A Peer-to-Peer Electronic Cash System” was published, detailing the concepts of a payment system. Bitcoin was born. Bitcoin gained the attention of the world for its use of blockchain technology and as an alternative solution to fiat currencies and commodities. Dubbed another best technology following the internet, blockchain offered answers to issues we have didn’t address, or ignored over the past few decades. I am going to not delve into the technical aspect of it but here are a few articles and videos that I would recommend:
How Bitcoin Works Beneath 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, authorities in China have just unveiled a fresh set of regulations to ban cryptocurrency. The Chinese government have already done so last year, but many have circumvented through foreign exchanges. It has enlisted the almighty ‘Great Firewall of China’ to block usage of foreign exchanges in a bid to avoid its citizens from undertaking any cryptocurrency transactions.
To know more concerning the Chinese government stance, let’s backtrack a couple years back to 2013 when Bitcoin was gaining popularity among the Chinese citizens and prices were soaring. Worried about the purchase price volatility and speculations, the People’s Bank of China and five other government ministries published the official notice on December 2013 titled “Notice on Preventing Financial Threat of Bitcoin” (Link is in Mandarin). Several points were highlighted:
1. Due to various factors such as limited supply, anonymity and insufficient a centralized issuer, Bitcoin is not a official currency but a virtual commodity that can’t be used in the open market.
2. All banks and financial organizations are not permitted to offer Bitcoin-related financial services or engage in trading activity linked to Bitcoin.
3. All companies and websites offering Bitcoin-related services are to register with the necessary government ministries.
4. Because of the anonymity and cross-border top features of Bitcoin, organizations providing Bitcoin-related services must implement preventive measures such as for example KYC to avoid money laundering. Any suspicious activity including fraud, gambling and money laundering should to be reported to the authorities.
5. Organizations providing Bitcoin-related services must educate the general public about Bitcoin and the technology behind it rather than mislead the general public with misinformation.
In layman’s term, Bitcoin is categorized as a virtual commodity (e.g in-game credits,) that can be bought or sold in its original form and not to be exchanged with fiat currency. It can’t be defined as money- something that serves as a medium of exchange, a unit of accounting, and a store of value.
Regardless of the notice being dated in 2013, it is still relevant based on the Chinese government stance on Bitcoin so when mentioned, there is absolutely no indication of the banning Bitcoin and cryptocurrency. Rather, regulation and education about Bitcoin and blockchain will play a role in the Chinese crypto-market.
An identical notice was issued on Jan 2017, again emphasizing that Bitcoin is a virtual commodity and not a currency. In September 2017, the boom of initial coin offerings (ICOs) resulted in the publishing of a separate notice titled “Notice on Preventing Financial Risk of Issued Tokens”. Soon after, ICOs were banned and Chinese exchanges were investigated and finally closed. (Hindsight is 20/20, they will have made the proper decision to ban ICOs and prevent senseless gambling). Another blow was dealt to China’s cryptocurrency community in January 2018 when mining operations faced serious crackdowns, citing excessive electricity consumption.
Since there is no official explanation on the crackdown of cryptocurrencies, capital controls, illegal activities and protection of its citizens from financial risk are a number of the main reasons cited by experts. Indeed, Chinese regulators have implemented stricter controls such as overseas withdrawal cap and regulating foreign direct investment to limit capital outflow and ensure domestic investments. The anonymity and simple cross-border transactions also have made cryptocurrency a favorite opportinity for money laundering and fraudulent activities.
Since 2011, China has played an essential role in the meteoric rise and fall of Bitcoin. At its peak, China accounted for over 95% of the global Bitcoin trading volume and three quarters of the mining operations. With regulators stepping directly into control trading and mining operations, China’s dominance has shrunk significantly in trade for stability.
With countries like Korea and India following suit in the crackdown, a shadow is currently casted on the future of cryptocurrency. (I shall reiterate my point here: countries are regulating cryptocurrency, not banning it). Without a doubt, we will see more nations join in in the coming months to rein in the tumultuous crypto-market. Indeed, some type of order was long overdue. In the last year, cryptocurrencies are experiencing price volatility unusual and ICOs are happening literally every other day. In 2017, the total market capitalization rose from 18 billion USD in January to an all-time high of 828 billion USD.
Nonetheless, the Chinese community come in surprisingly good spirits despite crackdowns. Online and offline communities are flourishing (I personally have attended several events and visited some of the firms) and blockchain startups are sprouting all over China.
Major blockchain firms such as for example NEO, QTUM and VeChain are receiving huge attention in the country. Startups like Nebulas, POWERFUL Blockchain (HPB) and Bibox may also be gaining a fair level of traction. Even giants such as for example Alibaba and Tencent are also exploring the capabilities of blockchain to improve their platform. The list goes on and on nevertheless, you get me; it will likely be HUGGEE!
The Chinese government are also embracing blockchain technology and also have stepped up efforts recently to aid the creation of a blockchain ecosystem.
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