher than last year, particularly in China: it dominates bitcoin trading and accounts for the majority of bitcoin ‘mining’. During this period of exponential growth, however, the Bitcoin has seen greater regulatory limitations imposed on it by financial authorities such as the Central Bank of China. Last September, this resulted in the ban of ICOs (Initial Coin Offerings), which are offerings of units of a new cryptocurrency to an investor in exchange against an established cryptocurrency such as Bitcoin. China seems intent on stifling the creation of more cryptocurrencies: ICOs play a crucial role in the development of new cryptocurrencies; has hugely prohibited the domestic trade of Bitcoin-yuan.

Ironically, investors from other countries such as the U.S, Japan, and South Korea are increasingly intrigued by the prospect of Bitcoin, which then hit a peak of $19,000 last December. Several Chinese blockchain projects have, in reaction, relocated headquarters overseas. Following this, people moved to over-the-counter trading, devoid of exchange facilitation, which serves to demonstrate the vast interest. This interest has led to persisting speculation even in its current state (following the precipitous fall from late last year and earlier this year) and although the prices are relatively steady now, they remain far from desirable. The Chinese government, having taken note of this wild interest in speculation, have issued warnings of investment risks from illegal fundraising under the screen of “blockchain” or “cryptocurrencies”, as well as announcing a ban on events promoting cryptocurrency in the districts of Beijing.. Tencent, a Chinese tech giant, reacted by prohibiting any kind of cryptocurrency trading on its WeChat messaging service, as well as enacting the ban of several WeChat accounts that allegedly gave out information on cryptocurrency that contravenes their policy. The general trend seems to be that the Chinese government will continue to tightly regulate any schemes intended entice the general public to invest their money.

Whether this has been at all effective in dissuading interest is in question. This is in direct opposition to the Beijing’s own policy of investing in blockchain technology, and itself remains highly optimistic about its future success. China’s investment since 2016 in the blockchain technology stands at approximately 3.57 billion. Amidst this, the trade war between U.S. and China continues to rage on, we could be forgiven for forgetting that the real battle for future supremacy might take place in the arena it is most likely to dominate – the virtual world.

With China unambiguously assuming the crown in Bitcoin mining (it holds more than 70% of Bitcoin’s hash rate, the unit of processing power for Bitcoin, and takes advantage of big mining fields at home, assisted with relatively low electricity prices) it has created somewhat of a monopoly - quite understandably sending alarm bells off in Washington. In response, the U.S government has reportedly shown great interest in Ripple (XRP), aimed at offsetting China’s bitcoin dominance. Ripple Labs, the overseer of XRP, commands over 60% of the supply for XRP, and doesn’t require mining. This dominance has come under deep criticism for placing centralization in the hands of few, and this remark is especially important as decentralization (if you remember) was one of the biggest allures of cryptocurrencies. Experts, in fact, believe that this centralization will be not abate, with each country desiring an overarching control on the cryptocurrency market.