China Seizes The Blockchain Opportunity. How Should The US Respond? (#GotBitcoin?)
The Chinese government is not in the habit of making speculative “what if” announcements. Typically, before anything about its plans goes public, a significant amount of preparation and thought has gone into it. China Seizes The Blockchain Opportunity. How Should The US Respond? (#GotBitcoin?)
So, although Xi Jinping’s passing statement about China needing to “seize the opportunity” posed by blockchain technology was thin on details, it’s unwise to assume nothing will come of it. In fact, as CoinDesk’s David Pan reported on Monday, there’s already a massive amount of blockchain development going on in China.
How Should The U.S. React To This? Definitely Not With Complacency.
The news out of China affirms Facebook CEO Mark Zuckerberg’s warning to Congress during last week’s contentious testimony over his company’s plans for the Libra cryptocurrency that the U.S. is at risk of falling behind the innovation curve. China is powering ahead, while the U.S. is bickering over a project that will be stalled in prototype testing phase for a long time and is throwing regulatory roadblocks in the way of countless other cryptocurrency ideas.
There Is Some There There
To be sure, many in the crypto community are dismissive of China’s blockchain strategy. That’s because it is most certainly based on a permissioned framework that implies significant centralization, with distributed ledgers managed by regulated trusted entities (if not directly controlled by the government, by consortia and other organizations subject to heavy oversight and Beijing’s intervention threats.
In that sense, China’s blockchain architecture will likely be a long way from the decentralized, trustless principles upon which bitcoin, ethereum and other public blockchains are based.
An exasperated Nic Carter took to Twitter Friday to state why he thought Xi’s “blockchain” reference was meaningless and why arguments attributing bitcoin’s massive rally to the Chinese leader’s comments were, in his mind, bunk.
But Xi’s comments did amount to “something.”
Just because China’s approach to distributed ledgers falls short of the ideals of cryptocurrency and likely involves use cases that could be just as well managed with a SQL database doesn’t mean we can walk away and ignore what’s happening there.
We must consider these moves in the context of other advances China is making in related fields. It is secretly developing a central bank digital currency, for one, and just passed a new cryptography law to enable the development of powerful new mathematical tools for managing information (potentially for the worse, if these tools are put in the hands of Beijing’s surveillance apparatus.)
Integrating a stablecoin and future cryptographic tools such as zero-knowledge proofs, and other forms of homomorphic encryption such as MPC wallets into China’s “Blockchain +” framework for related technologies could unlock efficiencies that give China’s economy real competitive advantages. Perhaps it enables the smart contract-based approach to foreign exchange risk that I flagged last month.
Or maybe it results in new compliance solutions for regulated entities such as banks to identify and onboard people and businesses. Or could it lead to more efficient Chinese customs procedures to speed up supply chains within China’s multinational Belt and Road project?
All these could give China a competitive economic advantage. And the more it develops them, the deeper its learning and capabilities will become.
Again, How Should The U.S. Respond?
Ideally, it would embrace the kind of approach to technological development that China simply can’t afford to take: the open, permissionless, decentralized one preferred by the crypto critics of closed, permissioned, centralized blockchain solutions.
Permissionlessness, as it pertains to blockchain technology, means an open architecture in which anyone can use or develop applications on a designated protocol and that there are no centralized gatekeepers saying yay or nay to actors or transactions on the network. And while that spooks the hell out of U.S. financial regulators who are used to monitoring payments for anti-money laundering and illicit finance enforcement, it’s more or less consistent with what long has been the U.S. stance on economic principles. It’s part of a long tradition in U.S. economic thinking that sees economic outcomes as positive-sum phenomena, where the more transactional activity that’s allowed, the more value and wealth is created.
Sadly, openness is much less of an American economic priority now, mostly in the international sphere, but also domestically. The Trump Administration’s protectionist approach to trade – marked by its brutal tariff war with China – and the President’s proclivity to reward or punish favorite industries and treat every negotiation as a winner-take-all “Art of the Deal” reflects the inward, closed mindset of zero-sum game thinking.
Yet the U.S. has a long history of beating its foes by being more open than them. That’s what the Cold War victory, largely engineered by a Republican president, Ronald Reagan, was all about. The same tradition continued under a Democrat administration during the post-Cold War era of Bill Clinton. Back then, amid a wave of free trade agreements and neoliberal reforms around the world, American diplomacy laid the foundation for the open Internet.
Having set the example of the Telecommunications Act of 1996, which forced the Baby Bells to accept competition, the U.S. used carrot and stick tactics to get other countries to follow suit. Creaking old government-owned telcos were privatized in developing countries, foreign competitors were allowed in, and investment flowed into the fiberoptic cable and switching technologies that would let the Internet grow.
A New Chance To Open Up
Those Were The Days. The Question Is: Can They Be Relived?
Well, the international to and fro that’s defining the regulatory and technical framework for cryptocurrency and blockchain technology may offer an opening. If the goal here is to ensure that Western models of business and government outcompete the state-led business titans of China, then a move to promote an open, permissionless approach to this vital technology may be the way to pressure Beijing.
China’s closed system of government simply can’t abide a permissionless structure over which it can have no control. But, in theory, the U.S., which its open innovation and competition model, can be more comfortable within it. It can take heart from the lesson of the 1990s, which was that open models of development will beat closed ones: the online world was won by the TCP/IP-founded open Internet, not by closed-loop intranet networks such as AOL and France’s Minitel. Ergo, an America that embraces permissionless innovation and open blockchain models has a chance to outcompete China.
I’m not holding my breath for such a policy stance in Washington, one that would mean removing roadblocks to bitcoin and other cryptocurrencies, including Libra and other stablecoins. For one, even tacitly encouraging their adoption could ultimately entail abandoning the dollar as the world’s reserve currency. Although that’s the right thing to do, it’s almost unfathomable as a policy decision.
And secondly, as I mentioned, Donald Trump is a closed-loop, zero-sum-game politician. He’s already made his disdain for bitcoin clear.
But America is still a democracy. The political environment could change. Let’s hope that whoever next leads it can see the opportunity to take on China with openness rather than tit-for-tat retribution.
China Has 700+ Blockchain Companies, According To Industry Study
China Electronic Information Industry Development (CCID) announced on Oct. 27 that there are over 700 blockchain enterprises in China, with over 500 relevant investments reported.
China Sees Aggressive Blockchain Development
According to a collective study conducted on Oct. 24 by the Central Committee of the Political Bureau of the Communist Party of China, of the aforementioned 700 blockchain enterprises, 83 are research institutions and 34 are banks.
Furthermore, over 500 investment and financing events took place in the domestic blockchain industry.
The data also reveals that 12 blockchain policies have been issued by the state and various ministries and commissions since the first half of 2019.
For example, in January the Cyberspace Administration of China introduced regulations for blockchain firms operating in the country, including anti-anonymity rules. The report also notes blockchain initiatives at the municipal level, such as those reported in Beijing, Shanghai and Guangzhou at the end of last year.
The CCID claims that local innovation in the industry is good, with internet giants, startups, research and financial institutions pushing for further development in the space. The agency says that the number of blockchain patents filed in China in the first half of 2019 was 3,547, while the total number of patents published in 2018 exceeded 2,435.
Lack Of Killer Apps And Third-Party Audits
According to the Blockchain Research Institute of CCID, China released 151 blockchain application cases in the first half of 2019. The applications are relevant to 28 fields including finance, e-government, medical care, intellectual property protection and traceability. That being said, the agency admits that Chinese blockchain applications are still lacking in multiple ways:
“At present, China’s blockchain industry applications still have problems such as large-scale application and promotion, lack of killer applications, and lack of authoritative third-party evaluation.”
CCID is a Chinese governmental organization that reports directly to the Ministry of Industry and Information Technology and is tasked with assisting the development of information industries in China.
President Xi Jinping’s Call For Blockchain Adoption Sparks Public Interest
Recently, Chinese President Xi called for the country to accelerate its adoption of blockchain technologies to drive innovation and industrial transformation. Xi told the Politburo:
“We must take blockchain as an important breakthrough for independent innovation of core technologies, clarify the main directions, increase investment, focus on a number of key technologies, and accelerate the development of blockchain and industrial innovation.”
