Hi, This is Qadir A.K, Crypto lover and Research Columnist.
This writing series has been an amazing experience with 5th one in the row, last one penned was of regulations in India.
Today I present you with my next edition of ‘The Cryptocurrency Breakthrough: 2020 – Synopsis 5’
Cryptocurrency Regulation in China
China is considered as one of the biggest players in the Bitcoin space. The government always maintained a ‘Love-Hate relationship’ with the cryptocurrency and the technology behind it.
The country that plays a major role in the bitcoin industry, at the same time has imposed uncompromising regulations and limitations on crypto trading in the world. At this point in time, China has banned the crypto activity in China, and rigorously aimed at developing its own regulated cryptocurrency.
Government of China on Cryptocurrency
China has a very complicated relationship with cryptocurrencies. Back in 2008, Bitcoin was developed and next year in 2009, the first transaction was created. Bitcoin got more familiar in China only in 2011 but with less popularity among the public due to lack of knowledge. It all began with an NGO accepting bitcoins as donations and the wave of bitcoin business was in no mood to settle.
When bitcoin was so popular then what led to a ban??
The main reason behind the ban is believed to be extensive mining of cryptocurrencies which produce e-waste and consumes incredible amounts of electricity. The issue of crypto was also becoming unlawful which risked the monetary system.
Crypto Mining – A great business!!!
Crypto mining in China had dominated the 2/3rd of the whole world’s transactions. It had also controlled about 66% of the power of computers across the globe which is known as ‘hashrate’. Hashrate dictates a computer’s ability to produce new coins. Apart from this Mining Chip manufactures work day and night to develop even more powerful processors. It’s quite obvious the more powerful the processor is the consumption of electricity also is extensive. Approximately 73.12 TWh of power is required annually.
Bitcoin completes 7 transactions per second and about 308 KG of CO2 is emitted for each individual transaction. This is approximately 4000 bathtubs filled with CO2 for each transaction which is quite a huge amount. Apart from these new machines are replaced by old ones. This leads to numerous waste as they are not recycled.
Cryptocurrency Regulations in China
The regulatory bodies of China have not recognized Cryptocurrencies as legal tender or a tool for retail payments. Neither the Banking system in China are accepting any existing cryptocurrencies or providing relevant services for them.
Regulatory Measures on Cryptocurrencies
Ban on Initial COin Offerings(ICO’s)
The practise of raising funds through ICO’s is completely banned in China. The Chinese government regulators who jointly imposed the ban include,
- The People’s Bank of China(PBOC)
- The Cyberspace Administration of China (CAC)
- The Ministry of Industry and Information Technology(MIIT)
- The State Administration for Industry and Commerce(SAIC)
- The China Banking Regulatory Commission (CBRC)
- The China Securities Regulatory Commission (CSRC)
- The China Insurance Regulatory Commission (CIRC)
Under the ICO rules, raising cryptocurrencies through irregular sale and circulation of tokens which engae public financing without official authorization is prohibited.cryptocurrencies involved in ICO’s are not issued by country’s monetary authority and therefore are not mandatorily accepted as legal tender nor they have equal status as fiat currencies. These are not allowed to be used and circulated in the market. The ICO rules also warn against the possible financial crimes such as illegal ways of issuing tokens or securities, illegal raising of funds, financial fraud or any pyramid selling.
Restrictions on Cryptocurrency Trading Platforms
The ICO rules framed has also brought restrictions on the primary business of cryptocurrency trading platforms.According to the ICO rules, the trading platforms are prohibited from,
- Converting legal tender into cryptocurrencies or vice versa.
- Purchasing or selling cryptocurrencies
- Setting prices for cryptocurrencies
- Providing other related agent services
Government authorities may shut down the websites or mobile applications who fail to comply with these rules or even suspend license of the trading exchanges.
Requirements for Financial Institutions
The ICO rules also prohibit financial institutions and non-bank payment institutions from directly or indirectly providing services for ICO’s and cryptocurrencies. They include opening bank accounts or providing registration, trading, clearing, or liquidation services. Also insurance services were also prohibited.
