For China watchers and blockchain observers, China is a complex nation of extremes in its passionate embrace of blockchain technology while trying, with all its might, to stomp private cryptocurrencies out of existence.
From banning crypto trading and mining to massive nationwide testing of a central bank digital currency (CBDC) now at the cusp of launch, China’s big moves this year may be shocking but in fact were not unexpected.
Here are the top China blockchain-related stories in 2021 that you should be aware of.
China got an early start studying what a central bank digital currency might mean for a country. In 2014, the People’s Bank of China began looking at the possibility of a government version of Bitcoin. With each passing year, the disappearance of paper yuan from the economy made the idea more feasible. By 2019, accounting firm PricewaterhouseCoopers reported that 96% of Chinese were regularly shopping online.
By spring 2020, the digital yuan was ready for pilot testing in four major Chinese cities. The authorities have given away at least 344 million digital yuan (US$54 million) in successively larger tests since, according to data compiled by Forkast.News, based on publicly available information.
Mu Changchun, director-general of the People’s Bank of China’s digital currency institute, said in November at Hong Kong Fintech Week that as of October, about 140 million people have opened personal e-CNY wallets and 10 million have created corporate wallets. Meanwhile, the e-CNY transaction value amounted to 62 billion yuan (US$9.7 billion), and 1.55 million merchants now accept e-CNY payment, including utilities, catering services, transportation, shopping and government services.
China’s ambition for the e-CNY doesn’t stop at just facilitating its domestic residents for their daily spending. It wants to make cross-border payment easier, using the digital yuan.
“Now we’re entering the phase-two research — that is, to explore the approaches for interlinking the e-CNY and the Faster Payment System in Hong Kong,” Mu said this month at a webinar jointly organized by the PBOC and the Hong Kong Monetary Authority. The authorities hope in the future, for mainland tourists traveling to Hong Kong, they could make payments to local merchants with e-CNY while the merchants could receive directly in HKD.
See related article: China’s new mobile payment rules could pave the way for e-CNY, experts say
All the above measures could be paving the way for the Beijing Winter Olympics in February, where many expect the digital yuan to be fully rolled out. Fan Yifei, a deputy governor of the PBOC, said in September the preparations for e-CNY use during the Winter Olympics has entered a “sprint stage.”
As the digital yuan testing began to resemble a soft rollout and more e-CNY entered China’s economy, crimes related to the e-CNY also began cropping up. At least seven cases ranging from money laundering to scams related to the e-CNY have occurred, according to Forkast.News’ calculation based on publicly available information.
On Sept. 24, China dropped the news that the country is banning all crypto transactions and crypto mining activities. To the shock of the crypto industry in China and abroad, Chinese authorities also suggested that they could go after overseas companies and Chinese nationals engaging in now-prohibited activities.
Industry reactions were swift. Many crypto exchanges and platforms — including Huobi, BitMart, BHEX, Cobo and Gate.io — said they would stop registering new mainland users and phase out existing users. OKEx and Binance also reiterated their services have been blocked in mainland China since 2017.
Overseas Chinese communities and crypto companies that employ Chinese nationals were also alarmed and confused by how people and companies outside China providing crypto services that are perfectly legal in those jurisdictions could still find themselves subject to an investigation by China and being in violation of the mainland’s new anti-crypto law.
See related article: China’s crypto investors get creative to bypass domestic trading ban
But even as China cracks down on crypto activities with all its might, throwing down more thunder and lightning than ever before, some crypto users and workers are finding creative cover right under the authorities’ noses and finding new ways to continue their crypto business as usual.
Some investors on the mainland are now registering as overseas companies to bypass the know-your-customer checks and that allows them to keep trading crypto as corporations.
Crypto mining’s great migration
Until this year, China was one of the major cryptocurrency-producing countries in the world.
But all that started to change this spring as one region after another — including Inner Mongolia and Xinjiang regions, as well as Qinghai, Yunnan, Sichuan, Hebei and Gansu provinces — imposed restrictions or outright bans on crypto mining on crypto mining.
On Sept. 24, the National Development and Reform Commission (NDRC), the country’s top economic planner, jointly issued a notice with 10 other authorities to wipe out crypto mining nationwide. The NDRC has also proposed to label the crypto mining industry as “outdated,” which effectively serves as a government prohibition on investments in the sector.
See related article: China’s crypto presence shrinks, while the U.S. rides the tide
As a result of the clampdowns, crypto miners from China — which before the ban produced about 70% of the world’s hashrate for Bitcoin — have been fleeing to friendlier shores. Some of their early favorite destinations include Kazakhstan, North America and Northern Europe.
The U.S., in particular, has been a big recipient country from the exodus. In fact, the U.S. has overtaken China’s leading position in crypto mining, according to the latest data from the Cambridge Centre for Alternative Finance. At the end of August, the U.S. accounted for 35.4% of the global hashrate share — which refers to the level of computing power required to mine — representing a significant surge from 16.8% at the end of April.
Kazakhstan came in second with 18.1% of the global hashrate share, up from 8.2% at the end of April, while Russia’s share climbed to 11.2% from 6.8%, the Cambridge data show.
But even with a nationwide ban, China has not managed to fully stamp out crypto mining within the mainland’s borders. For example, Qihoo 360, a Chinese internet company best known for its antivirus software programs, has built a system that could help the Chinese government track crypto mining activities. The company recently detected 109,000 active crypto mining IP addresses still operating daily in November, mainly in the Guangdong, Jiangsu, Zhejiang and Shandong provinces.
Meanwhile, it’s worth noting that despite the forced migrations and disruptions, crypto mining seems to have already bounced back. Following China’s crackdown on the sector, Bitcoin’s hashrate plunge by over 50% to 84.79 million TH/s on July 3, the lowest since September 2019. But this month, the Bitcoin hashrate has already nearly fully recovered to the pre-China ban level, according to data from Blockchain.com.
Expanding Blockchain-based Service Network
While China tries to kill off its domestic cryptocurrency industry, it is actively developing its Blockchain-based Service Network (BSN).
China announced the launch of the BSN — the public-private nationwide infrastructure project to spur mass adoption of blockchain technology — in April 2020 as a joint initiative of the State Information Center, China Mobile, China UnionPay and Red Date Technology. In July 2020, the BSN separated into two ecosystems, BSN China and BSN International.
Red Date Technology, the company China tapped to manage the BSN, is now engaged in a series of partnerships to launch portals outside the mainland’s borders, specifically available for users in Hong Kong, Macau, South Korea, Turkey and Uzbekistan.
On top of that, BSN in October said it has partnered with a New York-based blockchain company to advance interoperability as BSN actively expands its global presence to lure more developers to use the blockchain network.
China’s BSN efforts are already paying off. In November, non-fungible tokens (NFTs) featuring famous traditional Chinese paintings by culture studio Rongbaozhai were successfully transferred from BSN’s WenChang Chain to the OpenSea marketplace on the Ethereum blockchain, a milestone in the development of interchain technology for NFTs — a fast-growing industry now worth US$7 billion.
But will China — which has also been issuing denunciations and warnings this year against NFT speculation through its network of state-controlled media — allow NFTs to remain legal?
Stay tuned for 2022!