Following Xi’s proclamations, stocks in Chinese blockchain A-share firms maxed out to their 10% daily limit, while the number of searches for blockchain technology on WeChat soared.
China Passes First-Ever ‘Crypto Law’ Going Into Effect January 2020
The Standing Committee of the 13th National People’s Congress in China has passed a new law regulating cryptography on Oct. 26 that will take effect on Jan. 1, 2020, reports local news outlet CCTV.
Per the report, the new regulatory framework aims to set standards for the application of cryptography and the management of passwords. The new regulatory framework establishes the role of a central cryptographic agency meant to lead public cryptographic work, creating guidelines and policies for the industry.
Implicit Cryptocurrency Regulation
The draft of the law was published on May 7 by a Chinese news outlet. The text is largely focused on government centralized password management and does not explicitly mention cryptocurrency, though it does focus on cryptography, a key component underpinning cryptocurrencies such as Bitcoin.
“The key take away is — the developing of new cryptography, hashing algo, even the usage of the tech, will be in the official legal realm. This means you need to follow the CCP standard for all ‘encrypted’ behaviors, which can be VERY broad, from mining to block propagation.”
Preparing For China’s National Crypto
She concluded that the law is building the foundation for the upcoming Chinese national cryptocurrency, though there is no official timetable for its launch, one Chinese official confirmed in September.
As Cointelegraph reported yesterday, China’s President Xi Jinping has called for the country to accelerate its adoption of blockchain technologies.
Meanwhile, this past week, Facebook’s Mark Zuckerberg warned that Chinese superiority in the digital currency space could put the U.S. dollar at risk in an attempt to sell lawmakers his plans for the Libra stablecoin.
“China is moving quickly to launch a similar idea in the coming months. We can’t sit here and assume that because America is today the leader that it will always get to be the leader if we don’t innovate,” he argued in an official statement.
Recently, the National People’s Congress in China cleared a new law that will allow local authorities to start regulating all of the country’s cryptography-related activities starting from Jan. 1, 2020. By creating a new regulatory framework, the Chinese government is looking to establish a uniform standard for mainstream application of cryptographic techniques and the management of passwords and other sensitive data.
The initial proposal for the law was published all the way back in May. At the time, the rough draft focused quite strongly on government-centralized password management and did not mention crypto-related matters in detail, although, it is believed that this very law will be used by Chinese officials to govern their upcoming national CBDC (Central Bank Digital Currency) — even though there is no official timetable for the launch.
Additionally, on Oct. 24, President Xi Jinping called on his country’s tech community to accelerate their efforts in blockchain adoption as a core for digital innovation. These comments were made during a Politburo Committee session that was focused solely on blockchain technology and its utility across various industrial domains. A translation of Xi’s remarks during the session reads:
“We must take blockchain as an important breakthrough for independent innovation of core technologies, clarify the main directions, increase investment, focus on a number of key technologies, and accelerate the development of blockchain and industrial innovation.”
However, Xi’s apparent willingness to adopt blockchain comes against the backdrop of China’s long-standing aversion to cryptocurrencies — with the nation having banned initial coin offerings (ICOs) as well as all activities relating to digital currency trading a couple of years back.
What Does This Mean For The Global Crypto Community?
To get a better understanding of the fallout from these developments, Cointelegraph reached out to Daniel Popa, the founder and CEO of Anchor — a crypto-based platform that aims to solve transparency and liquidity issues. He told Cointelegraph:
“President Xi Jinping recognizes the inevitability of blockchain technology integration across industry verticals and wisely seeks to place China in a leadership position when it comes to the development, application, and regulation of cryptocurrencies and blockchain-based products.”
Similarly, Alexey Ermakov, the CEO of crypto-centric banking service Aximetria, believes that while the United States and Europe are actively resisting crypto-backed innovations, other countries have begun to realize the potential behind the technology. Ermakov told Cointelegraph:
“We reach a completely different geopolitical level when competition arises not between companies and state regulators, but between global leaders, as we see with the latest announcement by China’s President Xi Jinping who wants to take a leading position in the blockchain industry. The competition between political leaders in the fintech industry will sparkle with completely new colors, benefiting all those states that contribute to development, and not resist it.”
Further expounding his views on the subject, Ermakov believes that Switzerland, a country that has created the most hospitable framework for fintech startups and actively leads matters related to crypto regulation, will most likely be one of the first states to benefit as adoption continues to increase.
What Exactly Does The New Law Entail?
As mentioned previously, China’s newly passed law does not deal exclusively with cryptocurrencies but rather discusses a host of specialized concepts related to cryptography. Simply put, the law deals with three core tenets:
— Core and Common Cryptography: This relates to matters associated with cryptographic tools and systems that are designed to protect state secrets and other state-significant objects of informational interaction.
— Commercial Cryptography: This aspect covers matters related to cryptographic systems that are meant to be used for protecting commercial information.
— Legal Liability: This aspect of the new legislation seeks to determine and define the responsibility that arises in cases where an intentional or unintentional use of a commercial cryptographic product or service (that has not been verified) is discovered.
In regards to the matter, Ermakov pointed out to Cointelegraph that the Chinese government’s approach is basically that each crypto token or coin will have to rely on a cryptographic system that is certified by a sanctioned regulatory body.
He suggested that in the worst-case scenario, the setup might be a hierarchical one, where the highest certification authority will consist of preselected Chinese officials — which basically means that at any time, any token could be confiscated by the government.
Does China’s Upcoming CBDC Pose A Threat To The U.S. Dollar?
Over the past month, Facebook Founder and CEO Mark Zuckerberg has been reiterating that the launch of China’s much-talked-about CBDC will spur the country’s superiority across the digital currency landscape and put the United States dollar at risk. On the subject, Zuckerberg was quoted as saying:
“China is moving quickly to launch a similar idea in the coming months. We can’t sit here and assume that because America is today the leader that it will always get to be the leader if we don’t innovate.”
However, the Facebook CEO’s comments have largely been viewed by the global crypto community as being a ploy to push his company’s very own stable coin offering — Libra. Andrew Rossow, attorney and cybersecurity professor told Cointelegraph that Facebook already has a full plate of issues when it comes to security measures and data collection methods, and therefore assessing whether the allegations are supported by documented fact is extremely difficult.
“By not allowing one group to control or arbitrarily change the rules, decentralized cryptocurrencies and applications provide a powerful tool for checks and balances, to protect the system from malicious actions.”
Additionally, according to Ermakov, there are many groups currently vying to consolidate their control over blockchain — something that goes against the very essence of what the technology stands for.
Popa also feels that a Chinese cryptocurrency (or even Libra) would not have enough power to greatly affect the U.S. dollar or any other sovereign currency for the simple reason that neither are likely to offer any superior advantages in terms of stability, preservation of purchasing power, or as a hedge against volatility.
That said, Popa believes that China fully realizes that many of the world’s top economies are currently engaged in a “currency race” akin to the U.S. vs. Russia space race during the 1960s. In this regard, he added:
“The world power that succeeds in adopting a stable digital currency that is easy to exchange across borders and can be used as a value peg for other currencies will lead the 21st-century global economy.”
However, Brian Young, CEO of Cuvia Labs blockchain platform, is of the mindset that a Chinese cryptocurrency issued by its central bank could pose a credible threat to the reserve currency status currently enjoyed by the U.S. dollar.
He told Cointelegraph that this is a Sputnik moment for the Federal Reserve, since China seems to have a substantial lead and has the necessary governmental control to ensure widespread adoption. Edwards then added that the U.S. needs to fast-track the launch of Libra or the consequences will be catastrophic:
“This should be followed by the creation and issuance of sensible regulations and compliance requirements to allow US entrepreneurs and investors to engage with regulatory certainty. Finally, the Fed should layout a clear roadmap to the crypto-USD. A roadmap would create FUD in the market and slow down the competition.”