Stop Bitcoin Mining
China’s Financial Risks Remediation group, the country’s top internet-finance regulator issued notice to all local governments to process the orderly exit of all Bitcoin mining companies. They further suggested that they can do it by removing existing policies for the companies in terms of electricity prices, taxes or land use.
China does not recognize cryptocurrencies as legal tenders and hence, they do not come under any taxation umbrella.
Series of Events
04-02-2020:- Bitcoin miners face severe regulation in china. The government plans to distribute currencies through traditional banks and the monetary system. This would make the entire process centralized contradicting the fundamental nature of the cryptocurrency to be decentralized.
10-01-2020:- The People’s Bank of China said that it has completed the top-level design, standard formulation and functional research & development of the digital Yuan coin. Initially, the coin will be distributed only in Shenzhen and Suzhou banks. The users can register with the bank wallets. However, the release date is not yet announced.
22-12-2019:- People’s Bank of China official in charge of digital Yuan reveals the nature of the digital currency as reported by Shanghai Securities News.. He stated that it will not require any backing of currencies, unlike Bitcoin. Mu Changchun, head of People’s Bank of China digital currency institute said,
“The currency is not for speculation. It is different from bitcoin or stable tokens, which can be used for speculation or require the support of a basket of currencies.”
09-08-2019:- A recent report revealed the plans of distribution of cryptocurrencies among the seven entities. These include the Bank of China, The industrial and commercial bank of China, the Agricultural Bank of China, technology companies like Alibaba, Tencent, Union Pay, and an association of Chinese banks.
“The central bank’s digital currency can be circulated as easily as cash, which is conducive to the circulation and internationalization of the renminbi,” said Mu Changchun, deputy director of the Paying Division of the People’s Bank of China (PBOC) and the new head of China’s cryptocurrency research lab.
12-04-2019:- The National Development and Research Commission(NDRC), a state-planned body that administers China’s economy had a list of 450 wasteful and hazardous activities. They had proposed to add cryptocurrency mining in the list and also recommended to completely eliminate them. After implementation, the government would increase the electricity prices so that the mining companies are forced to shut down or relocate.
For a detailed report, click HERE.
24-08-2018:- The Chinese regulators published strict warnings against illegally raising funds through sale and trade of crypto tokens.
17-08-2018:- The China National Fintech Risk Rectification Office identified 124 overseas currency exchanges that were accessible within the country. China plans to block access to these platforms within the country.
China shut down blockchain news accounts on the WeChat social app and also banned hotels from hosting cryptocurrency events.
28-06-2018:- A court in China’s Hangzhou city, in its official judgement, said that the evidence authenticated by blockchain technology can be produced as a piece of evidence on a case-by-case basis.
The judge commented:
“The court thinks it should maintain an open and neutral stance on using blockchain to analyze individual cases. We can’t exclude it just because it’s a complex technology. Nor can we lower the standard just because it is tamper-proof and traceable. … In this case, the usage of a third-party blockchain platform that is reliable without conflict of interests provides the legal ground for proving the intellectual infringement.”
29-03-2018:- Vice Governor of the Central Bank, Fan Yifei said that the government released a report stating its plan to launch a crackdown on all types of virtual currencies in 2018. The deputy governor also stated that it will push forward the research and development of its own digital currency.
04-09-2017:- China banned all the companies and individuals from raising funds through ICO’s. The ICO activities were considered illegal in the country.
People’s Bank of China said in a report that 70% of the ICO’s were fraudulent and also ordered the operators to return money to the investors. As the government feared that the fraud could lead to social problems like corruption, ICO and domestic Bitcoin exchange was banned in China. This led to the exodus of many companies out of China. But the demand for fundraising using ICOs was still in huge demand. Some ICO sites in China were still accessible without going through a virtual private network.
05-08-2017:- The People’s Bank of China announced its plans to increase supervision and regulation of China’s financial industry including the Macro-Prudential Assessment(MPA). This business includes P2P lenders, third party online payment platforms, crowdfunding companies and other financial services.
