What is China’s Role in the Future of Blockchain & Crypto?
After listening to Unchained’s recent interview with Changpeng Zhao, I started thinking about the impact China has on the blockchain space. Well-known for its harsh regulations and a debatable approach towards privacy, China doesn’t exactly have the best reputation. However, it was interesting to hear what Changpeng, or CZ, thought about the current SEC regulations in the United States and how they compare to the bans imposed by the Chinese government earlier this year.
CZ is the founder and CEO of Binance, the world’s largest cryptocurrency exchange by trading volume. In a rather heated discussion with Unchained host Laura Shin, CZ shared his thoughts on security tokens and why he’s in no rush to enter the US market. CZ accused Shin of holding a ‘US-centric view’ and reiterated his belief that what Binance does by avoiding countries with harsh regulations is not only logical but ethical.
The interview was high-octane and highly relevant as we find ourselves on the edge of an industry-wide shift towards STOs. Inspired, I decided to do a deeper dive to explore the current status of blockchain and crypto in China.
Mobile Payments in China
WeChat Pay and Alipay are so popular in China that even street performers and taxi drivers are paid electronically. According to Business Insider, mobile payments in China have grown into a $16 trillion market with 92% of people in large cities stating they use WeChat Pay or Alipay as their primary payment method.
In this landscape, it makes sense that consumers would transition to cryptocurrencies with ease. In September 2017, Renminbi-to-Bitcoin trades accounted for approximately 90% of global trading activity.
Support For Blockchain Innovation
Such staggering popularity unnerved the Chinese government, which immediately banned cryptocurrency trading and ICO investment. Despite this, Chinese authorities appear to be embracing blockchain technology, with the China Center for Information Industry Development releasing ratings for different cryptocurrencies based on ‘a comprehensive investigation and evaluation of the public chain from three aspects: basic technology, application, and innovation.’
The Chinese government stated the reason for such reports was to fulfill the need for unbiased and independent research.
In 2016, the Chinese government added blockchain development to its Five-Year Plan. In early 2018, the president of China, Xi Jinping, stated that the government would commit $1.6 billion to the development of blockchain technologies in China.
As China continues its cryptocurrency crackdown by banning anything related to crypto trading and events, it continues to accelerate blockchain development, begging the question: is blockchain innovation truly possible with such tight restrictions of cryptocurrencies?
Chinese Crypto Mining
China is well-known for cryptocurrency mining due to competitive electricity prices, hardware availability, and the size and stability of local mining pools. At its peak, Chinese miners were producing 95% of all Bitcoin and currently produce a still-impressive 70% of the Bitcoin network.
This drop is due to the Chinese government targeting mining pools by reducing electricity supply in an attempt to make an ‘orderly exit’ from the crypto business. The Economic and Information Commision previously stated that mining operations ‘contribute nothing to the region’s economy besides consuming a spiking volume of electricity.’
Regardless, crypto mining giant Bitmain continues to flourish in China, valued at $12 billion in July 2018. Bitmain produces ASIC chips which are a popular choice for cryptocurrency mining. 96% of their revenue comes from selling mining rigs and only 3% from mining. Although controversial, Bitmain continues to grow, recently expanding to the US where they plan to invest $500 million in a blockchain mining farm in Texas.
People’s Bank of China: CryptoYuan
Alongside research into blockchain technology, the People’s Bank of China is allegedly working on their own government-backed cryptocurrency. IG Group, a UK-based company providing financial derivatives trading, assumes any national cryptocurrency would be ‘introduced alongside China’s primary currency, the yuan, with the intention of catering to the millions of citizens who lack access to standard banking services.”
It’s logical for the government to get involved with cryptocurrencies as a reported 3 million Chinese people are still holding on to their crypto assets despite bans.
Although nothing is concrete, there’s already talk that a Chinese government-backed cryptocurrency could be even bigger than Bitcoin. The Chinese government may want to cash-in on the popularity of crypto by overtaking existing coins as well as mining their own.
‘It is unlikely that any government-backed cryptocurrency would kill off bitcoin or other large cryptos completely, but some of the smaller alt-coins could have a tougher time of it…The PBoC have stated that only the digital currency issued by them will be recognised nationally, excluding other coins such as bitcoin or ether. As foreign cryptos are already banned in China, the government would essentially force mining operations to switch to the national crypto. This could impact global mining communities, and reduce the value of bitcoin as it becomes less popular. A government endorsement could see the crypto gain popularity worldwide, as it becomes seen as credible in the eyes of the public.’
One of the most notable features of crypto is its decentralized nature and independence from authorities. As we hear of governments who want to introduce their own cryptocurrencies, it is critical to ask why. For Venezuela, who will launch their national coin, Petro, in November, it is clear their primary motivation is economic, as they are currently suffering from severe hyperinflation under US-imposed sanctions.
As the Chinese economy has boomed in recent decades, their motives are entirely different. Given the introduction of the Social Credit System, which will become mandatory for all citizens and business from 2020, the Chinese government could use their national cryptocurrency to survey their citizens further, scrutinizing every transaction under the guise of tracing money laundering or illegal activities.
Regardless of motives, it is fascinating to see how the versatility of cryptocurrencies could be adopted in different ways, for a variety of reasons. As someone who believes in the decentralized, transparent nature of blockchain technology, I am excited to see how everything unfolds which will hopefully be to the benefit of people around the world who have been disregarded from our existing financial structures and let down by greedy governments.
Given the scale and speed at which China is developing, any advancements within the blockchain space should be taken seriously by the rest of us, especially governments, around the world. Although China remains controversial, the popularity of emerging technologies among its citizens and businesses alike is promising.
Typically, we only see such an eager embrace of blockchain and cryptocurrencies in developing countries who lack strong economies or stable governments. In his interview, CZ also mentions the flexibility of smaller countries such as Malta, Jersey and Bermuda and how he prioritizes working with governments who want to work with Binance, not necessarily the ones who have all the money today.
He makes a good point. Western nations have been slow to adopt, influenced by old markets and bureaucratic systems and it is inevitable that the global hierarchy we see today will surely flip as emerging markets like China, Brazil, and India prove that long-term, future-focused vision is more effective in a technological, decentralized world.
Header image: PYMNTS.com
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Sea Foam Media is a blockchain, ICO & STO agency headquartered in San Francisco, with representation in New York, London, and Asia. I work out of our London office as the Director of Media. You can find me on Twitter or LinkedIn.
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