In a previous article, we have made it clear that China tends to have a pronounced love/hate (with more of an emphasis on the “hate” dimension) relationship with bitcoin and other cryptocurrencies, primarily due to the fact that cryptocurrencies can represent a capital flight option. In other words, Chinese citizens who want to do anything from move a sizable amount of money or simply diversify can do so (relatively) easily through bitcoin and the various alternatives which exist.
Furthermore, the altcoin and ICO dimension of crypto tends to have developed a “casino” personality, in that rather than invest for the technology or with some kind of hedging in mind (hedging against financial uncertainty and especially banking-related financial uncertainty, with bitcoin in particular having thrived whenever banking calamities occurred, for example those in Cyprus several years ago), people simply gamble and hope they will get rich. The fact that over 1,000 bitcoin alternatives exist at this point in time speaks for itself, with the overwhelming majority being completely worthless from a technological perspective (mediocre copies of bitcoin which bring absolutely nothing noteworthy to the table). Yet people frequently didn’t seem to care, investing in anything from completely pointless cryptocurrencies such as DentaCoin (believe it or not, a cryptocurrency for… dentists) and even outright Ponzi schemes such as the (in)famous Bitconnect (which, before collapsing, was frequently among the top 10 cryptocurrencies) because they were convinced prices would go up.
In light of the fact that gambling is strongly discouraged in China, it should come as no surprise that this element is also a major factor which “convinced” the authorities to crank down on cryptocurrencies (especially ICOs), not just in China but also in other top crypto-oriented jurisdictions such as South Korea.
For “China-specific” reasons such as a strong desire to keep capital at home as well as let’s call them genuinely legitimate reasons such as curbing reckless speculation, a series of measures ended up being taken by China so as to try to keep things under control. In fact, it has become a bit of a “meme” in the cryptocurrency world that China frequently bans crypto in one way or another: whether we are referring to bans on exchanges, bans on ICOs and so on.
However, as ironic as it may seem, China is not at all opposed to blockchain technology.
On the contrary, it has frequently made it clear that there is value associated with this technology and even very recently, has articulated thoughts around perhaps eventually launching its own cryptocurrency and/or blockchain projects.
How can the two trends possibly converge?
How can China pretty much hate bitcoin and other cryptocurrencies on the one hand but actually want to launch its own blockchain-related projects on the other?
One word: control.
The problem with individual cryptocurrencies and especially decentralized ones such as bitcoin (while practically all cryptocurrencies claim to be decentralized, most are so vulnerable and dependent on the actions of a handful of “whales” that using the term “decentralized” would be nothing short of ridiculous) is the fact that China doesn’t have nearly as much control over what happens as it would like to. There is no “bitcoin CEO” to arrest, the Great Firewall of China is far too easy to circumvent to make actually banning bitcoin feasible, the list could go on and on.
By having ITS OWN blockchain on the other hand, things would turn by 180 degrees because all of a sudden, we go from limited control to the epitome of control. To illustrate this, we need to make it clear that at its core, a blockchain is essentially a glorified PUBLIC ledger. How much you’ve sent, who you’ve sent it to, when you’ve sent… this all becomes public record in a blockchain environment, which makes tracking the movement of capital multiple orders of magnitude easier than with fiat currencies.
With bitcoin and other cryptocurrencies, there are methods to make the flow of capital more difficult to track, for example so-called “mixers” which specialize in just that. Furthermore, there are several privacy-oriented coins such as Monero which take things to the next level and even when it comes to bitcoin itself, privacy-enhancing solutions are being worked on.
When you launch your own cryptocurrency as a country, one tailor made for your specific needs (with, you’ve guessed it, privacy not exactly being a priority), all of this changes because you are the entity that gets to make the rules. In an ideal scenarios, a country that launches its own cryptocurrency can do anything it wants to, from rolling back the entire network to banning individual addresses, there are few limits when you get to make the rules… or in this case, write the code.
Make no mistake, this tendency of using technology to better track the flow of capital is hardly limited to China. Much more developed nations such as Sweden are close to eliminating “paper” money altogether (not via blockchain technology, however, but rather by using status quo digital payment options) and this much is certain: those who claim the authorities somehow hate digital payments couldn’t be more wrong. The exact opposite is true: a country will always gravitate toward any option that enables it to better track the movement of capital and digital payments, whether we are referring to status quo ones or newer options such as cryptocurrencies, do just that.
So… does China hate blockchain technology?
Absolutely not, this technology can actually be an ironic love story waiting to happen and a dream come true for China given its capital tracking and capital flight prevention goals, as long as China gets to pull the strings. As such, expecting the “China hates bitcoin and crypto projects but loves blockchain technology” trend to persist would, in our opinion, be the logical thing to do.