A country condemned by others for banning the trading of cryptocurrency, is now at the forefront of technology behind it. All along, China has been embracing technology to improve the life of its citizens, from mobile payments to high-speed railways and driverless vehicles. Hence, it wouldn’t take much for the Chinese to adopt blockchain on a national scale. In fact, there are strong evidences that China is moving towards a blockchain-powered nation.
Blockchain, a technology often associated with cryptocurrencies, could potentially change the way we live and view trust. With the maturing of the technology and the increasing ease of adopting it, it wouldn’t be long before we see it being imbedded into our everyday life. And it is without a doubt that China would be the forefront of the blockchain wave.
The Cryptocurrency Ban
Long before the crypto-boom in 2017, China was the biggest cryptocurrency market as well as Bitcoin miner. At its peak during late 2016, Chinese Yuan accounted for over 90% of the global Bitcoin trading volume.
However, dating back to as far as December 2013, the Chinese ministries have already taken action against Bitcoin. An official notice titled “Notice of Preventing Financial Risk of Bitcoin” was published, describing Bitcoin as a virtual commodity that carried a fair amount of financial risk and outlined some of the Bitcoin-related services that financial institutions are no longer allowed to provide. A similar notice was issued once again on January 2017 to warn Chinese citizens about the risk of holding cryptocurrencies. In September 2017, a notice titled “Notice on Preventing Financial Risk of Issued Tokens” amidst the world-wide Initial Coin Offerings (ICOs) boom. Chinese ICOs were banned; ongoing ICOs were forced to refund to investors while upcoming ICOs had to relocate overseas to circumvent the ban. Many Chinese exchanges such as BTCC and OKCoin were forced to close their local office and relocate to cryptocurrency-friendly countries like Singapore and Denmark. Mining factories using specialized ‘computers’ called ASICs (Application Specific Integrated Circuit) were forced to close down, further dampening the Chinese cryptocurrency community. Chinese Yuan trading volume fell to less than 10% since the crackdowns.
The ban shook the grounds of the international community, prompting nations to take a stance against the digital currency. Many have outrightly expressed disapproval at China’s aggressive anti-cryptocurrency policies, claiming it to be preposterous and unwarranted.
Why the ban?
One must understand that the ban was a temporary, but necessary one. The ICO bubble was expanding rapidly within the Chinese community, with tens and hundreds of ongoing Chinese ICOs at any moment. Many Chinese retail investors lack a fundamental understanding of blockchain and are drawn to the potentials of 10x returns. To many, ICOs seem like a sure-win gamble amidst the cryptocurrency-boom. However, a recent report by National Committee of Experts on the Internet Financial Security Technology (IFCERT) revealed that there are 421 fake cryptocurrencies, of which 60% of the websites are set-up overseas, making it hard for the authorities to enforce any measures. Henceforth, atemporary ban was mandatory to not only burst the ICO bubble but also put a band-aid on the Chinese cryptocurrency industry. It provided a great opportunity for the authorities to hit the pause button, enact legislations and weed out pseudo projects.
Also, officials remained silent regarding the possession of cryptocurrencies. As to whether there will be an outright ban on the holding of it remains to be seen, although it seems unwise and impossible to do so.
Since the ban, many have relied on VPNs and overseas accounts to continue trading, although the latest crackdown might render this method unviable. Chinese authorities have stepped up to freeze Chinese bank accounts suspicious of funding crypto-exchange accounts and block access to any cryptocurrency-related websites.
Blockchain Initiatives in China
A quick search into some of the blockchain initiatives and it would not be hard to realize that the Chinese government is actively encouraging the advancement and adoption of blockchain technology within the nation. It’s apparent that the difference between cryptocurrencies and blockchain is clearly defined, and the Chinese government proactive role in promoting the technology is paying off.
The championing of blockchain technology in China comes in three stratums, mainly the government, the provinces, and the enterprises.
Among the government and ministries, despite their harsh stance towards cryptocurrencies, blockchain technology is labeled as one of their priority. Other than the 13th Five-Year Plan which explicitly mentioned blockchain technology as part of their core developmental plans, reports such as the China Blockchain Development Report 2018 and events like the China Blockchain Technology and Industry Development Forum are evident of the Chinese government support for blockchain. More recent in February 2018, a full-page feature titled “Three Questions to Blockchain” was published by the People’s Daily, an official newspaper of the Chinese Communist Party (CCP), further highlighting the nation’s positive stance towards blockchain. The National Audit Office of the People’s Republic of China is also exploring the capabilities of blockchain to mitigate bottlenecks caused by current data infrastructure as well as improve audit practices.
On the provincial level, cities remain as a key avenues for funds from the Chinese government to reach the ground communities. Cities nationwide have been actively promoting their respective blockchain initiatives in a bid to attract startups to join their ecosystem. Just recently, Hangzhou, home to Alibaba Group Holdings, committed RMB 10 billion ($1.6 billion USD) to invest in blockchain firms, with 30% of the money from the Chinese government. A Hangzhou Blockchain Industrial Park was also established to serve as a blockchain incubation and innovation center; the park currently houses ten blockchain firms. Various cities in China have also set up funds to attract blockchain startups, with Shenzhen announcing an RMB 500 million ($79million USD) capital funds and Guiyang providing up to RMB 5 million ($790,000 USD) in subsidies to qualified blockchain startups.