President Xi Is A Blockchain Advocate Now
After Xi made his pro-blockchain comments, the crypto market lit up as the price of Bitcoin soared by just over 25%, reaching close to the $10,000 mark.
Felix Shipkevich, an attorney and principal of Shipkevich PLLC, told Cointelegraph that Xi’s sudden support for blockchain technology is logical, given the imminent launch of the digital yuan:
“This statement is a positive one, as blockchain has the power to change how currency and even society functions, providing an anonymous, peer-to-peer, highly accountable transaction, while it is decidedly counterintuitive coming from China.”
However, the fact still stands that the crux of cryptocurrencies is the idea that they are free from government control. By creating a digital yuan and passing the new law, it seems as though China’s current goal involves further modernization and getting ahead of the blockchain/cryptocurrency curve while laying the groundwork for future economic success.
Bitcoin Dissident Sees Dark Warnings in China’s Blockchain Push
China’s recent multi-front embrace of blockchain technology has divided the global cryptocurrency community. While some see it as helpful validation, others worry that crypto is diverging further from its anti-authoritarian roots.
Authorities in China have long discouraged investment in grassroots cryptocurrencies like bitcoin. But the world’s most populous country is making significant progress with plans for a national cryptocurrency that could increase the government’s surveillance powers over the economy.
CoinDesk spoke with one anonymous bitcoiner who grew up in China and has since moved elsewhere in East Asia. Far from seeing blockchain “adoption” as a march toward liberation, he expects the government to use such technologies to increase its control over the population. After all, the propaganda office for China’s Communist Party announced a blockchain-based application over the weekend that allows members to pledge their allegiance to the party.
Given China’s mass detention centers currently being used to “re-educate” over a million Chinese Muslims, this bitcoiner feared local minorities will face even harsher conditions under a fully integrated financial system controlled by the government.
What follows is a condensed transcript of the interview with this greybeard bitcoiner, a programmer who started following the project in 2014.
The text has been edited for clarity. We agreed to keep the identity of this person secret because he feared repercussions for his family.
Q: What Do You Think About The Recent “Pro-Blockchain” Announcements Coming Out Of China?
It terrifies the crap out of me.
Crypto is technology is just like nuclear fusion is just technology: You can use it to create nuclear generators that might benefit a lot of humanity, or you can use it to create atomic bombs. We do need to think about ethics when it comes to these things.
If the value is something a totalitarian state can take hold of and use to track every single person and what they’re doing, enforcing the strictest currency controls, then this is what they are going to do.
Q: Why Do You Think There Are So Many People Celebrating Such News This As A Positive Indicator For “Adoption” In The Crypto Community?
People in East Asia are very comfortable with the idea that the government is like our parents, that they’ll take care of us.
Even if they read novels like Brave New World or 1984, the world to them is OK for the most part. But the few people who want to act in a way that the government does not agree with will be persecuted.
My parents have been [Christian] missionaries for about 18 years now, and being a missionary is outlawed in China. Our phones were getting tapped, our computer was getting hacked. My parents’ names were on the Chinese police blacklist. People like my parents are called terrorists or Tibetan freedom fighters.
In China, there’s very strict capital controls. So when I read about bitcoin, it was like, “This is a great way to store money with real censorship resistance.”
Q: How Did You Guys Live Under Such Constant Surveillance?
We had very specific protocols for operational security. For example, when we’re talking over the phone or email, we switch out all sensitive words and make sure our servers are not located in China.
My parents once had their WePay and AliPay accounts cut off. But luckily they had cash, fiat currency and physical cash so they could live. If China had been 100 percent digital, there would have been no way for them to survive.
Q: How Does Your Family Use (Relatively) Decentralized Blockchain Technology Today?
I don’t send my parents money in crypto. But my biggest fear growing up was that my parents would be deported. In China, after they tell you that you need to leave the country, you need to liquidate all your assets in 48 hours. We used to practice this thing where we’d pack everything we have in less than 48 hours. It was kind of like our drill.
Right now, all my parents’ assets are in crypto. As long as there’s one of us, somewhere in the world with access to our private key, our wealth is OK. It’s still very difficult for my parents to access their crypto, though. They can’t do it by themselves. They definitely need my help. That’s why I hold most of their stuff. In that way, accessibility [with crypto] is still lacking, even if it provides a store of value. And my parents don’t really understand crypto the way they understand banking services.
At the end of the day, censorship resistance is not enough. We need a private way of transacting and a way to make it accessible, understandable to everyone. We’re not there yet.
Expert: US Should Cut Crypto Firms Some Slack To Compete With China
Fintech and regulation experts have said the United States needs to wake up to China’s proactive pursuit of a central bank digital currency.
A Fortune report published on Nov. 1 pointed to the fact that digital currency looks poised to play an increasingly important role in the standoff between the two superpowers.
China making “very large macros plays”
As Mike Wasyl — managing partner at DeerCreek, a fintech-focused corporate strategy firm that works across Asia-Pacific and the U.S. — told Fortune:
“China is making these very large macro plays. They want to maintain control and be seen as leaders and so adopting blockchain and being public about it, as we saw recently, is going to stir a lot of interest.”
Duncan Wong, chief executive of Hong Kong-based startup CryptoBLK, ventured that the recent endorsement of blockchain innovation by Chinese President Xi is likely to accelerate the rollout of the People’s Bank of China (PBoC)’s plan to launch a central bank digital currency (CBDC).
As Wasyl noted, China’s race to launch its CBDC first is likely to send a signal to global competitors that this is “the new paradigm.”
The country already has a vast digital payment ecosystem, with Tencent’s WeChat Pay counting over a billion users and Alibaba’s Alipay 1.2 billion.
U.S. Trying To Regulate Its Way To Innovation
Li Chen, a researcher at the Chinese University of Hong Kong whose work focuses on China’s financial development and government regulation, told Fortune underscored that the country’s approach to digital currency and blockchain bifurcates between encouragement and caution.
The country is notoriously opposed to decentralized cryptocurrencies such as Bitcoin and pursued a historic blanket criminalization of initial coin offerings (ICOs) alongside a crypto exchange crackdown back in 2017.
Yet when it comes to blockchain innovation in the industrial — and particularly financial — sectors, Li argued that advancements in CBDC development have taken place within the “relatively permissive attitude of China’s financial regulators and central bank”:
“I think it’s fair to say China’s fintech revolution […] would not achieve what it is now without the overall more permissive attitude of Chinese government regulations.”
Insofar as [developers] “remain in these parameters set by the state in terms of the direction of innovation,” he said he expected to see accelerated blockchain implementation in China.
Wasyl: U.S. Needs To Cut Blockchain Firms “A Little More Slack
But contrast, Wasyl argued that the U.S. is stuck trying to “regulate [its] way to innovation.”
A U.S. CBDC is “an inevitability,” he said, and the government should be capitalizing on the interest sparked by Facebook’s Libra to open up a larger conversation about the country’s currency future.
Once digital currency gains traction, he stressed, “it’ll be gradually, and then all at once.”
The experts remained unanimous in considering that for the time being, China’s CBDC is not likely to pose a threat to U.S. dollar hegemony, but warned that the U.S. needs to cut blockchain firms “a little more slack to allow some exploration” if it is to stay ahead in the game.
This summer, the former PBoC governor characterized Libra as being “inseparable from the global dollarization trend,” stressing the imperative for China to maintain a strong monetary status.
The Professor, The President And The Pep Talk That Kicked Off A Blockchain Rally
Chen Chun, who schooled China’s Xi Jinping on the technology underpinning digital currencies, is in the spotlight after this week’s spike in blockchain stocks.
China’s blockchain frenzy, which sparked rallies in an array of companies, has catapulted one academic into the limelight.
Meet Chen Chun, a 63-year-old computer-science professor and an expert at a government-backed think tank. At a meeting last week, it was his job to brief Chinese President Xi Jinping and other senior officials at the Communist Party’s Politburo on the merits of blockchain—the open-ledger technology underpinning cryptocurrencies like bitcoin.
