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China is a juggernaut in the global economy whose large and developed population makes it an upper-middle-income country. The use of manufacturing and the availability of cheap labor catapulted the country into becoming one of the economic powerhouses. As the emergence of crypto spread around the globe, China rose to prominence as the hub of the world’s crypto activity. The first crypto exchange launched in China was BTC China in 2011. Since then, many Chinese have joined the bandwagon. This pro-crypto population spurred significant global growth, with many other cryptos launching after bitcoins’ success. While the prospects for crypto users in China seemed brighter than ever, this outlook was short-lived. A reversal in the state of affairs of crypto occurred following changes in the sector. These changes are discussed below.
Government Intervention
The period between 2010 and 2020 was the most favorable for both the users and cryptocurrencies in China. At the time, the country became the global leader in adopting, mining, and using bitcoin. In early 2013, corporations such as Baidu started accepting bitcoin payments. By 2020, China accounted for nearly two-thirds of global mining activity. However, due to government interventions, this activity dwindled. The interventions are as follows:
Government Crackdowns and Regulation
In 2021, China turned the tables on the crypto community by introducing regulations and cracking down on many of the country’s crypto activities. Chinese authorities cracked down on crypto corporations and crypto communities. As part of its anti-corruption efforts, the government set up an oversight body to monitor and sanction state-owned firms engaging in unapproved cryptocurrency trading. As a result of this move, only a handful of such entities remain operating.
Issuance of Bans
The Chinese government took action and banned crypto mining in the country. Mining typically employs the proof-of-work model, which consumes excessive power. Therefore, these efforts to ban crypto mining forced the industry to close down. The government also went ahead to ban Initial Coin Offerings (ICOs). This ban was conducted to mitigate the use of crypto for criminal activities. In November 2021, the country imposed an absolute crypto ban. These moves kickstarted a global trend where governments in other countries also turned against crypto.
Government Cryptos and More Uncertainty!
However, despite these restrictions and crackdowns, crypto activity did not stop in China. The government of China has worked to develop its own cryptocurrency, the Digital Yuan, a currency issued by the Central People's Bank of China (PBoC). The digital Yuan is a crypto that will be pegged to China’s legal tender, the Yuan ¥. The development of the stablecoin is in line with the 14th of China’s 5-year financial plan. The plan also aims to give away 15 million Yuan of digital currency to citizens in a lottery. China is also developing its own Blockchain-based Service Network (BSN). The network facilitates the transition to using its own digital currency, which supports 28 blockchains already. A number of businesses and institutions will be able to make payments through the network. Institutions such as hospitals and even social media platforms such as WeChat are planning to adopt the currency to accept payments. The BSN is also set to support NFTs in its expansion, with the government considering exploiting all facets of digital advancements. However, while these moves may be projected to lead to a smooth economic transition, everything is not as it seems. As things stand, the crypto world is facing one of its most turbulent periods. The prices of crypto have plummeted following several influences such as inflation, government interference, and the Russia/Ukraine conflict. Government interference, such as the US senate’s stance on the Chinese stablecoin, is set to obstacles in adoption and use in many countries worldwide. These issues have not left stablecoins unaffected, with UST and Luna among the victims of the economic turmoil. Thus, this outlook casts uncertainty on China’s crypto future. China has been the centre of crypto activity in the last decade. However, the digital economy collapsed due to government interference via regulations, crackdowns, and bans. This collapse held repercussions for the crypto world. Additionally, these actions prompted more governments to strong-arm cryptos and their communities. As things stand, the crypto world is at its worst in years. However, this state has not hindered the Chinese government from developing its crypto and BSN. However, while the government backs its invention, its success in the market and immunity to the prevailing desolate conditions are not guaranteed. This status has cast an air of uncertainty overall cryptos in general with no clear-cut path to crypto success in site for the country. Therefore, as things stand, the crypto users in such an atmosphere can only be skeptical at best while hoping things clear up.