Within the enterprises, major firms have committed to the development and adoption of blockchain technology into their operations. Alibaba is a great example. Out of the 406 international blockchain-related patents filed in 2017, Alibaba had 43, secondly to People’s Bank of China (PBOC) who filed 68; In total, China filed over 200 patent applications, followed by the U.S. with 91 applications. In the areas of application, T-mall and Cainiao, both subsidiaries of Alibaba, have partnered to apply blockchain technology to track imported goods on their platforms. Alibaba Cloud also partnered with Xiamen ZhongChuan IoT Industry Research Institute to develop blockchain initiatives designed for Internet of Things (IoT). Other than Alibaba, several Chinese giants have also adopted blockchain technology in their operations. JD.com piloted the use of blockchain in its supply chain to trace and prove the authenticity of imported beef products. Internet giant Tencent published a whitepaper in 2017, detailing the application of blockchain services on an open platform called TrustSQL. More recently, leading Internet company Baidu launched Totem, a digital image property rights management platform that uses blockchain to timestamp submissions, protecting content creators from intellectual property infringement. It is apparent that these Chinese conglomerates understand the value of blockchain, and are actively placing their bets on it.
A Government-controlled digital currency
The People’s Bank of China (PBoC) is actively working on a state-developed digital currency and electronics payment systems, offering the benefits of digital currencies while maintaining a high level of control over its usability and traceability. Small scale transactions have been tested with several Chinese banks in as early as 2017. Such a digital currency would undoubtedly be more efficient and reduce the chances of fraud and counterfeit while allowing citizens in rural areas greater access to financial services. The digital currency which will be maintained by the commercial banks, is expected to be the digital alternative of the fiat currency.
“…the digital currency is inevitable due to technology development. In the future, the use of traditional banknotes and coins will shrink or even disappear.” Zhou Xiaochuan, the longest-serving governor for the People’s Bank of China
While the Chinese authorities seems to be capitalizing on the benefits of digital currency to improve current financial systems while reining in on the anonymity and decentralized features that define cryptocurrencies, it is likely for these features to be integrated in the future. Yao Qian, director of the central bank’s Digital Currency Research Lab explains that “it’s inevitable for central bank-issued digital currency (CBDC) to integrate more features in the future. An approach that just rigidly mimics and digitalizes the fiat currency may undermine the competitive edge of CBDC in the long term”. Till then, such a digital currency will unlikely bear any resemblance to cryptocurrencies.
Promising future for blockchain and cryptocurrencies in China
China is seeing an increasing interest in blockchain and cryptocurrencies as the rising millennials and middle class now demands for greater transparency and accountability, especially within the consumer goods industry. Furthermore, industries are struggling to cope with inefficiencies in existing systems, an issue that could potentially be solved with blockchain. Right now, a huge gap exists between the existing infrastructure of traditional firms and blockchain technology. Firms like NEO, QTUM, VeChain and many more are seeking to bridge the gap by simplifying the requirements for blockchain integration and lowering the barrier to entry. With increasing ease of integration, China may soon hit critical mass in the adoption of blockchain.
Till now, no official rules and standards stipulating the use of blockchain technology and cryptocurrencies are in place. While the world is widely excited about blockchain, an international framework and standard is necessary to regulate the industry and facilitate the adoption of it among enterprises and end-consumers. The ISO/TC 307 Blockchain and Distributed Ledger Technologies commission is one of those under the International Organization for Standardization, focusing on the framework and applications of blockchain technology. While China is already participating in the ISO/TC307 commission, it is also interested in implementing its own regulations within the nation. The Ministry of Industry and Information Technology (MIIT) and several ministries recently set up a National Blockchain and Distributed Accounting Technology Standardization Technical Committee to develop national standards for the local blockchain industry. The standard is expected to be published by the end of 2019.
By now, it should also be obvious that the Chinese government hates Bitcoin but love the technology behind it. China has long been strict with limiting capital outflow as the Chinese seek for alternative investments overseas. Cryptocurrencies provide a simple, quick and anonymous channel to transfer money out of the country, a huge appeal to the Chinese locals but an unwanted one by the government. With an increase in adoption and liquidity of cryptocurrencies worldwide, we will foresee the Chinese authorities backing down as the market stabilizes (and FOMO sets in).
The Eminent Rise of Made-in-China Blockchain
One can dismiss cryptocurrency, but he or she cannot deny the benefits that blockchain will bring to the world. While Blockchain has seen several iterations over the past 10 years, but the underlying features of it- immutability, transparency, security and decentralization- remains core to the technology.
China has taken concrete steps to make it a part of their core technology. With blockchain firms sprouting all over China as well as huge support from the local government, we will undoubtedly see the rise of Made-In-China blockchain. Nonetheless, the features of blockchain could very well undermine the communist ideology and centralist system that is governing its country. There is also a need to educate its people about the technology and not be blindly attracted by its potential to disrupt industries.
The ability for Blockchain to relegate trust from humans to 1s and 0s is perhaps the greatest feature of the technology, and perhaps, also an imperative one in an era where lies and frauds are weaved seamlessly into our everyday lives. Dubbed the next best thing since the internet, the technology is increasingly getting recognition by governments for its potential to change the way we live, work and interact. Right now, all nations have their eyes set on blockchain. The question is, who will achieve the equivalent of the Sputnik 1, and who will be the first to land on the blockchain moon and win the race?