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Bitcoin’s price shot up on Friday on the news that Chinese President Xi Jinping had issued a ringing endorsement of blockchain technology. But how is China using blockchain technology now, and what are the country’s plans for the future of blockchain and cryptocurrencies?
Facebook hopes to launch the Libra stablecoin some time next year, and the social media giant has positioned the project as a way to provide broader access to financial services to people around the world. The current plan is for Libra to be backed by several fiat currencies, though the Chinese yuan is not one of them.
A division of the People’s Bank of China—known as the Digital Currency Research Institute (DCRI)—is in charge of pushing China’s plans for a national digital currency forward. Just weeks ago, the organization announced that it is seeking to hire tech experts to boost its digital currency efforts.
China has made it clear that it’s worried about Libra, yet some Chinese government officials seem rather open, even downright complementary, of Facebook’s endeavor.
During September’s Shanghai Wanxiang Blockchain Conference, a state-backed blockchain event, Li Lihui, head of the Blockchain Research Working Group at the National Internet Finance Association of China, said Libra “will become a trusted organization that issues digital currency,” should it receive the necessary regulatory approvals.
While China has a mixed relationship with digital assets, it’s clear that some within its government see things in Libra that they like, or at the very least respect. The same can likely be said of China’s attitude toward other digital assets, such as Bitcoin.
China, for example, has taken a tough stance against foreign cryptocurrency exchanges, but a recent court case in China’s “Internet Courts” saw Bitcoin recognized as having the same legal status as physical assets. The court ruled that Bitcoin has “value, scarcity and disposability,” and deserves protection from “Chinese property laws.” Digital assets and their utility are definitely on China’s blockchain radar.
In fact, some Chinese institutions—such as the China Merchants Bank—are looking to release their very own decentralized finance (DeFi) applications. As one of China’s biggest banks, the Merchant Bank houses over $1 trillion in assets and brought in more than $30 billion in 2018 alone.
China Merchants Bank announced earlier this month that is has partnered with blockchain network Nevos to provide dapps to customers that offer financial services, though Nevos has yet to provide further details.
China is also home to the world’s top Bitcoin mining company, Bitmain, which last week bested all other crypto startups on this year’s “Global Unicorn List.” The list, authored by the Shanghai-based Hurun Report, analyzed tech startups with a valuation of more than $1 billion, but that are unlisted on stock exchanges, with no private equity investment and less than 10 years old.
All in all, 11 blockchain companies made the list, but Bitmain, with a valuation of approximately $12 billion, topped them all, once again highlighting the importance of Bitcoin mining in China.
Bitcoin mining a no-no?
It’s more than a little curious, then, that China is currently considering implementing a ban on cryptocurrency mining within its borders.
The ban, if implemented, would allow Chinese authorities to “raise electricity prices for relevant businesses to force them to close,” according to the South China Morning Post. The ban could drive mining operations “underground,” force them to set up shop in surrounding nations, or completely shut down, which some industry observers argue could negatively impact the Bitcoin network.
So while China’s president touts the wonders of blockchain, it’s worth noting that the government is simultaneously considering regulations that could adversely affect the crypto industry broadly.
Mass surveillance and smart cities
Worse still is the potential for blockchain technology to be used to bolster the Chinese government’s surveillance state.
Some have even suggested that China’s planned state-backed digital currency is nothing more than a cynical ploy to more closely monitor its citizens’ financial activities.
Add to that the fact that one of China’s largest automakers—Wianxiang—recently sank nearly $30 billion into a new blockchain startup that’s seeking to build a blockchain-powered “smart city” which can track residents’ data.
“Wanxiang City,” is set to become China’s “largest, most interconnected, blockchain-powered smart city,” according to an announcement from the automaker last July. The company’s tech is meant to “track, transfer, and secure critical data such as resident identification cards and smart devices.”
Libra co-founder David Marcus has repeatedly warned that if U.S. lawmakers don’t hurry up and make up their minds on blockchain and cryptocurrency regulations, China will lead the way and get there first.
Those fears may not be unfounded.
As it stands, roughly 74 percent of Bitcoin nodes are Chinese, while about 225 blockchain patents have also been filed in China. And last year, the Cyberspace Administration of China administered new regulatory guidelines that will require all blockchain and crypto-based businesses to register with the government and pass along data regarding their customers.
This includes non-Chinese citizens that utilize the services of these companies, so it doesn’t matter where you’re located. If you hold crypto in a Chinese exchange, for example, your data will probably be examined by Chinese state authorities.
So while China indeed seems to have some big plans for blockchain, not all of those plans are the sort most crypto users will cheer.