China has a tangled but interesting relation to crypto. In the past, China was the nation with the largest mining capacity of Bitcoin around the globe and the largest exchange volume. A large portion of those who became overnight millionaires after Bitcoin was booming at the end of 2017 were in China.
Now, Initial Coin Offerings, as well as every other activity related to cryptocurrency, even if it’s just for social media is now completely prohibited. Even the writing of and promotion of cryptocurrency is prohibited.
The Possibility Of A Blockchain To China?
The thing that makes it a bit difficult is that Chinese government is not just thinking that that blockchain technology is essential in the direction of their nation and is currently creating their own digital currency known as Electronic Currency / Digital Payments (DCEP).
Therefore, even though the Chinese government has made a decision that Bitcoin and other cryptocurrency are a bad idea, the actual technology is important to them and they are looking to develop their own digital currency.
Additionally, it’s easy to forget how powerful China had been in the world of cryptocurrency during its rise to the forefront and the huge contribution the citizens of China had in the development of the value of Bitcoin.
Let’s Examine The Development Of Crypto In China.
The Beginning Days (2008-2010)
The concept of cryptocurrency was first introduced in the 90s. The idea was to create an electronic currency that could be transferred without trace and in a non-trustworthy manner that is, in essence, an uncentralized digital currency.
The year 1995 was when American cryptographer David Chaum developed a non-traceable digital currency that was cryptographic, dubbed Digicash. Bit Gold, often called an immediate predecessor to Bitcoin was created at the end of 1998 by Nick Szabo.
It required users to devote computers to solving cryptographic puzzles. Those who completed the puzzles received the money, which is akin to mining.
In October of 2008 Satoshi Nakamoto released a white paper titled Bitcoin A Peer to Peer Electronic Cash System explaining the functioning and capabilities of bitcoin and the Bitcoin Blockchain network.
It is important to note that Bitcoin and other cryptocurrency, wouldn’t be feasible with out blockchain technologies. In simple terms, Blockchain blocks counterfeiting and “Copy and Pasting” digital money, and collaboration between a variety of individuals who are not identified.
Following the publication of the whitepaper, the development of Bitcoin and other cryptocurrency was in full swing. Bitcoins were virtually worthless in the initial few days of existence. Six months after the Bitcoins began trading in April the price of one Bitcoin was just 14 cents.
In 2007, in China, Tencent, the world’s largest provider of both phone and internet services, launched Q Coin which is a rewards program that was developed for the Quick Messaging service. Q Coin was designed to be a reward system to add ons, however when users set up an additional market to purchase or sell their coins,, the government intervened and stop it. In the time of QQ, more than 221 million people used QQ.
As of 2009, government officials had banned the trading of virtual goods in exchange for real money, due to individuals living in China making virtual gold to play games like World of Warcraft and Runescape as a market been created where players with wealth could be able to pay these gamers for their accounts in order to not have to do the work themselves, and thus be in a position to gain.
The most significant thing to remember about this time period is that as Chinese citizens became acquainted with the concept of virtual value. Cryptocurrency became an acceptable concept when comparing it with Q Coin.
A Great Investment Opportunity (2010-2014)
Like many other countries around the globe, China chose to adopt an “wait and watch” approach to regulation of Bitcoin.
In addition to a ban from the government which barred banks and traditional exchanges from investing or trading Bitcoin in 2013 there was no specific regulation in place until 2016. This permitted Bitcoin to thrive in China at the beginning of its growth.
In 2011, China’s first Bitcoin-based exchange in China, BTCChina began operation. It wasn’t until 2013 , however, that Bitcoin really began to gain popularity in China. Prior to this, the only news stories that were relevant to Bitcoin were negative and related to scams, skepticism and connections to illegal markets.
The situation changed in April of 2013, when an Chinese charity known as The One Foundation announced that it accepted Bitcoin (the only cryptocurrency available currently in use around the world at this moment).
After a devastating earthquake struck China in the year 2013, the charity given more than 230 BTC that was valued at around $30,000. along with 1% the money raised for relief. The state media reported positive news and compared Bitcoin with other centralized currencies such as Q Coin.
The Huobi cryptocurrency exchange was established and was later joined by Bitmain which at the time of 2018 had become the biggest maker of computer chips specifically designed for Bitcoin mining. The Chinese state-owned internet search engine Baidu was the first to accept Bitcoin.
Taobao the world’s largest eCommerce site, followed in their footsteps and the the demand for Bitcoin increased. BTTChina was the first major cryptocurrency marketplace in the world in terms of volume, surpassing the famous Mt. Gox.
The rising interest in Bitcoin in China increased the cost from $50 to record levels, with an increase of 800% within a mere two months. The nation’s search engine and the most popular e-commerce website accepting Bitcoin as a form of payment seem to be on the path to gaining legitimacy and widespread acceptance.
