The history of cryptocurrency in China is very exciting but confusing at the same time. China was number one when the whole crypto thing started. It is a fact that users from this country played a significant role in the crypto market when it was mainly about Bitcoin and has not become mainstream yet.
Some people confuse cryptocurrency with blockchain technologies because they go hand in hand. However, the blockchain can be used without implementing cryptocurrencies. The Chinese government not only supports blockchain but also believes it is the future. That is why this technology is being applied in various areas.
Digital Yuan (e-CNY)
The other rather confusing point has a lot to do with digital yuan. Here we need to clarify what CBDC is. It is a digital version of fiat money issued by the central bank of the country. Thus we can see that in reality it has nothing to do with cryptography, safety, and anonymity. However, it allows the government to be better informed about the money flow. According to the white paper, the digital yuan implements blockchain and crypto technologies and responds to the increasing need in digital payments.
Active development of the digital yuan started in 2014. In 2016 the People’s Bank of China established the Digital Currency Institute. Pilot versions were launched in Shenzhen, Suzhou, Xiong’an, and Chengdu. In November 2020 more cities joined the program, including Shanghai, Changsha, Hainan, Xi’an, Qingdao, and Dalian. The pilot program researches various possible scenarios for the e-CNY usage.
In 2021 China has published a 5-year plan of steady development and research of local digital currency.
Now let’s take a look at the history of crypto development in China.
It all started with Tencent, the largest internet provider in China. Among all the services this internet giant has there is also an instant messenger called QQ (腾讯QQ). The company issued a QQ Coin to provide messenger users with an opportunity to get rewards and pay for services within the network. It was safer to use this type of currency for online payments than bank cards. So rather quickly people started to apply the coin in the area of gambling and adult entertainment. That was the beginning of virtual currency being used in the country.
Unfortunately, the situation changed fast. A ban for trading all virtual goods for real money occurred, including virtual gold for online games, such as World of Warcraft.
Basically in 2010 nothing has happened. The Chinese government did not implement any strict and clear regulations in the area of cryptocurrency. That was the period of the most active development of crypto in China.
The period without any additional restrictions resulted in new achievements. In 2011 BTCChina exchange (the first Chinese cryptocurrency exchange service) was launched.
This year was full of progressive moves:
- Huobi, an exchange service, and Bitmain, the ASIC designing company, were launched.
- Baidu, the Chinese search engine, and Taobao, the biggest online retailer, started to accept BTC.
- BTTChina became the largest crypto exchange by volume in the world.
All these events could not go unnoticed, and they influenced the price of Bitcoin pushing it to unbelievable levels.
However, the happiness did not last long. At the end of 2013 the Chinese government made a statement that Bitcoin could not be used as a payment method. Since then it was only legal to buy, sell, or mine it.New rules opened an era of mining in China. Due to low electricity costs and manufacturing facilities, mining infrastructure developed super fast. Up to the mid of 2015 China was responsible for half of the Bitcoin hashrate.
At some point China declared cryptocurrency to be a threat to the national economy. The answer to this was the start of digital yuan development. The Chinese government showed it as a substitute for unwanted Bitcoin and other cryptos.
The start of ICO’s had made the situation even more severe. By mid-2017 Chinese ICO’s raised about $400 million. That attracted the attention of the Chinese government, and the next ICO’s were banned, crypto to fiat exchanges were also forbidden. The last change pushed existing exchange services out of the country or to Hong Kong; some exchanges eliminated an opportunity to use fiat. However, in 2018 this ban was extended to all the cryptocurrency exchanges.
In 2018 Chinese legislators showed their concerns about fundraising via blockchain technologies and cryptocurrency. They made it clear that this one of looking for financial support is illegal. This was probably the less noticed warning that the Chinese crypto community had ever gotten.
Recently the Chinese government has added some more restrictions to cryptocurrency use cases. All the crypto transitions are banned now. According to the information posted on the official website of the People’s Bank of China all digital currency activities are now considered to be illegal and all the services that offer to trade digital currencies or issue tokens are prohibited. This rule concerns Chinese services as well as overseas ones. This is followed by confusion among investors who are trying to cash out their investments. Currently, they are unable to deal with foreign exchange services either as it may attract penalties.
The official position is that it helps to protect the citizens of the country from gambling and money laundering. The news about such policy towards cryptocurrency provoked a sell-off of cryptocurrency, including BTC and ETH. The price of Bitcoin decreased more than 8% right after the moment when the announcement was made.
The biggest players of the Chinese and the world crypto market, Binance and Huobi Global, stopped registering new users from mainland China. Huobi also promised to delete the existing Chinese users by the end of this year.
The other event that shook the crypto market was the Evergrande crisis. Evergrande is one of the largest property developers in China. In order to push its growth the company had to get some debts, a total amount of which was $300 billion. It turned out that the company was unable to repay it. The Chinese government made some announcements preparing the inner market for the bankruptcy of Evergrande. Undoubtedly, this could not go unnoticed. The collapse of such a giant will cause a global crisis. The stock market reacted immediately, as well as the crypto market. This fact made some analysts start talking that the behavior of the crypto market now looks very similar to the traditional one.
Since cryptocurrencies in general are highly volatile, it is impossible to predict what will happen in the future. However, the history of crypto shows that there are good chances for recovery.
Cryptocurrency has a long and rich history in China. Yet all the bans that took place in the country are not something that has not happened in the other countries in order to stop the development of uncontrolled technologies. The only real difference is that the Chinese political system allows politicians to act effectively and fast without any real confrontation.
Unfortunately, it caused many crypto projects to close and pushed others out of the country. The best thing is China was open to cryptocurrency long enough to bring a lot of development and ideas into this area.