In 2008, after the financial crisis, a document entitled "Bitcoin: Peer-to-peer Electronic Money System" was published, detailing the concepts of a payment system. Bitcoin was born. Bitcoin has gained worldwide attention for using blockchain technology and as an alternative to fiat currencies and commodities. Described as the next best technology after the internet, blockchain has provided solutions to problems that we have failed to address or ignore over the last few decades. I won't go into the technical aspect of this, but here are some articles and videos I recommend:
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, February 5, to be precise, authorities in China have just unveiled a new set of rules for banning cryptocurrency. The Chinese government already did it last year, but many are bypassing foreign exchanges. Now he has included the almighty Great Firewall of China & # 39; to block access to foreign exchanges in an attempt to stop its citizens from engaging in any kind of cryptocurrency transactions.
To know more about the Chinese government's position, let's backtrack a few years back to 2013, when Bitcoin is gaining popularity with Chinese citizens and prices are rising. Concerned about price volatility and speculation, the Bank of China and five government ministries issued a December 2013 formal notice entitled "Bitcoin Financial Risk Prevention Notice" (Link is in Mandarin). Several points were highlighted:
1. Due to various factors such as limited supply, anonymity and lack of centralized issuer, Bitcoin is not an official currency but a virtual commodity that cannot be used on the open market.
2. All banks and financial institutions may not offer bitcoin related financial services or engage in bitcoin related trading activities.
3. All companies and websites that offer Bitcoin related services must register with required government ministries.
4. Due to the anonymity and cross-border characteristics of Bitcoin, Bitcoin-related organizations must implement preventive measures such as KYC to prevent money laundering. Any suspicious activity, including fraud, gambling and money laundering, should be reported to the authorities.
5. Organizations providing Bitcoin services should educate the public about Bitcoin and the technology behind it, not mislead the public.
In the term unprofessional Bitcoin, Bitcoin is categorized as a virtual commodity (such as in-game credits) that can be bought or sold in its original form and not traded in fiat currency. It cannot be defined as money – something that serves as a medium of exchange, bookkeeping and value storage.
Although the announcement is dated 2013, it is still relevant to the Chinese government's position on bitcoin and, as mentioned, there are no indications of a ban on bitcoin and cryptocurrency. Rather, regulation and education for bitcoin and blockchain will play a role in the Chinese crypto market.
A similar announcement was made in January 2017, reiterating that Bitcoin is a virtual commodity, not a currency. In September 2017, the boom in initial coin offerings (ICOs) led to the publication of a separate notice entitled "Financial Risk Prevention Notice on Issued Markers". Shortly after, ICOs were banned and Chinese exchanges were investigated and eventually closed. (Hindsight is 20/20; they have made the right decision to ban ICOs and stop meaningless gambling). Another blow came from the cryptocurrency community in China in January 2018, when mining operations faced severe reprisals, citing excessive electricity consumption.
Although there is no official explanation for the cryptocurrency crisis, capital controls, illegal activities and the protection of its citizens from financial risk are some of the main reasons cited by experts. In fact, Chinese regulators have introduced stricter controls as a restriction on withdrawal abroad and regulation of foreign direct investment in order to limit capital outflows and secure domestic investment. The anonymity and ease of cross-border transactions have also made cryptocurrency a favorite means of money laundering and fraud.
Since 2011, China has played a crucial role in the meteoric rise and fall of bitcoin. At its peak, China represents over 95% of total bitcoin trading and three quarters of mining operations. With the advent of regulators in controlling trade and mining operations, China's dominance has shrunk significantly in exchange for stability.
Countries such as Korea and India that are monitoring coercive action are already casting a shadow over the future of cryptocurrency. (I will repeat my point here: states regulate cryptocurrency, not ban it). We will undoubtedly see more nations join in the coming months to master the booming crypto market. In fact, some sort of order was rather overdue. Over the last year, cryptocurrencies have experienced unprecedented price volatility, and ICOs happen virtually every other day. In 2017, total market capitalization rose from $ 18 billion in January to its highest level of $ 828 billion.
Nevertheless, the Chinese community is in a surprisingly good mood, despite the replies. Online and offline communities are thriving (I've personally attended many events and visited some of the businesses) and blockchain startups are spreading across China.
Big blockchain companies like NEO, QTUM and VeChain are receiving huge attention in the country. Startups like Nebulas, High Performance Blockchain (HPB), and Bibox also gain a good deal of traction. Even giants like Alibaba and Tencent are also exploring the possibilities of blockchain to improve their platform. The list goes on and on, but you get me; this will be HUGGEE!
The Chinese government has also used blockchain technology and has stepped up efforts in recent years to support the creation of a blockchain ecosystem.
In China's 13th Five-Year Plan (2016-2020), he called for the development of promising technologies, including blockchain and artificial intelligence. He also plans to step up research on the implementation of fintech in regulation, cloud computing and big data. Even the National Bank of China is also testing a blockchain-based prototype digital currency; however, as it is likely to be a centralized digital currency, slapped with some encryption technology, its adoption by Chinese citizens remains to be seen.
The launch of the Open Trusted Blockchain Open Lab, as well as the China Blockchain Technology and Industry Forum by the Ministry of Industry and Information Technology, are some of the other Chinese government's initiatives to support blockchain development in China.
A recent report, entitled "China Blockchain Report Report 2018" from the China Blockchain Research Center, details the development of the blockchain industry in China in 2017, including the various measures taken to regulate the cryptocurrency in the mainland. In a separate section, the report highlighted the optimistic outlook for the blockchain industry and the tremendous attention it received from VC and the Chinese government in 2017.
In summary, the Chinese government has shown a positive attitude towards blockchain technology, despite its application in cryptocurrency and mining operations. China wants to control cryptocurrency and China will get control. The repeated application by regulators was intended to protect its citizens from the financial risk of cryptocurrencies and limit capital outflows. It is now legal for Chinese citizens to own cryptocurrencies, but they are not allowed to make any form of transaction; hence the ban on exchange. As the market stabilizes over the coming months (or years), we will undoubtedly see a resurgence of Chinese cryptocurrency. Blockchain and cryptocurrency come hand in hand (except for the private chain where the tag is unnecessary). That way, countries can't ban cryptocurrency without banning blockchain awesome technology!
One thing we can all agree on is that blockchain is still in its infancy. Many exciting developments await us and now is definitely the best time to lay the foundation for a blockchain-enabled world.
Last but not least, HODL!