In the beginning of December The Chinese central bank as well as five other government departments released a statement that stated that Bitcoin cannot be used to purchase products or services and financial institutions are not allowed to purchase or sell it.
The currency was declared to be illegal. Baidu and Taobao eliminated from their Bitcoin payment options. the following day Bitcoin decreased by 20 percent in value.
China Dominates Mining Market (2014-2016)
When Bitcoin was made illegal to use as a means of payment for goods and services, it can still be used to trade and mine. Lower electricity costs and factories in China that can make low-cost, high-efficiency equipment helped create an Bitcoin mining ecosystem in China.
Bitmain is still the world’s biggest mining company to this day in addition, Chinese Bitcoin miners make around two-thirds of the world’s supply.
In August of 2015 there were Four Chinese Bitcoin mining pools were responsible for 50% of Bitcoin network’s hashrate
The majority of the world’s biggest cryptocurrency exchanges were founded in China as well as BTCC as well as Huobi, OKCoin and KuCoin were also established in China. BTCC and Huobi were to become the top exchanges by volume in the following years.
Goldman Sachs issued a report in 2015 stating that the majority of BTC transactions were linked to the Chinese Yuan. In 2016, it was 90% percent. In 2017, it was just one percent.
In 2016, the total volume of Huobi’s business exceeded $250 billion and represented more than 60% of Bitcoin activity. In addition, the price of Bitcoin jumped 120 percent to $952. In the year 2016, Initial Coin Offerings (ICOs) were the first to become popular.
China Changes Its Mind Toward Ban Cryptocurrency Exchanges (2016-2018)
Initial Coin Offerings marked the start in the decline of the crypto dominance in China. Initial Coin Offerings were buyers purchasing a brand new cryptocurrency token with Bitcoin and basically mirroring the procedure of selling securities however, at the time cryptocurrency was not controlled in China.
The situation changed when the first week of September 2017. Chinese ICOs had raised more than $400 million to this time and caused to the Chinese government to prohibit ICOs in entirety from September 4. The reason for this was the risky nature of the investment. All assets and funds in ICOs were expected to be returned to original investors.
On September 17 , another rule was enacted that prohibited any Chinese cryptocurrency exchanges to trade crypto in exchange for fiat. As a result, many exchanges relocated their operations out of China or moved into Hong Kong, ceased operations completely or became non-fiat not accepting cash deposits, but offering crypto-to-crypto trading and derivatives. However exchanges in international markets were an alternative.
In the early months of 2018, the Chinese government ended its ban by securing on crypto-to-crypto exchanges as well as market over-the-counter as well as blocking access to outside of country cryptocurrency exchanges and ICO websites by using the Great Firewall. The entire crypto market was restricted.
China Is Evaluating Its Own Digital Currency (2018-Present)
In addition to its rigid stance in the field of crypto is the decision of the government to prohibit crypto mining in the year last year. Companies like Bitmain are moving slowly companies out of their country.
The ability to comply with national laws on crypto is now nearly impossible. You can’t even talk about cryptocurrency on WeChat.
Despite its strict stance on regulation on cryptocurrency regardless of whether they’re Bitcoin, Ethereum, Litecoin or EOS, China is extremely attracted to blockchain technology.
In November of 2019, Chinese state media released an article on the front page that praised Bitcoin as an effective application using blockchain technology.
It came a month following Chinese president Xi Jinping declared blockchain an important technological advance and that China would take advantage of the opportunity it offers. He explained the ways that the Chinese government will support blockchain research, development and standardisation.
Additionally, China, more than five years ago was discussing the possibility of the possibility of creating its own digital currency known as Digital Currency/Electronic Payments (DCEP).
China’s DCEP isn’t just an idea, but could become a reality in the near future, there was speculation that it would debut towards the end of the year but it was not the case however, it is likely to be implemented before the year’s end in 2020.
While it is close to completion it is still far from being completed. DCEP is a stark central contrast with Bitcoin and other crypto assets.
First, the government is planning for the distribution of currency via traditional banks as well as the money system, making it completely centralized and as traditional paper money. The blockchain ledger, instead of being distributed through the internet it will be managed by the government as a one source.
Additionally, it is expected be exactly the same as an ordinary currency. It will integrate into the commercial system, and be linked to the Chinese Yuan.
In the end all, the DCEP is another method to allow China to regulate its currency. Chinese government to control currency inside the Chinese economy.
The use of cryptocurrency was a risk to stability in society since they permit capital flight. even traditional currency is impeded from leaving China in huge quantities and is also hard to convert it outside of China.
The Chinese DCEP is an interesting development for blockchain technology, it’s in opposition to the waves that blockchain technology is hoping to create in the traditional world system.