From hater to embracer (sort of): China’s U-Turn on cryptocurrencies
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For many months China seemed to be waging war on cryptocurrencies. But now things are turning around.
Last year, censors shut down several cryptocurrency media outlets and exchanges and prevented hotels and offices from hosting promotional events. ICOs made illegal by regulators.
In April this year it proposed a ban on bitcoin mining. Also proposed to be banned were 450 other activities deemed to be unsafe, polluting or wasteful.
Central bank deputy governor Pan Gongsheng reflected at the end of 2018 that if not for government crackdowns, the market would be huge.
“If things were still the way they were at the beginning of the year, over 80 per cent of the world’s bitcoin trading and ICO financing could take place in China,” he said.
But it never formally banned cryptocurrencies. In fact the most recent formal ruling on bitcoin was a court decision that it could be considered property. It made clear that bitcoin did not have the legality of an official currency.
Yet, because bitcoin had value, was scarce and could be used as a means of transferring value, it was deemed a commodity.
And this was not just from a random tier 3 city court. It was from a dedicated internet/cyber court in China and of all cities in Hangzhou, home to China’s first blockchain park.
Varying responses came from local blockchain advocates. On one hand, some such as Primitive Ventures’ Dovey Wan, said it was a watershed moment. Others, while welcoming the move, noted the average Chinese person still could not feel safe trading within an onshore exchange.
But the one impediment in China’s crypto-space is now becoming its biggest advocate. The government is working on its own cryptocurrency, but with a difference.
Such a currency would be run directly by the People’s Bank and issued only to consumer banks that could then issue it to the public.
Mu Changchun, deputy director of the People’s Bank of China, argued at a closed door conference that such a two-tier system would restrain demand for crypto assets and strengthen the country’s sovereign currency.
As Mu noted, China’s conventional payments network handled 92,771 payments per second at last year’s Single’s Day, whereas bitcoin can handle only 10. Even Facebook’s Libra would only do 1,000.
“For a country as big as China, it’s impossible to achieve high scalability by purely relying on blockchain,” he said.
“As such we have decided to remain technologically neutral and do not necessarily rely on one fixed technological path.”
It could launch as early as Single’s Day (November 11). When it happens the currency will go to seven institutions — five banks and Chinese business giants Alibaba and Tencent.
As a currency held by the government it will inevitably be more stable than other cryptocurrencies. Government sources revealed that eventually it could be made available to western consumers through correspondent banks.
But this would be contingent on western governments allowing the technology. As the first central bank to issue cryptocurrency, it is likely the rest of the world may follow if it is successful, especially if relations with China remain tense.
For now the west will have to sit back and watch at how a centralised crypto works compared to a decentralised crypto.
Companies that export to or provide services in China, Fintech Chain (ASX:FTC) being one such example, will likely be watching closely.