After Mr. Chen’s briefing, Mr. Xi announced that China should speed up research into blockchain, according to a report released late last week by the country’s official Xinhua News Agency.
While Beijing has previously been skeptical about cryptocurrencies, some investors and experts had expected cautious support for blockchain technology as part of a broader competition with the U.S. over financial firepower. China’s central bank is also in the midst of developing its own digital currency. Yet the fact that such an endorsement for blockchain came from Mr. Xi himself took the market by surprise.
On Monday, stocks that had even a tangential connection to blockchain soared. The share prices of more than 150 blockchain-related listed companies were forced to suspend trading because they hit the upper 10% daily limit allowed in China’s stock market, according to data provider Wind.
The price of bitcoin also jumped by about a third and briefly topped $10,000 after Mr. Xi’s comments were publicized, before falling back in recent days. The world’s most popular cryptocurrency recently traded around $9,100, according to research site CoinDesk.
For many of those companies, their rallies lost steam throughout the week. An index that tracks blockchain-linked stocks in mainland China rose just 3.1% for the week, after initially rising nearly 9% on Monday alone.
“This is classic speculation among retail investors,” said Tony Gu, founding partner at NGC Ventures, a blockchain investment fund. “When you see rallies like this, the trend almost always dies off because there’s no substance to it.” He said the vast majority of companies claiming to have blockchain exposure don’t actually make any money off the technology.
Among companies that maintained their share gains were some with ties to Mr. Chen or companies he has had stakes in.
One of them is Insigma Technology Co., whose shares rose 26% over the past week. Mr. Chen co-founded the company in Hangzhou in eastern China decades ago; he left it in 2014. Insigma announced on Wednesday it holds a 2.8% stake in a private company Mr. Chen established two years later, Hangzhou Qulian Technology Co.; it didn’t disclose whether Mr. Chen still holds stakes in Insigma.
Another winner in this week’s rally is property developer Xinhu Zhongbao Co., which said in a Thursday filing with the Shanghai Stock Exchange that it owns nearly half of Qulian. It surged by the daily 10% limit all five days. Its market cap is currently $5.7 billion, according to FactSet, up from $3.4 billion a week ago.
There is no indication Mr. Chen directly profited from the market’s sharp rally. He couldn’t be reached for comment.
Mr. Chen’s connection with these companies is well-known in the industry, four blockchain and cryptocurrency investors told The Wall Street Journal.
Mr. Chen was listed in 2017 by China’s Ministry of Science and Technology as a member of an artificial-intelligence-strategy advisory committee, which was designated to support the country’s megaplan for high-end manufacturing development, dubbed “Made in China 2025.”
Investments are intricate in this knowledge-intensive industry, and often involve scholars and experts. According to public filings, Mr. Chen is a shareholder of at least four private companies and chairs the board of another two besides Qulian.
Qulian partnered with several state-owned enterprises including the Shanghai Stock Exchange and the power giant State Grid to develop blockchain platforms. It also runs research projects with Zhejiang University, where Mr. Chen directs a blockchain research center.
Chinese state media have warned about the risks of speculation in the blockchain business. Investors, meanwhile, worry that speculators might use the blockchain push to step up practices such as shadow lending or cross-border transfers that could eventually trigger a regulatory crackdown and hurt the industry as a whole.
The multiple stock-exchange filings this week by Insigma and Xinhu Zhongbao, in which they clarified their associations with Mr. Chen’s company, were an indication of their desire to stay ahead of speculation around their dramatic market-cap gains.
China: Blockchain Is the Future But Keep it Rational — Avoid ‘Aircoins’
China’s official state-owned media has endorsed “orderly” blockchain innovation but cautioned the public to “keep it rational” and avoid the hype around “aircoins.”
On Oct. 4, Dovey Wan — founding partner of blockchain-based investment company Primitive Ventures — tweeted two screenshots showing a rough translation of the new report from the CPC-owned English-language news portal China Daily.
China Needs “Inclusive And Prudent” Regulation
The People’s Daily article opens with the bullish statement that with blockchain “the future is here” — yet swiftly goes on to draw a sharp distinction between bonafide innovation in the sector and what it deems to be undesirable virtual currency speculation:
“Innovation in blockchain is not equivalent to speculation in virtual currency. The use of blockchain to hype up aircoins […] should be prevented.”
The report continues to caution that blockchain remains in its early stages of development and still demands improvements in terms of security, standardization and regulatory oversight:
“The use of blockchain to store and spread illegal information, to enable illegal transactions, money laundering and similar activities should be severely punished.”
To conclude, the report advocates for “inclusive and prudent regulation” that allows for experimentation but prohibits transgressions.
Only by avoiding a frenzied rush can China foster the development of the blockchain sector with “orderly competition, it states.
As the People’s Daily notes, China already has a solid foundation for implementing blockchain development with the participation of major internet firms in the sector as well as with over 20 of the country’s provinces already introducing policies to promote the industry.
Blockchain-based ID System Launching In China’s Smart Cities
Earlier today, the Global Times reported that a new, independently-developed blockchain-based smart city identification system has been jointly launched by three institutes based in the city of Shijiazhuang in North China’s Hebei Province. The system has been made available for cities nationwide as of Nov. 3.
This week, over 10 million blockchain-based invoices were successfully issued in China’s tech capital Shenzhen, according to the city’s tax authorities.
Notably, Chinese President Xi Jinping has recently called on the country to accelerate blockchain adoption, endorsing the technology “an important breakthrough.”
Huawei Signs Deal With Digital Currency Research Unit of China’s Central Bank
Multinational telecommunications and consumer electronics giant Huawei has signed a strategic cooperation agreement with China’s central bank, the People’s Bank of China (PBoC).
According to a statement from Huawei’s WeChat channel on Nov. 4, PBoC deputy governor Fan Yifei attended the signing of a fintech research cooperation agreement between Huawei and PBoC’s Digital Currency Research Institute at Huawei’s headquarters in Shenzhen.
The announcement did not mention details regarding the agreement, or whether it includes joint research on blockchain technology or digital currencies. Huawei has not responded to Cointelegraph’s request for comment as of press time.
Huawei Is Active In The Blockchain Space
Huawei has been actively developing its blockchain capabilities over the past few years. In April 2018, the firm launched its Hyperledger-based blockchain-as-a-service platform — Blockchain Service — one month after the release of Huawei and Hyperledger’s joint project Caliper.
In June, the firm was considering launching blockchain services in Latin America.
Speaking to Cointelegraph Brasil, an anonymous Huawei executive said at the CIAB Febraban conference on June 11 that its blockchain-enabled products and services may be available on the continent in the near future.
China Aggressively Pursues Blockchain And Digital Currency Development
Over the last few years, the Chinese government has lost no time in pursuing blockchain development and innovation within the country as it jockeys to be the global leader in emerging distributed ledger technologies.
China’s central bank founded the Digital Currency Research Institute in June 2017, concentrating its efforts on blockchain technology and fintech.
In June 2019, Cointelegraph reported that China is running neck-and-neck with the United States regarding the number of blockchain patents filed in each country.
President Xi Jinping himself recently called on his country to accelerate the adoption of blockchain technology at a Politburo Committee session. He said:
“We must take blockchain as an important breakthrough for independent innovation of core technologies, clarify the main directions, increase investment, focus on a number of key technologies, and accelerate the development of blockchain and industrial innovation.”
Peter Schiff: China’s Gold-Backed Crypto Would Be Bearish for Bitcoin
China launching a digital counterpart of the yuan backed by gold puts Bitcoin (BTC) at a disadvantage, veteran gold bug Peter Schiff claims. In a tweet on Nov. 2, Schiff, notorious for his cynicism when it comes to Bitcoin, attempted to counter criticism of his stance by Keiser report host, Max Keiser.
Schiff Tells Keiser: Gold Backing Beats BTC
“According to @maxkeiser I’m an idiot because I think #gold is better money than #Bitcoin,” he wrote.
