Fear Not, China Is Not Banning Cryptocurrency

In 2008 following the financial crisis, a paper titled "coin: A Peer-to-Peer Electronic Cash System" was published, detailing the concepts of a payment system. coin was born. coin gained the attention of the world for its use of blockchain technology and as an alternative to fiat currencies and commodities. Dubbed the next best technology after the internet, blockchain offered solutions to issues we have failed to address, or ignored over the past few decades. I will not delve into the technical aspect of it but here are some articles and videos that I recommend:

How coin Works Under the Hood

A gentle introduction to blockchain technology

Ever wonder how coin (and other cryptocurrencies) actually work?

Fast forward to today, 5th February to be exact, authorities 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 foreign exchanges. It has now enlisted the almighty 'Great Firewall of China' to block access to foreign exchanges in a bid to stop its citizens from carrying out any cryptocurrency transactions.

To know more about the Chinese government stance, let's backtrack a couple years back to 2013 when coin was gaining popularity among the Chinese citizens and prices were soaring. Concerned with the price volatility and speculations, the People's Bank of China and five other government ministries published an official notice on December 2013 titled "Notice on Preventing Financial Risk of coin" (Link is in Mandarin). Several points were highlighted:

1. Due to various factors such as limited supply, anonymity and lack of a centralized issuer, coin is not a official currency but a virtual commodity that cannot be used in the open market.

2. All banks and financial organizations are not allowed to offer coin-related financial services or engage in trading activity related to coin.

3. All companies and websites that offer coin-related services are to register with the necessary government ministries.

4. Due to the anonymity and cross-border features of coin, organizations providing coin-related services ought to implement preventive measures such as KYC to prevent money laundering. Any suspicious activity including fraud, gambling and money laundering should to be reported to the authorities.

5. Organizations providing coin-related services ought to educate the public about coin and the technology behind it and not mislead the public with misinformation.

In layman's term, coin is categorized as a virtual commodity (e.g in-game credits,) that can be bought or sold in its original form and not to be exchanged with fiat currency. It cannot be defined as money- something that serves as a medium of exchange, a unit of accounting, and a store of value.

Despite the notice being dated in 2013, it is still relevant with regards to the Chinese government stance on coin and as mentioned, there is no indication of the banning coin and cryptocurrency. Rather, regulation and education about coin and blockchain will play a role in the Chinese crypto-market.

A similar notice was issued on Jan 2017, again emphasizing that coin is a virtual commodity and not a currency. In September 2017, the boom of initial coin offerings (ICOs) led to the publishing of a separate notice titled "Notice on Preventing Financial Risk of Issued Tokens". Soon after, ICOs were banned and Chinese exchanges were investigated and eventually closed. (Hindsight is 20/20, they have made the right decision to ban 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 activities and protection of its citizens from financial risk are some of the main reasons cited by experts. Indeed, Chinese regulators have implemented stricter controls such as overseas withdrawal cap and regulating foreign direct investment to limit capital outflow and ensure domestic investments. The anonymity and ease of cross-border transactions have also made cryptocurrency a favorite means for money laundering and fraudulent activities.

Since 2011, China has played a crucial role in the meteoric rise and fall of coin. At its peak, China accounted for over 95% of the global coin 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.

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