Hong Kong, CHINA – It’s no big secret that Beijing is no fan of cryptocurrencies. With a ban on initial coin offerings (ICO) – the issuance of digital tokens for use on a company’s platform and which typically are purchased using other more liquid cryptocurrencies such as Bitcoin and Ethereum – as well as a ban on cryptocurrency exchanges, the Chinese government has pulled no punches when it comes to cryptocurrencies. But despite this animosity towards cryptocurrencies, China has come out to openly back the blockchain technology which makes cryptocurrencies possible, pouring billions of dollars of investment into blockchain startups and Chinese President Xi Jinping has even gone so far as to refer to blockchain technology as part of China’s “economic revolution.” All this has led to observers guessing whether or not China is genuinely anti-cryptocurrency or is it just a case of Beijing being anti-cryptocurrencies that it cannot control. In a recent study by China’s Ministry of Industry and Information Technology, Ethereum, the world’s second largest cryptocurrency by market capitalization, was ranked the world’s best blockchain. Bitcoin ranked thirteenth in the same study. Because Bitcoin has no identifiable leadership, unlike Ethereum which was created by Vitalik Buterin, Beijing can’t enter into negotiations with any group or individual to govern Bitcoin’s use. Which is why observers who are quick to dismiss China’s acceptance of cryptocurrencies may be in for a surprise.
If China’s experience with the internet is anything to go by, Beijing may simply be developing use cases for its own domestic market which will make it easier to control. China already has its own local versions of Facebook (RenRen), Goodle (Baidu), Wikipedeia (Baidu Baike), Twitter (Weibo) and WhatsApp (WeChat) so it wouldn’t be a stretch of the imagination for Beijing to allow the development of its own domestic cryptocurrency capabilities. The fact that Bitmain, one of the world’s largest manufacturers of Bitcoin mining rigs is allowed to continue to operate within the Great Wall should be testament to that. Chinese internet search giant Baidu recently announced an energy efficient cryptocurrency mining protocol, a bold move unless you consider that it was likely sanctioned by Beijing. Adding to all that is the open call by Chinese state-owned English media Global Times calling for Beijing to lift the ban on Bitcoin and instead develop a robust regulatory framework to deal with cryptocurrencies. And while the likes of Alibaba, whose CEO Jack Ma is known to have close ties with the government in Beijing have been backing the blockchain but stopping short of backing cryptocurrencies, all the necessary infrastructure to back a Chinese “Bitcoin” or a Chinese “Ethereum” is already in place.
What will that mean for the decentralized world of Bitcoin advocates? The early adopters of Bitcoin in China were not drawn to it simply for its perceived monetary value, but also what it represented – decentralization of power, something Beijing is anathema to. Later Chinese adopters of cryptocurrencies on the other hand may likely have been drawn in purely for its speculative value as well as its ability to move money out of China. In China, citizens are limited to US$50,000 of foreign remittances a year, a paltry sum when you consider the overall size of the Chinese economy. But if later Chinese adopters were purely into Bitcoin for speculative reasons, then their motivation, being purely pecuniary as opposed to ideological, would be something that Beijing would find easier to deal with. One possibility is for President Xi Jinping and his lieutenants would be the issuance of a Chinese issued cryptocurrency that would be directly convertible with Bitcoin and officially sanctioned for use throughout the Middle Kingdom. With Chinese already used to cashless transactions using WeChat, the tokenization of the Chinese economy would not be asking too much of its citizens. Chinese citizens could swap their Bitcoin holdings for China’s cryptocurrency, use these same tokens to power the numerous blockchain companies rising in technology hubs such as Hangzhou and Shenzhen as well as use them to purchase Chinese company-issued digital tokens. A Chinese-issued cryptocurrency could also theoretically work in China’s fractured healthcare system where currently the vast majority of healthcare data sits on written ledgers, assist in helping to prevent tax fraud and avoidance and alleviate poverty in the less developed inland regions of China. More importantly, the certainty with which a Beijing-backed cryptocurrency would return to the Chinese blockchain and cryptocurrency market would help to shore up confidence in the sector and attract back the thousands of talented Chinese blockchain developers and programmers who have left China for more pro-cryptocurrency countries. The Chinese central bank, the People’s Bank of China has already tokenized checks, putting them on the blockchain, for Beijing to do the same with currency is not a quantum leap. If China’s experience with the internet is anything to go by, Beijing’s issuance of a digital currency is more a question of “when” and not “if.”