The biggest U-turn in the history of U-turns took place earlier this month, when China suddenly revoked its previous sentiments towards blockchain and declared it an important breakthrough for mankind instead. In October, Chinese president Xi Jinping gave a speech where he said China needs to seize the opportunities presented by blockchain.
It makes him the first major world leader to issue such a strong endorsement of the digital ledger technology which, in the simplest of terms, is a time-stamped series of data records managed by a number of computers and not owned by any single entity. It allows individuals who don’t know and trust each other to transfer value to one another, and has been hailed an absolute game-changer. But until now, blockchain has mostly been ignored or looked at with distrust by governments worldwide.
Capable of enabling faster, cheaper and more transparent financial transactions than those we have today, such as SWIFT, blockchain has been celebrated mostly for its potential in the finance sector. Most notably, blockchain is the technology that enables the existence of cryptocurrency – decentralized, AES-encrypted, peer-to-peer digital money that exists outside the realm of banks, and the supposed answer to all our currency issues.
But the great unknowns of blockchain have also led it to be shunned by the Chinese government, until now. Or until 2017, when China decided it wanted to dominate the global blockchain race. But shortly after it changed its mind. It is actually quite comical, the back-and-forths we have seen from China with respect to its relationship with blockchain: a relationship which is complicated to say the least.
First of all, China is one of the biggest miners of digital currency and yet has actively made crypto illegal. In 2017, it banned a fundraising exercise known as an initial coin offering and forced local trading platforms to shut down. At the same time, the country’s largest bank and regulator of national finance – the People’s Bank of China – has been steadily developing its own digital currency for around five years. China also cracked down severely on any businesses involved in cryptocurrency operations earlier this year, even after Jinping publicly admitted that he thought the country needed to open itself to the blockchain market, which saw Bitocin sink to its lowest level, falling $3,000 in one month.
The move also saw a number of crypto CEOs disappear overnight, taking with them the keys to potentially millions of dollars worth of digital assets. It’s not the first time crypto users have lost out: in December 2018 users lost an estimated $250 million after one platform owner suddenly died, taking with him the access code to his cold wallet and thus users’ assets. Uncertainty surrounding the risk’ of certain forms of cryptocurrency has investors looking into alternatives to the main cryptocurrencies, Bitcoin and Litecoin – looking into the definition of Ripple, Bitcoin’s biggest competitor, and researching the advantages of Ether.
After Xi’s celebrated speech where he voiced his desire for his country to dominate the blockchain market, Bitcoin jumped to above $10,000. Briefly, though. Just a few short days later, the People’s Bank of China urged investors to stay far away from digital currencies and pledged it would continue targeting digital currency exchanges. I am baffled, why aren’t the two working in tandem?
At the same time this was happening, China’s social media platform Weibo banned users from publishing posts that contain blockchain and crypto trading together. I’m lost. Just what does China want exactly? It bans crypto trading, but is the single largest source of crypto mining in the world. It is estimated that over half of all bitcoin and other cryptocurrency mining takes place inside China’s boundaries and millions of citizens own and invest in cryptocurrencies. And while the United States has taken a hard look at classifying miners as broker dealers, China seems to have no problem whatsoever with the underlying technology responsible for all these things – blockchain.
Already, China accounts for 25 per cent of new global blockchain projects and holds the most blockchain-related patents in the world. Among the world’s largest current blockchain and cryptocurrency firms, most of them operate from within Chinese borders. Over 500 blockchain projects have already registered with China’s Cyberspace Administration since last year, and the People’s Bank of China – as already mentioned – is on its way to launching a blockchain-based digital currency payment system that could replace cash one day soon.
It seems Jinping declaring blockchain a national priority has actually begun to work. By demanding that Tier 1 and 2 cities implement their own blockchain as well as digital asset policies and standards, China is slowly overlapping all other countries in the blockchain race to dominance. And, given its status as the second largest economy in the world, they have the capacity to maintain such momentum, putting them in a strong position globally moving into the next century.