09-11-2016:- China government put up a job recruitment ad for blockchain experts to assist in developing their own currency.
21-01-2016:- The people bank of China conducts a digital currency study and is on the verge of developing its own digital currency regulated by the government.
China dominated the Bitcoin Mining sector by acquiring at least 50% of the global bitcoin network mining power. The bitcoin mining giants were F2Pool, AntPool, BTCC, Pool and BW.com which accounted for half of Bitcoin’s network hash rate.
China is said to have improperly banned and unbanned bitcoin in 2014. The cryptocurrency was not officially outlawed nor did any local businesses. The comments from the People’s Bank of China in Dec 2013 and a false report which circulated that China banned Bitcoin completely which led to a decline in value of the currency throughout the year.
In April 2014, some banks started closing the accounts of bitcoin businesses and exchanges. In a joint statement by the CEO’s of China’s five most prominent exchanges, OKCoin, Huobi, BTC China, BtcTrade and CHBTC, made clear that they do not encourage excessive speculation in digital assets and any further development in the industry would be intimated to the authorities.
In the latter half of 2014, OKCoin and Huobi exchanges started operating in Singapore and Hong Kong respectively focusing on markets outside China but always made feel their presence in China. Whereas BTCC continued to offer its service in English.
In the first three months, China’s relationship with Bitcoin was virtually non-existent. A handful of scattered miners and exchanges who had launched in 2011, we’re now being recognized by the public. A deadly earthquake hit Ya’an on 20 April 2013. A non- governmental organization One Foundation, well known for its contribution to disaster relief, children welfare, and various works for the society, thought to get donations that the public possessed.
That’s Bitcoin!!! On 21st April 2013, the organization released its thoughts publically, and within two days, they received 230 Bitcoins in donations that amounted to $2.4 million. The three largest donations were 88,39 and 25 BTC whereas the remaining were below 10BTC.
The trade volume on BTCC had increased by 30% and Bitcoin clients were downloaded heavily and crossed the numbers above the United States on 23 April 2013. In between June-Oct Chinese Bitcoin community had thrived to become the largest in the world. The Chinese search giant Baidu started accepting Bitcoins for its website security services.
Gaining immense popularity and acceptance, Bitcoin touched its peak to $1242 on 29 November 2013. This alarmed the Chinese government as it was considered as a threat to the fiat currency of china. And hence on 5 Dec 2013, China Banned banks dealing with bitcoin but not internet transactions. This led to a plunge in the prices by 30% to $961 by 10 Dec 2013.
China came out to be the second-largest economy in the world in 2010 and released its 12th Five Year Plan early by 2011. This plan included development in the various industries, next-gen information and technology are one of them.
In June 2011, Bobby C Lee, an entrepreneur who now serves on the board of directors of the Bitcoin Foundation, founded the very first Bitcoin exchange called BTCC. Most of the customers were from the domestic market.
China was one of the world’s biggest markets for multiplayer online gaming like World of Warcraft. Millions of youths who involved themselves were believed to carry out trade of virtual goods and credits for real goods and cash. In the same time, QQ coin, a form of virtual currency, produced by a Chinese internet giant Tencent, became very popular for trading for real goods. This raised the alarm for the officials at the Central Bank of China as people started trading virtual currencies for clothes, cosmetics too.
Many online marketplaces, like eBay and China’s Taobao, advertised for the sale of virtual goods like World of Warcraft coins. Hence China banned the use of virtual currencies in June 2009.
The year 2020 started with the spread of the deadly Coronavirus, a city in China being the epicentre. All the markets, economy, cryptocurrencies witnessed a downfall due to the breakdown. In February, Bitcoin prices dropped from $10300 to $8500.
Due to the COVID-19 pandemic, the digital Yuan got delayed by three to six months. China started its prevention game by quarantining banknotes for two weeks. Crypto proponents at this time tweeted that Bitcoin could help stop the spread of coronavirus by reducing the infection.