Schiff also repeated his oft-quoted idea that Bitcoin has no intrinsic value:
“He also claims China is about to launch a crypto currency backed by gold. This is bullish for gold and bearish for Bitcoin. A crypto backed by gold is much better than one backed by nothing!”
Keiser did not respond publicly, having kept a markedly low profile on social media throughout October.
Official Hints At Gold Role
As Cointelegraph reported, China appears to be advancing efforts to issue a digital currency in the wake of Facebook’s own token, Libra.
Its backing remains uncertain, with an ex-Congress official last month suggesting it would come in the form of a peg to China’s gold reserve among other factors.
China’s recent endorsement of blockchain technology meanwhile appeared to have an instant positive impact on Bitcoin markets. Nonetheless, local media subsequently tempered the hype, advising citizens not to take the support as proof of a change of stance regarding cryptocurrency.
Beijing outlawed cryptocurrency trading in September 2017, a situation which officially remains the same despite rumors that investors are using different on-ramps to gain access.
China Signs Agreement With Hong Kong Central Bank For Blockchain Push
Blockchain has received fresh endorsement from China in the form of a development pact with the de facto central bank of Hong Kong.
In a news post on Nov. 6, the Hong Kong Monetary Authority (HKMA) confirmed it had signed a Memorandum of Understanding (MoU) with a subsidiary of the People’s Bank of China (PBoC).
Central Banks Want “More Convenient Trade Finance”
The deal aims to create a Proof-of-Concept for a trade finance platform from Q1 2020, linking two existing projects: the HKMA’s eTradeConnect and the PBoC’s Trade Finance Platform.
The two central banks will be represented by subsidiaries of Hong Kong Interbank Clearing Limited and the Institute of Digital Currency of the PBoC.
“Once the connection has successfully been established, it will provide firms in both places with more convenient trade finance services and enable banks in Hong Kong to expedite the expansion of their trade finance business,” the post adds.
China Blockchain Funds Approach $6 Billion
The news follows sudden endorsement of blockchain technology from Beijing, with president Xi Jinping personally appealing for its use to expand across the domestic economy.
As a direct response to the events, Chinese regional governments and other entities have pledged blockchain funds worth $5.7 billion to further support, local financial media outlet China Money Network reported on Wednesday.
Among them is a 100 million yuan ($14.3 million) fund from 1911 Group, the publication wrote citing another outlet, PE Daily.
“To lift Hong Kong’s fintech development to a new height, we must take a holistic ‘HK Inc.’ approach,” HKMA chief executive Eddie Yue commented as part of the MoU signing.
‘Bullish For Bitcoin’ — China Scraps Plans To Ban Cryptocurrency Mining
Bitcoin (BTC) mining will not face a state crackdown in China, authorities have confirmed in new official documents. As noted by Blockstream CSO Samson Mow and others on Nov. 6, mining no longer features on a list of industries Beijing considers undesirable.
“Bullish For Bitcoin”
The change came via a new edition of China’s Industrial Structure Adjustment Guidance Catalog, which will take effect from the start of 2020.
“China’s National Development and Reform Commission has removed #cryptocurrency mining from the list of industries they want to eliminate. Bullish for #Bitcoin,” Mow commented.
A previous incarnation of the document earlier this year had conversely included Bitcoin mining as one of the government’s targets.
The news marks a rare boon for Bitcoin-related activities in China, a country where cryptocurrency outside the control of the central bank remains all but banned.
BTC Markets Calm
The recent endorsement of blockchain technology from president Xi Jinping coincided with a dramatic rise in BTC/USD, after which local media cautioned on misinterpreting the remarks as supportive of crypto.
Following the most recent announcement, however, little appeared to change on Bitcoin markets.
Mining has long formed a profitable industry in China, with cheap electricity meaning major participants still reside there. Canaan Creative, one of the biggest Bitcoin mining rig manufacturers, will reportedly undergo a $400 million initial public offering, or IPO, later this month.
How Will China Pursue Xi Jinping’s Blockchain Adoption Plan?
After President Xi Jinping called to speed up the development of blockchain technology in the country on Oct. 24, blockchain-related news from China just keeps on coming as the country is seemingly eager to beat the United States (or any other country) in the race to implement blockchain initiatives. For this purpose, a special regulatory body has been created to monitor over 700 local decentralized projects, and any articles containing anti-blockchain statements are now banned.
Talking About Blockchain Is Good!
The country’s authorities have studied the possibilities of distributed ledger technology for some time. However, at the beginning of last week, the blockchain policy in China took a more aggressive course.
During a Politburo Standing Committee session, the head of state called on government institutions to immediately begin implementing a program to integrate blockchain into the country’s economy and its IT sector.
The ambitious program’s implementation began with restoring blockchain’s reputation. Any anti-blockchain statements are now banned in the country, with existing publications criticizing or calling the technology a scam being removed en masse last week.
Not long ago, the Chinese government’s stance on blockchain and cryptocurrencies wasn’t so positive.
“Who still remember the days when posts promoting blockchain getting deleted real fast?” tweeted local blockchain and cryptocurrency news outlet cnLedger on Oct. 28. Additionally, the country’s most downloaded educational mobile app, Xuexi Qiangguo, has recently introduced a new course that is completely dedicated to blockchain and cryptocurrencies.
As reported by local news outlet Storm Media, the technology is being discussed in Chin
a mainly due to the government’s motive. As a result, the number of articles and TV programs promoting decentralized technology is growing rapidly. Over the past 30 days, the number of pages containing publications about “區塊鏈” (blockchain) in the Baidu search engine has more than doubled, from 34 to 76.
Since Oct. 25, WeChat users have been searching for blockchain 11.8 times more often. In just two days, the number of relevant searches increased from 777,000 to 9.2 million.
The People’s Bank of China began exploring the possibilities of digital currencies and DLT back in 2014.
Three years later, in 2017, its representatives announced that they would pay special attention to blockchain as part of a five-year development plan. Musheer Ahmed, managing director at FinStep Asia — an advisory firm assisting fintech startups — told Cointelegraph:
“The development of innovative technologies has been an important part of Chinese Government Policy to take the country forward into industry 4.0 era. We saw the same when it came to the development of mobile internet and, in particular, Artificial Intelligence and IoT.”
A week ago, during a meeting with Communist Party of China officials, President Xi urged the country’s ministries and companies to allocate even more resources to the study of blockchain technology. He emphasized, “Greater effort should be made to strengthen basic research and boost innovation capacity to help China gain an edge in the theoretical, innovative and industrial aspects of this emerging field.”
The ambitious plans are supported by existing programs: In October last year, China launched the first pilot blockchain development zone. Based in the Hainan Resort Software Community, the zone was created in collaboration with the Oxford University Blockchain Research Center. Wang Jing, head of Hainan’s provincial department of industry and information technology, said at the time:
“The pilot zone will commit to attracting blockchain talent around the world and exploring the application of blockchain in areas such as cross-border trade, inclusive finance and credit rating.”
She added that the pilot zone will cooperate with the world’s leading research institutes and major players in the blockchain industry. According to the Communist Party of China Central Committee, there are presently 83 blockchain research institutes in the country.
Overall, research across Chinese universities in blockchain is at a prolific level, according to professor Olinga Taeed, council member and expert advisor at China E-Commerce Blockchain Committee. He told Cointelegraph:
“CCEG has a 5 year agreement with then Centre for Cyber Security at the University of Electronic Science and Technology of China in Chengdu (UESTC). When I visited them in September 2017 they already had over 40 PhD students working on blockchain; you have to compare this to the rest of the world where you will be lucky at most to have 3–5 at a university more than two years later.”
China is seeking to introduce blockchain in a variety of areas, doubling the volume of investments to $3 billion since the second quarter of 2018.
Last year, various funds were allocated to the blockchain industry by Chinese government agencies, totaling 40 billion yuan ($5.8 billion). Funds financed by individual cities and provinces such as Hangzhou, Nanjing, Beijing, Shanghai, Shenzhen, Xi’an and others are especially active. On Oct. 30, Cointelegraph reported on the Guangzhou government’s plans to launch a $140 million subsidy fund to encourage the development of blockchain initiatives.
