Few would argue that China’s recent quashing of cryptocurrency trading and mining has contributed to the recent plummeting in the value of bitcoin and other cryptos. Instead, the initiatives emanating out of Beijing are being perceived as a sign of China’s flings at incubating its own burgeoning e-currency and resetting the international financial system. Do not panic at the alarums, however. Cryptocurrencies are to international finance what the Internet was to the knowledge economy. We are fated to follow The Yellow Brick Road – Chinese Crypto Heaven sans noise our common inevitable experience with the CCP in near future.
Stymying big online businesses
Cryptocurrencies like bitcoin had evolved into speculative tools and were bringing possible risks to financial security. Beijing has designed to let online businesses prosper in China, but the government in Beijing has been relentless downsizing them if they become big and therefore threatening. Jack Ma, of Alibaba fame, vanished suddenly from public view for months the previous year, and his company was fined and ordered into downsizing.
Regulators have also picked on tech giants Tencent and Bytedance, the respective parents companies of WeChat and TikTok. This week ordered the ridesharing app, Didi, to be pulled from app stores and launched an inquiry. Some online industries, such as cryptocurrencies, are seen to have attained a threatening size. The government thinks It’s time for them to block such transactions from capital sources. This would stem the flow of money from real industries to those transactions.
Ant Group has had to turn over its vast customer database to the government to ease strict regulations. Furthermore, China may be aiming to nationalise the country’s financial services, giving the government control over all savings, transactions, and credit scores.
Energy consumption issues and viable alternatives for mining fueling
Still, another reason why China wants to clean up the cryptocurrency business within its own realms is the likely threat to the electricity system. This is because the process utilises a massive amount of electricity and has characteristically been set up in areas with cheap power. In China, that has included Sichuan, which enjoys plentiful and cheap hydroelectric power. Nevertheless, as profits rise thanks to the popularity of cryptos, governments may be becoming less willing to allow miners to accrue huge benefits from a system that uses so much electricity it can threaten the stability of the power grid.
Some miners were initially upset after China imposed a sweeping ban on Bitcoin mining and trading in late May but since moved into Filecoin mining, which hopefully would be more stable since it is “less energy consuming.”
Indiscriminate banning is infeasible, even for Beijing
But cryptos are still an extremely attractive asset for many investors who see nothing to fear from China’s crackdown and that mining will simply migrate to other more accommodating jurisdictions with little impact on the market.
Cryptos can be as useful as the internet, but the fraudsters and money launderers have to be weeded out.
China also put under arrest over 1,100 people last month for involvement in activities that used cryptocurrencies for money laundering.
A new exodus for the miners?
Many Chinese miners are embracing a wait-and-see approach for the moment. However, he expects a big shift overseas to occur around China’s National Day holiday in October, considering the more clement legal environment in places like the US. His firm provides mining power migration services and operates crypto mining operations in North America and Australia.
Cheaper energy sources
Still, another reason why China wants to clean up the cryptocurrency business in its own backyard is the likely threat to the electricity system. The process guzzles a huge amount of electricity and has characteristically been set up in areas where cheap power is available. In China, that has included Sichuan, which enjoys abundant and cheap hydroelectric power. But as profits rise owing to the popularity of cryptos, governments may be becoming less willing to allow miners to accrue huge benefits from a system that uses so much electricity it can threaten the stability of the power grid.
Wait and see – convincing authorities of the usefulness of lesser-known cryptos
The forum’s title was mysterious-sounding even by cryptocurrency criteria: Web 3.0 Blockchain Application Cum Computing Power Overseas and Distributed Storage Conference.
But attendees of the Chengdu event were sure why they turned up in the midst of a government quelling on Bitcoin mining. So they’re prospecting for ways to remain in crypto, even if it means trying their luck in remote parts of the ecosystem that just might escape Beijing’s umbrage.
While plenty of miners have scooted China, these crypto zealots are betting they can continue to prosper under Communist Party oversight by shifting into obscure tokens and decentralised storage technologies with monikers like Filecoin, Swarm, Silicon and Chia. It’s a high-octane risky wager at a time when Xi Jinping’s government is calibrating the scrutiny of energy-guzzling industries.
Filecoin is a “grey area business that hasn’t yet caught regulators’ eye.
Some miners are investing heavily in Ethereum and blueprinting to more than double from 30 the number of mining complexes they might be running across eastern China.
Some have bet on Swarm. The coin’s miners are recognised for the data storage and processing services they render, which are subsequently used in the distributed storage ecosystem as data interactions payments. So they are more than sanguine the government would endorse the digital asset even as it squashes other areas of crypto.
Harnessing synergies of crypto thru control
The crescendo of alarm in Beijing is at the size of the native crypto industry. The threat of an unregulated unconventional monetary system arising from blockchain technology is an all-too-clear danger to the Communist party.
China is worried about the threat posed by these digital currencies developed outside the regulated financial system’s purview.
Another innovative experiment – cryptos for medical insurance
the first round of “digital yuan insurance policy” was very recently issued in Shenzhen, south China’s Guangdong Province, underlining the use of digital yuan in China’s insurance industry for the very first time.
