Is There a Method to Chinese Crypto Policy Madness? Here’s Our Take
By on Altcoin Academy
Judging from all the recent English-language crypto news on China, the regulators there are:
- very positive about blockchain technology,
- rather negative about Bitcoin, and
- getting ready to launch a national cryptocurrency.
Struggling to make sense of what’s going on? You’re not the only one.
Fortunately, we’ve come across a couple of interesting insights in the media that we’ve mashed up to help make sense of the Chinese crypto story.
Insight #1: The Chinese economy is largely cashless, crypto-friendly in practice, and not very privacy-focused.
In an Off the Chain podcast, Primitive Ventures Founding Partner Dovey Wan said that cryptocurrencies — including Bitcoin — are alive and well in the Chinese economy, which is largely cashless. Almost everyone pays for everything digitally with WeChat’s payment feature, crypto, or other such solutions.
In her opinion, when the Chinese authorities roll out their national cryptocurrency, most people will be happy to use it as long as it is easy and safe. Privacy and censorship concerns are not a big concern as long as business can continue as usual.
Also, she didn’t think the Chinese social credit scoring system was that big a deal, given that credit scoring is not well developed there to begin with. Interesting podcast! Worth listening to the whole thing.
Insight #2: Effective economic policy engineering is more about the carrot than the stick, i.e. incentives and ease of business instead of arbitrary rules backed by force.
This interesting article isn’t purely focused on crypto, although it does start with a discussion of Facebook’s Libra cryptocurrency project as a potential workaround for economically sanctioned countries.
What’s worth noting here is the discussion of what actually makes sanctions effective.
- What isn’t effective is simply saying someone can’t use your currency or your banking system. That is the starting place for many US economic sanctions and while it does have some effect, this is mostly a tactical annoyance. Sure, it’s a pain to get kicked out of the US dollar financial ecosystem, for example. But there are workarounds… like cryptocurrencies.
- What is effective is threatening to kick someone out of a powerful marketplace with all its associated “perks.” If you’re on the US blacklist, for example, you can’t sell into the US market. And you can’t go on a vacation there, send your kids to school there, and so on. And people living outside the US don’t want to do business with you in case they get kicked out of the US market as a result.
Now let’s flip this idea around and apply it directly to national currencies themselves.
How could you make a national currency “effective” ? (Without getting too academic let’s say that means being used as a medium of exchange and a store of value.)
- What isn’t effective is just saying that people are obliged to use it as a medium of exchange. By itself, that would have about as much weight as saying people shouldn’t use the currency as described above. Economists love to hate all the historical examples of weak governments simply legislating that their citizens should use this or that piece of paper.
- What is effective — assuming you don’t want to back the currency with a hard asset like gold, which is another story — is making sure that it is plugged into a well-functioning marketplace where people actually need it to buy and sell things.
This element of being “plugged in” is the beauty of the petrodollar system we’ve written about before.
The ugly side of it was how the US dollar was plugged into global market for oil, i.e. it was backed up by US military’s global dominance in the 1970s.
Ethics aside, this artificial backing has not stood the test of time. Domestically, it has allowed the US authorities to pursue inflationary monetary policies. And internationally, as countries like China grow economically they have more power to purchase oil in currencies other than the US dollar.
So now let’s consider how this “plugging” process is going in China.
China appears to be using today’s cryptocurrencies as a “runway” towards a national cryptocurrency that people can use more easily and safely.
In other words, the Chinese economy already runs on digital rails and the authorities will simply give their citizens some good reasons to use the government-sanctioned alternative.
So far, they have created some uncertainty around Bitcoin with theoretically restrictive policies that are loosely enforced in practice. And we doubt they will enforce them harder in the future. Instead, they will just make it easier and more reliable to use Bitcoin alternatives for everyday transactions.
In this way, we might even be so bold as to say that they will be treating their citizens more as consumers than subjects — at least when it comes to payment mechanisms. We’ll be looking forward to similar progress on the internet censorship front.
In any event, like Binance CEO CZ says, we believe that having the option of using the blockchain-powered RMB is better than not having it.
Make sure you’re part of the BlockStamp social community and feel free to ask any questions there!
About BlockStamp:
BlockStamp is a Bitcoin blockchain fork hosting an ecosystem of fair play apps, including a true-odds multiplayer crypto gambling platform, a decentralized marketplace listing optimizer, and a private messenger with sword-in-the-stone encryption (launching soon).