The ambitious goals set by Beijing to create a blockchain industry ecosystem in the country require strengthening leadership and the work of regulatory bodies, as stated by the Secretary General of the CPC. Meanwhile, an entity to meet this requirement is already actively functioning in the country.
To date, the Chinese Cyberspace Administration — the structure governing the activities of local blockchain projects — has checked and approved over 506 organizations. This list includes the largest Chinese state-owned banks, IT corporations as well as many state and commercial projects that determine the face of today’s Chinese economy.
It should go without saying that the face should be impeccable, according to the CPC, which calls on blockchain companies to “remain rational.” The orders from above are being successfully carried out, as the Shanghai Stock Exchange asked blockchain-related projects at the end of October to make statements based on facts and refrain from creating hype.
Meanwhile, the creation of these standards is entrusted to the Research Institute of Electronic Industry Standards under the Chinese Ministry of Industry and Information Technology.
The widespread adoption of these standards is expected to occur before the end of the year and will allegedly include basic and business standards for processes and methods, compatibility and information security.
At the same time, ready-made fintech products will undergo mandatory certification. For this purpose, the People’s Bank of China has created a special department called Certification of Fintech Products.
Cointelegraph reported that China plans to certify 11 types of equipment and software for financial technology that facilitate digital payments and blockchain services. According to the bank’s representatives, the issued certificates will be reviewed and updated every three years.
When it comes to the development of blockchain solutions, China’s plans are wide and varied. The work is in full swing, especially after the recent speech made by the president. Everybody is busy — from the administration itself, in a hurry to issue a central bank national digital currency while checking the loyalty of officials through a new decentralized application, to large corporations.
According to the China Electronic Information Industry Development report, the number of blockchain patents filed in the country reached 3,547 in the first half of 2019, exceeding the total number of patents for the full year of 2018.
One of these companies, FUZAMEI Technology, told Cointelegraph it has applied for more than 300 blockchain patents, 295 of which have been published, and eight have been authorized. Danruo Huang, the company’s overseas market development manager, said, “From our perspective, intellectual property protection and continuous innovation of technology are fundamental to future development.”
Meanwhile, the total number of blockchain projects in the country counts over 700. The list includes representatives from various industries, including tourism, education, e-commerce, law, healthcare and supply chains. Among the latter are blockchain solutions HiCloud and AliCloud developed by technology corporations Huawei and Alibaba, respectively.
Baidu, the Chinese online search giant, has also made its appearance by patenting its own “Super Chain” blockchain for developing the fundamental infrastructure for the provision of blockchain services.
The list also includes financial sector giants such as Industrial and Commercial Bank of China and Ping An Bank, both of which have registered as many as two blockchain projects each. Another major state-owned bank, China Merchants Bank International, is using the public blockchain Nervos to create fintech applications for retail and institutional clients.
Along with commercial enterprises, government agencies are also represented, including the State Currency Office with its cross-border blockchain platform for business representatives and the Hangzhou Internet Notary Service.
Beijing is actively attracting IT companies to integrate blockchain technology into the administrative sphere and the public sector. It is known, for example, that the American company ConsenSys is creating an application for renting real estate in Xiongan New Area.
Meanwhile, the administration of Shenzhen city has entered into an agreement with Tencent, a Chinese tech company, to open an entire Intellect Tax laboratory. Its employees will use blockchain to track how citizens pay taxes.
Add to that the recent investment of Wanxiang, one of China’s largest automotive giants, of almost $30 billion in a new blockchain startup involved in creating a blockchain-powered “smart city” that is able to track citizens’ data. “Innova City” is set to become China’s “largest, most interconnected, blockchain-powered smart city.”
Does China demonstrate the same level of efficiency when it comes to functional blockchain solutions? It seems that the country is succeeding here too. It’s not just mining corporations and cryptocurrency exchanges where China is an undisputed global leader, but also in the practical application of decentralized technology within institutional structures.
The most vivid example is the Beijing Internet court, which was created in 2018 and has since examined 14,904 cases with the help of blockchain. The organization’s president, Zhang Wen, said that in 40 out of 41 cases, the parties preferred to settle the matter in court using evidence validated by blockchain.
Zhang also noted that the court has used blockchain in 58 cases to collect and provide evidence during trials. In another city, Hangzhou, the internet court uses blockchain to combat plagiarism, and the country’s Supreme Court has even recognized the legal force of evidence based on blockchain.
In the logistics field, the VeChain blockchain system is actively used to validate the quality of goods. In mid-October 2019, it began to be used for tracking beef imported from Australia and identifying counterfeit meat products.
Through the new service, each piece of beef is placed in a vacuum-sealed package marked with a unique QR code, which allows the transportation process to be tracked from the slaughterhouse in Australia to stores in China. Suppliers, sellers and consumers can check the origin of the meat by scanning the code using a smartphone at any time. The code works with VeChain Pro, WeChat and Alipay applications, and makes it impossible to fake or forge any records in the blockchain system.
Blockchain has also seen widespread use in the field of mobile payments in China. This is not surprising, given that 425 million Chinese people use phones as electronic wallets, and the mobile payment market has already reached $5.5 trillion. One can now pay for a product with a smartphone at almost any vegetable market by simply scanning the QR code marked on an electronic scale. Tencent’s messenger, used by 500 million Chinese people, has its own TrustSQL blockchain platform to make mobile payments safer. Regarding this, Ahmed told Cointelegraph:
“The technology has been in use to varying degrees in Mainland China for the last few years. We have seen the big TechFins/Tech giants using blockchain for payments, like Alipay for remittance, as well as for their operations. In some instances, blockchain has been used by tax bureau to issue tax invoices in Shenzhen.”
The Forecast For The Next Two Years
Meng Liu, an analyst at Forrester, believes that there will be a significant increase in enterprise blockchain projects in the next year or two, most of which will be owned or financed by government organizations. At the same time, according to Meng, banking will stand at the forefront of China’s blockchain industry:
“In his speech, President Xi has highlighted a few use cases for blockchain such as small-to-medium enterprise (SME) lending, banking risk management, and compliance. The instructions from China’s top leadership will push the digital transformation process of megabanks’ back-office operations and improve their operational efficiency.”
Speaking about the role of financial entities involved in China’s blockchain adoption plan, many experts referred to the country’s national cryptocurrency planned for issue by the People’s Bank of China as part of its Digital Currency Electronic Payment system intended for use in the near future.
Xin Wang, CTO at Huaxin Blockchain, told Cointelegraph that the DCEP system can be publicly released within a year. He also added that Alipay and WeChat pay have already set up an infrastructure for the project. Xin went on:
“Blockchain will act as a complementary strategy for data safety and audit. The government will start to adopt this technology in the government IT system to provide better service to public. The areas may include: digital certificate, copyright, proof of asset, etc…”
As for a key region where the blockchain is likely to flourish, Meng named Shenzhen, explaining that China’s government is seeking to turn the city into a “hub of innovation, entrepreneurship, and creativity with international influence. It also fosters plenty of leading tech and fintech giants such as Ping An Group, China Merchants Bank, WeBank, Tencent and Huawei,” the analyst added.
Further development of blockchain technology in the country will most likely be facilitated through state-controlled chains. Dr. Paul Sin, leader of FinTech Practice and Asia Pacific Blockchain Lab, said in a conversation with Cointelegraph:
“DLT or permissioned blockchain has a key difference from public blockchains used by cryptocurrency, i.e. only permissioned named users can join the network (vs. crypto users are often anonymous). While crypto allows money laundry, breaches of currency control, illegal fund raising, etc., DLT enables traceability and auditability. Hence China government has been and will continue to support DLT.”
China’s State-Run Media: Bitcoin Is Blockchain’s First Success
The official Chinese state-run Xinhua News Agency has published a report recognizing Bitcoin (BTC) as “the first successful application of blockchain technology.”
Published today, Nov. 11, the coverage is exceptional given China’s abiding hardline stance against decentralized cryptocurrencies, as epitomized by Beijing’s historic September 2017 blanket ban on crypto exchanges and initial coin offerings.