The Shenzhen subsidiary of Pingan Property Insurance, collaborating with the Bank of China branch in Shenzhen, issued the first batch of “digital yuan insurance policy”.
This particular insurance dealt with medical workers in the Nanshan district, seeking to provide medical workers with
- 300,000 yuan ($4,6221.40) compensation in the event of an insured medical worker dying of COVID-19,
- 50,000 yuan allowance in case a medical worker was diagnosed with COVID-19, and
- 50,000 yuan compensation for accidental death.
Furthermore, applicants are qualified for exclusive preferential allowance in case applicants use the digital yuan wallet to make payments.
The issuance of such insurance policies has delineated the Chinese insurance industry’s pilot application of digital yuan to the online insurance fee settlement scenario.
The Pingan Property Insurance envisages still more exploration of the application of digital yuan in insurance claims, payment, and other aspects, and the continuing use of digital yuan in the insurance industry to more application scenarios.
E-yuan vs USD
China needs cryptos – china must lessen dependence on the USD, thus must need to develop an alternative. It will not destroy the whole ecosystem but bring large parts of it under control. Developing avenues for the digital yuan to sidestep USD in the international finance system is a set goal.
The People’s Bank of China projects becoming the first major central bank to issue a central bank digital currency. While the West’s PBOC counterparts have taken a more gingerly approach, the Chinese entity has held trials in a number of major cities, including Shenzhen, Chengdu, Shanghai, and Hangzhou. The benefits of e-currency are beyond ordinary calculus. As an increasing volume of transactions is made using a digital currency controlled centrally, there’s an accelerated accretion in the government’s ability to surveil the economy and the people. The CBDC rollout is also seen as part of Beijing’s push to weaken the power of the US dollar. China holds that internationalising the yuan can whittle down its dependence on the dollar-dominated global banking system. Alarm in western governments to the degree that the threat posed by the digital yuan, which could levitate China out of reach from international financial sanctions, for instance, was discussed at last month’s G7 meeting.
In 1944 the US dollar was established as the reserve currency for global trade. It has kept its dominance since it is comparatively stable and readily transferable. One consequence was that the United States could both monitor financial transactions and penalise entities that violated global democratic norms.
The US scrutinises these transactions via the Society for Worldwide Interbank Financial Telecommunications (SWIFT) in Belgium, a messaging system that keeps an eye on electronic payments between international banks.
A digital currency would permit direct transfer between global banks that could theoretically bypass the SWIFT monitoring system but still have the support of a central bank (rather than cryptocurrencies like Bitcoin that are unregulated). An alternative government-backed currency directly transferable would permit US-sanctioned countries to buy and sell with China.
The digital yuan could give those the US seeks to penalise a way to exchange money without the US being aware of the same. Exchanges would keep going without SWIFT, the messaging network used in money transfers between commercial banks and monitored by the US government.
The Chinese government is specifically interested in bypassing SWIFT. As a result, the list of Chinese individuals, politicians, and companies on the US sanctions list continues its ascent. China, similarly, has sanctioned several US politicians. However, since the US dollar is the currency for global trade, US sanctions are of far more import than China’s.
Beijing is especially concerned given the fast-expanding part of the sanctions register: more than 250 Chinese names. The opportunity to weaken the power of American sanctions is pivotal to Beijing’s marketing of the digital yuan and to its efforts to internationalise the yuan.
Exporting Authoritarian “Controllable Anonymity”
While the US, Japan, and several other countries are also focussing on digital currencies, China is aggressively going after the advantages that accompany global currency dominance.
The nodding acquiescence of the rest of the world could potentially mean an authoritarian model of privacy and governance being exported abroad to other countries developing their own [Central Bank Digital Currencies]. Here, the implication would be other countries taking after the “controllable anonymity” model the [People’s Bank of China] is currently using for its digital RMB. In the latter case, the central authority has access to one’s transaction information, while counterparties may keep their anonymity with one another.
In a translated speech published on Hong Kong’s Blockchain Society’s website, China’s President Xi Jinping said that China has to accelerate the development of blockchain technology and actively push its social-economic integration in PRC society. As per Xi, it is imperative that basic research be strengthened, original innovation ability be enhanced, and China taking the leading position in the emerging field of blockchain be striven for, facilitating the occupation of the heights of innovation.
Xi’s speech was given soon after Facebook broadcast its own proposed cryptocurrency, the Libra, aka the ‘Diem’.
US Securities and Exchange Commissioner Hester Pierce opines that such stable coins (privately issued digital currency supported by the US dollar) are a fitting reply to China’s e-CNY.
The government of the PRC is particularly against hyped-up cryptocurrency trading. They are avowedly also for ensuring consumer protection against fraud. Instances of crypto pyramid scams have come to light. After decades of living by the lights of ‘wealth creation, suddenly the CCP is seized of the ‘mythic’ nature of such assertions. But cryptocurrencies remain too important, too cutting edge, to go away any time soon. They may be whittled down, cut to size – but even their incarnations would necessarily follow basic crypto tenets. Once the problem of mining energy consumption is solved, the country would push ahead with e-yuan, with obscure tokens and decentralised storage technologies with monikers like Filecoin, Swarm, Silicon and Chia plodding along behind.