In 2017 following the financial crisis, a newspaper titled”Bitcoin: A Peer-to-Peer Electronic Cash System” was published, detailing the concepts of a payment method. Bitcoin was born. Bitcoin gained the interest of the world because of its usage of blockchain technology and instead to fiat currencies and commodities. Dubbed the following best technology following the web, blockchain offered answers to issues we’ve neglected to address, or ignored over the last few decades. I will not delve into the technical aspect of this but here are some videos and articles that I advocate:
- The Way Bitcoin Works Under the Hood
- A gentle introduction to blockchain technology
Ever wonder how Bitcoin (and other cryptocurrencies) actually operate?
Fast forward to now, 5th February to be accurate, police in China have just unveiled a new set of regulations to ban cryptocurrency. The Chinese government have already done so last year, but many have circumvented through overseas exchanges. It’s enlisted the almighty’Great Firewall of China’ to obstruct access to foreign exchanges in an attempt to stop its citizens from carrying out any cryptocurrency transactions.
To find out more about the Chinese government stance, let us backtrack a couple years back into 2013 if Bitcoin was gaining popularity among the Chinese citizens and costs were soaring. Concerned with the cost volatility and speculations, the People’s Bank of China and five other government ministries published an official note on December 2013 branded”Notice on Preventing Financial Risk of Bitcoin” (Link is in Mandarin). Several points were emphasized:
- 1. Due to different factors like limited supply, anonymity and lack of a centralized issuer, Bitcoin isn’t a official currency but a virtual commodity that can’t be utilised in the open market.
- 2. All banks and financial organizations are not allowed to offer Bitcoin-related monetary services or engage in trading activity related to Bitcoin.
- 3. All businesses and websites that offer Bitcoin-related services are to register with the essential government ministries.
- 4. Due to the anonymity and cross-border attributes of Bitcoin, organizations supplying Bitcoin-related services ought to implement preventive measures like KYC to reduce money laundering. Any questionable activity like fraud, gambling and money laundering must be reported to the authorities.
- 5. Organizations supplying Bitcoin-related services ought to educate the public about Bitcoin and the technology supporting it and not mislead people with misinformation.
In layman’s term, Bitcoin is categorized as a digital commodity (e.g in-game credits,) that can be bought or sold in its initial form rather than to be exchanged with fiat currency.
Regardless of the notice being obsolete in 2013, it is still relevant with respect to the Chinese authorities stance on Bitcoin and as mentioned, there is no sign of the banning Bitcoin and coinmarketcap. Rather, regulation and education about Bitcoin and blockchain will play a part in the Chinese crypto-market.
A similar notice was issued on Jan 2017, again emphasizing that Bitcoin is a virtual commodity and not a money. Soon after, ICOs were prohibited and Chinese inventories were investigated and finally shut. (Hindsight is 20/20, they’ve made the ideal decision to prohibit ICOs and stop senseless gambling). Another blow was dealt to China’s cryptocurrency community in January 2018 when mining operations faced serious crackdowns, citing excessive electricity consumption.
While there is no official explanation on the crackdown of cryptocurrencies, capital controls, illegal actions and protection of its citizens from fiscal risk are some of the main reasons cited by experts. Indeed, Chinese authorities have implemented stricter controls like overseas withdrawal cap and regulating foreign direct investment to restrict capital outflow and ensure domestic investments. The ideology and simplicity of cross-border trades have also made cryptocurrency a popular means for money laundering and fraudulent actions.
Since 2011, China has played a crucial part in the meteoric rise and collapse of Bitcoin. During its summit, China accounted for over 95 percent of the global Bitcoin trading volume and three quarters of the mining operations. With regulators stepping in to control trading and mining operations, China’s dominance has shrunk significantly in exchange for stability.
With nations like Korea and India after lawsuit in the crackdown, a shadow is currently casted over the long run of cryptocurrency. (I will reiterate my purpose here: nations are regulating cryptocurrency( not banning it). Certainly, we’ll see more countries join in from the forthcoming months to rein in the tumultuous crypto-market. Indeed, some kind of arrangement was long overdue. Over the last year, cryptocurrencies are undergoing price volatility unheard of and ICOs are happening literally every other moment.