The Xinhua article is broadly positive and detailed in its coverage of Bitcoin and the history of its development and evolution.
It opens by posing the question of whether the coin represents the “inevitable trend of future currency development or just another ‘tulip’ hype?” Given this formulation reproduces a long-standing industry platitude, it arguably leans more toward rhetorical convention than polemic.
The article continues to describe the core principles of blockchain as a decentralized, immutable and trustless system for the peer-to-peer transfer of value, covering aspects such as mining, digital scarcity and pseudonymity.
It is in regard to this latter — again, similarly to much Western mainstream media coverage of cryptocurrencies — that the article flags up the potential risks of Bitcoin, arguing that purportedly “the most important uses of Bitcoin payments are black market transactions and ‘dark net’ transactions.”
Xinhua also emphasizes the volatility of Bitcoin as a currency that is not backed by a centralized sovereign power — as distinct from national fiat currencies.
However, the article is notably free of hyperbole or demonization, prompting some readers to propose that the coverage represents the “first time Bitcoin got such positive exposure” from the Chinese government.
A turning tide?
As reported, President Xi’s recent high-profile endorsement of blockchain innovation in recent weeks was accompanied by the signing of the first national law regulating cryptography, governing various aspects of blockchain, due to come into effect this January.
The country’s central bank, the People’s Bank of China, is also expected to become the first major global economy to launch a central bank digital currency as other countries, such as Tunisia, are already getting a head start.
While state media has recently reiterated a cautious stance against speculative excesses in cryptocurrency trading, the country is nonetheless appearing to tone down its erstwhile stringent opposition to activities such as Bitcoin mining.
China Digital Currency ‘Not Seeking Full Data Control’ — Central Bank
China is not launching a war on cash by introducing its own digital currency, a senior official from the central bank has said.
As Reuters reported on Nov. 12 quoting Mu Changchun, head of the digital currency research institute at the People’s Bank of China (PBoC), Beijing still intends for the new currency to complement the paper yuan.
PBoC “Knows” Public Wants Notes And Coins
Mu was speaking at a conference in Singapore, as speculation swirls the digital currency could appear within the next three months. China would be one of the first countries in the world to issue a domestic digital currency, along with Tunisia.
“We know the demand from the general public is to keep anonymity by using paper money and coins… we will give those people who demand it anonymity in their transactions,” Mu explained. He continued:
“But at the same time we will keep the balance between the ‘controllable anonymity’ and anti-money laundering, CTF (counter terrorist financing), and also tax issues, online gambling and any electronic criminal activities. That is a balance we have to keep, and that is our goal.”
No War On Cash?
China already employs strict monitoring of the financial sphere. The use of popular mobile payment operators such as WeChat Pay and Alipay requires extensive personal information, and until recently was only available to those with a Chinese bank account.
Mu’s comments build on previous moves from the PBoC to protect cash. In July, it announced a crackdown on merchants refusing to accept paper fiat.
Nonetheless, Mu appeared keen to state that digital currency did not imply increased control of user data, despite the ease of aggregation of such data with digital transactions.
“We are not seeking full control of the information of the general public,” he added.
Other attempts to digitize previously cash-based transactions have met with much criticism. In India, where the government is conversely attempting to limit cash usage since 2016, spectators have voiced alarm at a scheme to tie replacement digital transactions to consumers’ real identities.
Julian Gordon’s WeChat ‘Hasn’t Stopped Buzzing’ Since Xi Jinping Went Pro-Blockchain
Speaking at BlockShow Asia 2019, Hyperledger Vice President APAC Julian Gordon described the personal impact that the Chinese president’s pro-blockchain remarks have had on him:
“Xi Jinping made that announcement 10 days ago. The reason I know that is because my phone is sitting on my desk — my WeChat started buzzing and hasn’t stopped since.”
Hosted by the Linux Foundation, Hyperledger is an open-source blockchain project aiming to be a hub for open blockchain development across industries. It has gathered companies from different backgrounds such as IBM, Airbu, and J.P.Morgan to further advance cross-industry blockchain technologies.
Hyperledger is also collaborating with Chinese companies in areas like trade finance, letters of credit (L/C), and e-visibility. For example, they are working with top Chinese banks like China Minsheng Bank and China CITIC Bank to remove the need for SWIFT in China’s domestic L/C settlement.
Expectations for the Chinese blockchain market are quite high. Referring to big Chinese tech companies like Alibaba and Tencent, Gordon said that they were always amazed by Chinese entrepreneurship.
Hyperledger is a permissioned blockchain project, which is different from a permissionless technology with anonymous participants. Yet Gordon claims that the two different ecosystems can coexist. Last June, the Ethereum Foundation joined Hyperledger.
Binance CEO: It’ll Be Hard for Nations to Outrun China on Blockchain
Changpeng Zhao, founder and CEO of crypto exchange Binance, says the Chinese President’s endorsement of blockchain will inevitably drive mass adoption of crypto.
In an interview with Bloomberg Markets: Asia on Nov. 15, Zhao — better known by his industry moniker “CZ” — gave his perspective on the likely global impact of the recent intervention by President Xi Jinping.
“We’re going to see a race”
As reported, President Xi Jinping had called this October for China to accelerate its adoption of blockchain technologies to drive innovation and industrial transformation.
Reflecting on the likely consequences of this high-profile endorsement and explicit declaration of a pro-blockchain strategy by the world’s second-largest economy, CZ said:
“It’s super positive. China’s very pro-technology, so China will invest very heavily in blockchain technology and on the educational front as well. Given that China has now made that move, every other country in the world will have no choice but to follow or move faster. But it’s going to be pretty hard to move faster than China to be honest.”
Hinting at states’ competing geopolitical aspirations to monopolize technology, CZ added: “I think we’re going to see a race there.”
The CEO saw the impact of the pro-blockchain stance going much further, arguing that while the president may have confined his comments to the underlying technology”
“You can’t learn just about blockchain without learning about cryptocurrencies. so I think we’ll see a lot more people who understand Bitcoin, Ether and other cryptocurrencies. So we’ll see very strong adoption there.”
Approaching The Great Wall
When quizzed on Binance’s China strategy, CZ struck an implicit note of caution — perhaps unsurprisingly, given the exchange had been forced to leave the country in the wake of China’s Sept. 2017 crackdown on crypto exchanges, relocating its headquarters to Malta. He said:
‘We want to follow the recommendations very closely and to promote blockchain technology research and development. We’re looking at a number of initiatives in that area. We want to help wherever we can.”
In Sept. 2018, Binance had made its first strategic Chinese investment since leaving the country in the wake of the crackdown, participating in a $200 million funding round for a Beijing-based crypto and blockchain publication.
Earlier this month, Binance launched peer-to-peer trading for Bitcoin (BTC), Ether (ETH) and Tether (USDT) against the Chinese yuan. As noted in today’s Bloomberg interview, the exchange has also been involved in over-the-counter cryptocurrency trading in the country, which raked in solid profits earlier this year.
Speaking yesterday at BlockShow Asia 2019, CZ predicted — in contrast to other industry figures — that the digital currency in development by the People’s Bank of China will be based on blockchain.
US Deputy Treasury Secretary: Crypto Raises Questions on Self-Government
The United States Deputy Treasury Secretary argued that decentralized privately-issued digital currencies can shift some functions from the state to the private sector.
Deputy Secretary of the Treasury Justin Muzinich presented his view on the emerging ecosystem of financial intermediation and digital currencies at an annual banking and payments conference in New York on Nov. 21.
The keynote by Muzinich was published on the official website of the United States Department of the Treasury.
The recent conference was co-hosted by the U.S. Clearing House and Bank Policy Institute.
Illicit uses of crypto are “one of the issues at the top of Treasury’s mind”
Speaking at the conference, Muzinich addressed issues associated with digital currencies alongside regulatory and tax reform and the intersection of economic policy and national security. In his statement, Muzinich continued a common Treasury narrative on concerns that cryptocurrencies can be used for illicit practices such as money laundering.
