China is Quickly Becoming Global Blockchain Leader
China has the ability to drive blockchain technology into the hands of a billion Chinese users.
China is coming ahead in the digital currency race, and they are finding themselves in a good position to push blockchain technology to more than a billion citizens.
There is no denying that China has gained a firm grip and heavy influence on the future of the blockchain industry and the prospects of cryptocurrencies. Within the span of a week, a series of announcements from Chinese regulators shook the entire industry, jolting Bitcoin prices and prices of the coins of Chinese-developed blockchains.
These announcements came in stark contrast to a series of gloomy news in the US. The US SEC had just rejected yet another proposal for a bitcoin exchange-traded fund (ETF) listing, and Facebook’s Libra project hits roadblocks after the association lost several of its key founding members amidst relentless questioning by regulators and lawmakers globally.
180° change in sentiment
In a speech given on 25 October 2019, Chinese president Xi Jinping openly acknowledged the benefits of blockchain technology, clearly emphasizing that the development and application of blockchain technology will play an important role in new technological innovation and industrial transformation. He also added that China is in a good position to seize the opportunity to integrate blockchain technology across a range of industries, including finance, healthcare, and education.
Following that speech, Huang Qifan, Vice Chairman of the China International Economic Exchange Center, announced at Bund Financial Summit in Shanghai that the People’s Bank of China (PBOC) has been studying digital currencies for five or six years, and that they believe the technology has matured since. “The People’s Bank of China is likely to be the first central bank in the world to issue a sovereign digital currency,” said Huang. According to Jack Lee, managing director of HCM Capital, the Chinese authorities have developed a framework called the Digital Currency Electronic Payment (DCEP) that will allow the central bank to issue a digital currency to commercial banks and third-party payment networks by Alipay and WeChat Pay.
To top the bullish news, it was reported last week that the National Development and Reform Commission (NDRC) have removed cryptocurrency mining from the list of industries pending elimination in the Industrial Structure Adjustment Guidance Catalogue.
When a draft of the catalogue was first released in April this year, cryptocurrency mining was listed as one of the industries to be eliminated. The listed industries are slated to be phased out because they were either illegal, unsafe, extremely wasteful, harmful to the environment, or irrelevant.
This series of announcements was exceptionally surprising to the rest of the world, as it meant that China had taken a 180° change in their stance towards blockchain technology and digital currencies. Since 2017, the Chinese government has been publicly scrutinizing the blockchain industry heavily, cracking down on cryptocurrency exchanges and banning initial coin offerings.
What does this all mean?
First national tokenised financial system
The launch of a Chinese digital currency is certainly not a sign of the government giving its citizens more power or anonymity. It will be foolish to assume that the digital currency released by the PBOC will be one that allows for privacy and decentralization. In fact, we can safely assume that this is a digital version of the Chinese Yuan, minted, processed, and monitored solely by the central bank. This could be the government’s approach to gain a greater control and transparency over the flow of money across its borders and between citizens.
This sets a precedence for other nations to consider the development and the use of digital currencies as a national currency. It serves to demonstrate how a financial system, powered by blockchain, may generate digital money and develop smart contracts to tokenize real-world assets for faster and more transparent ownership and transactions.
Cryptocurrency mining haven
As for the government’s warming sentiment to legalize and support the cryptocurrency mining industry, there is reason to believe that it could work massively in China’s favour.
Firstly, there is access to cheap and abundant electricity in Western China. In areas like Sichuan and Yunnan, more than 83 percent of the electricity generated is from hydropower farms, and about 13 percent of this energy is idle or wasted. This cheap and idle energy can be more efficiently deployed for local cryptocurrency mining operations.
Secondly, as more mining farms set up their operations in China, the domestic semiconductor industry could experience a significant boost. The large influx in capital invested by miners to purchase ASIC mining rigs can provide the fuel for further research and development to enhance China’s chipset manufacturing capabilities and close the gap on foreign competitors.
Lastly, the cryptocurrency mining industry can create jobs for workers in rural areas where electricity is cheap, improving wages and stimulating the local economy.
One Chinese mining hardware manufacturer is striking while the iron is hot. Canaan Creative, a company based in Beijing, is filing for an initial public offering to raise $100 million. In the first half of this year, Canaan Creative owns 21.9 percent of the global market share for Bitcoin ASIC mining rigs.
Taking pole position
Looking ahead to the Bitcoin halving event in May 2020, we can expect to see more Chinese mining farms setting up shop. With cheap electricity and government support, coupled with the halving in block rewards, China could be one of the last few viable places on the planet to run a profitable mining operation.
The existence of a few large mining firms based in China presents a threat to the decentralization of the Bitcoin network. However, exactly how is this geographical consolidation will affect the Bitcoin ecosystem and bitcoin prices remains to be seen. One thing’s for sure: China is taking steps in the right direction to claim pole position in this global blockchain race.