China, the Asian fintech giant, has been through a real ‘crypto whirlwind’ since 2013. Judging by the fact that Chinese regulators banned ICOs and cryptocurrency exchanges last year, many now think of the country as rather unfriendly to blockchain tech. However, that’s easy to contradict. Today we’ll shed some light on China’s attitude to crypto, particularly to cryptocurrency mining, and its future plans in relation to it.
‘Ambiguity’ is China’s middle name. In 2013 the People’s Bank of China issued a warning notice on the risks of Bitcoin and prohibited financial institutions from engaging in crypto-related activities.
Three years later however the Chinese government apparently forgot about this and added blockchain to its five-year technology plan instead.
Then, a real ‘hardcore’ crackdown began in 2017. In September, the Chinese government imposed regulation banning all ICOs and crypto-to-fiat exchanges. Three months later, in January 2018, China imposed regulations banning P2P sales and over-the-counter markets. Later, China finished crypto enthusiasts off by blocking access to foreign crypto exchanges and ICO websites.
Despite the fact that the country’s government did not manage to eliminate crypto-related operations for good, its crackdowns made the community skeptical about China’s environment. Before the aforementioned bans were enacted, crypto mining in China had been flourishing and had attracted dozens of giant players from all over the world who wished to locate their facilities in the ‘red superpower’. China was and, perhaps surprisingly, still is home to the world’s largest mining manufacturers, including Bitmain, Canaan, Ebang, to name a few.
To prove how vital the country’s role in the mining market has been, at its peak China accounted for three quarters of the world’s Bitcoin mining operations and over 95% of the Bitcoin trading volume.
Two years ago China was the obvious, if not the only, choice for mining enthusiasts. Low electricity costs were the true temptation for miners, along with an accessible, low-cost and high-efficiency mining hardware. Provincial governments are happy to welcome crypto-based entrepreneurs as they use excessive electricity, meaning more revenue for the local grid.
However, recent statistics show that mining in China indeed requires too much electricity (to compare, it requires the equivalent of the power of three nuclear reactors). When the government’s attitude toward crypto became hostile, several large mining entities unsurprisingly began to look elsewhere for places to base their operations. One of those is Bitmain, a somewhat notorious mining company, which decided to expand its activity to Europe, North America and the Middle East in order not to be affected by a possible request to make an ‘orderly exit’ from the country.
Nevertheless, many still remain bullish on blockchain and crypto in China, based on recent statements made by the country’s President, Xi Jinping. In late May, he mentioned blockchain as a “new generation” technology:
“The new generation of information technology represented by artificial intelligence, quantum information, mobile communication, internet of things, and blockchain is accelerating breakthroughs in its range of applications.”
Following this statement, on June 4, the country’s leading state-run broadcaster – China Central Television (CCTV) – issued an hour-long special about the ledger. During the show, it was said that blockchain is “10 times more than that of the internet” in terms of economic value.
Now it’s time to stop here and ask ourselves: How on earth do these severe crypto-bans coincide with a truly supportive attitude to blockchain? That can be easily explained. China’s policies suggest a “Blockchain > Crypto” attitude. In other words, the government is much more interested in the underlying technology rather than in cryptocurrencies themselves.
China sees the enormous potential of blockchain, as it always does when it comes to the adoption of innovative new technology. Dominating the blockchain development industry can bring a lot of economic wealth to the region. And this process has already begun. For instance, Hangzhou, the home city of Alibaba, has committed $1.6 billion to blockchain company investments.
Plus, the People’s Bank of China (PBoC) is currently developing a blockchain-based digital currency. ‘Decentralized’ power in the hands of centralized giants is a hell of an idea – a terrifying idea. If such a blockchain-based digital currency were to be adopted, the PBoC could easily access all kinds of information about the economic activity of its citizens, thus becoming not a decentralized financial institution, but a veritable dictator.
Blockchain is still a unique and unprecedentedly traceable instrument which can allow the financial authorities of all countries to monitor small-scale transactions and reduce fraud, counterfeiting, and money laundering. By all accounts, we should expect China to be one of the leaders of a new blockchain-based economy in the nearest future.