The Deputy Secretary Emphasized That These Concerns Remain One Of The Top Issues Concerning The Authority:
“One of the issues at the top of Treasury’s mind is that digital currencies can potentially be used to evade existing legal frameworks — like those governing taxation, anti-money laundering, and countering the financing of terrorism.”
Treasury Respects Innovation, But Digital Currencies Need A “Very Hard Look”
Muzinich stated that the Treasury values innovation and welcomes efficiency improvements, but stressed that innovation powered by digital currencies needs a “very hard look.” He added that decentralized, privately-issued digital currencies are not simply a means of payment, but also tools that can shift functions traditionally performed by the government to the private sector. He said:
“Digital currencies at scale raise not only concrete questions about money laundering, monetary policy, and other topics, but also very abstract questions about self-government. Those engaged in digital currency markets should therefore expect that policymakers, in pursuing the public interest, will take a very hard look at these issues.”
Muzinich Extends Mnuchin’s Warnings About Bitcoin
The fresh remarks from Muzinich, who assumed office as Deputy Secretary of the Treasury in late 2018, are a logical extension from some previous statements delivered by Treasury Secretary Steven Mnuchin.
In July 2019, Mnuchin criticized the major cryptocurrency Bitcoin (BTC), saying that it can be used for money laundering, and the authority will be preventing it from becoming an “equivalent of Swiss-numbered bank accounts.” Notably, Mnuchin declared that cash is not laundered like Bitcoin.
In mid-October, the Treasury agreed to the need for an investigation into Facebook’s forthcoming Libra stablecoin following a letter from Representative Emanuel Cleaver.
CFTC Chair On Crypto Regulation: We Don’t Want To Snuff Out Innovation
The chairman of the United States Commodity Futures Trading Commission (CFTC) has called for “principles-based regulation” for cryptocurrencies.
Heath Tarbert, who assumed his post following former Chairman J. Christopher Giancarlo in July 2019, stated that taking such an approach in regulating digital assets would allow a period of development and observation before it may be appropriate to adopt more targeted rules. Tarbert delivered his remarks on crypto regulation in an op-ed published on the CFTC website Nov. 19.
In the statement, Tarbert emphasized that the term “principles-based regulation” does not imply a light-touch approach or deregulation, stating that it is actually “far from it.” The chairman elaborated that such an approach involves moving away from detailed rules to relying more on high-level and “broadly-stated principles” to define standards for regulated firms and products.
“If You Make 10,000 Regulations, You Destroy All Respect For The Law”
To make his point, Tarbert quoted former British Prime Minister Winston Churchill’s statement, “If you make 10,000 regulations, you destroy all respect for the law.”
According to the chairman, regulators should first fully understand the outcomes and potential risks of digital assets before enforcing their rules. “What we don’t want to do is take a heavy hand and snuff out innovation altogether,” Tarbert argued, explaining:
“Given the rapid pace of innovation and the markets supporting it, taking a principles-based approach to regulating digital assets and other fintech products would permit a period of development and observation.
After we fully understand the outcomes and potential risks of digital assets, it may be appropriate to adopt more tailored and targeted rules, or a more balanced combination of principles and rules.”
Willingness To Allow Innovation Should Not Be Confused With Fraud Tolerance
While expressing a supportive stance to the development of the nascent technology, Tarbert still devoted considerable attention to the risks associated with the industry. “Our willingness to allow innovation to develop should not be confused with a tolerance of fraudulent behavior or a so-called light-touch approach,” the executive stated. According to Tarbert, digital assets face unique operational risks such as fraud and hacks that could lead to theft or losses.
He added that the CFTC is now considering how the basic aspects of principles-based regulation can be applied to crypto exchanges and clearinghouses.
Former CFTC Chairman Supported A “No Harm” Approach To Crypto
Tarbert’s new pro-industry remarks echo those of his predecessor, former Chairman Giancarlo. In September 2018, Commodity argued that crypto needs a “do no harm” approach from regulators to flourish, comparing the industry with the early days of the Internet.
In late October 2019, the commission granted its fintech research unit LabCFTC status as an independent operating office. Following the elevation, the CFTC’s fintech hub started reporting directly to Tarbert.
US Think Tank Releases Report on Investigation Into Illicit Transactions On The Dark Web
United States think tank The Rand Corporation has taken a closer look at the dark web, where criminal activities are difficult to discover, monitor, and investigate for law enforcement.
On Nov. 20, The Rand Corporation, the Police Executive Research Forum, and the University of Denver on behalf of the National Institute of Justice released a report that dives into a variety of criminal aspects of the so-called dark web.
Dark Web Provides Level Of Anonymity By Using Crypto
The report was compiled during a workshop where law enforcement practitioners and researchers identified 46 potential solutions that include the improvement of training for law enforcement, sharing information across jurisdictions, and investigating the gaps and shortcomings in current laws.
In regards to cryptocurrencies, the think tank found that the anonymity of the dark web is presenting law enforcement with significant challenges, as users with malintent are able to achieve a high level of anonymity by using cryptocurrencies, with the report singling out Bitcoin (BTC), Litecoin (LTC), or Monero (XMR).
The report further points out that due to the large number of legitimate cryptocurrency users, especially for BTC, the difficulty increases for law enforcement agencies to properly identify and police the trading of illicit goods and services.
During the workshop, participants recognized that current methods used to identify suspects on the dark web largely rely on traditional techniques to which most officers already are accustomed.
According to the report, the two main findings were that increased investment is needed in training and in the efforts which are aimed at improving information sharing across agencies, both within the U.S. and across international borders.
Dark Web Drug Dealer Ordered To Forfeit $150,000 In Bitcoin
At the end of October, a U.S. court ordered Christopher Bania, who pleaded guilty to drug distribution, to give up almost 17 Bitcoin — worth roughly $150,000 at the time. Bania’s plea was to the single charge of possession of controlled substances with intent to distribute on the dark web, which carries a maximum sentence of 20 years in jail.
US And China Battle For Blockchain Dominance
When Chinese President Xi Jinping announced strong support for blockchain technology last month, pundits suggested that China would soon overtake the United States in dominating blockchain innovations. Our patent research at the Blockchain Center of Excellence at the University of Arkansas finds that China is already winning the Intellectual Property arms race against the U.S.
We examined blockchain-related patents that were granted from January 2014 to October 2019 by China’s patent office, the National Intellectual Property Administration, or CNIPA, and the U.S. Patent and Trademark Office, or USPTO.
During This Period, The CNIPA Awarded 2,218 Blockchain Patents Compared To 227 By The USPTO.
The difference in numbers between U.S. and Chinese patents is slightly misleading, as the CNIPA awarded nearly 40 blockchain-related patents to U.S.-based global companies such as Goldman Sachs, IBM, Intel, JP Morgan, Mastercard, Microsoft and Visa. In contrast, the USPTO has not awarded blockchain-related patents to any Chinese-based organizations. This pattern holds more widely, according to a study published by the Federal Reserve Bank of Saint Louis, which found that only 4.17% of 1.2 million Chinese patent applications were filed overseas in 2016, whereas 43% of 521,802 U.S. patent applications were filed overseas. Perhaps U.S. organizations worry more about protecting their IP overseas than Chinese organizations do, or perhaps this trend reflects a distrust in the patentability of the Chinese applications made overseas, as only 6.31% of the overseas patent applications filed by Chinese firms are granted.
Furthermore, the Chinese patent office expedited the patent process more quickly than the U.S., taking just six months on average from patent filing to acceptance compared to 20 months in the U.S. Several explanations for this are possible: China may have more resources devoted to patent processing, or China’s patent process might not be as rigorous as it is in the U.S. Meredith Lowry, a patent attorney for Wright Lindsey Jennings, shared in a private interview:
“Blockchain patent applications in the US patent process face additional hurdles to show the invention is patentable subject matter and more than the use of an algorithm. The bar for patentable subject isn’t as high in other countries like China.”
We also analyzed the data to determine the top categories of innovations protected by the blockchain-related patents, and the top patent owners in each country.
The IP Being Protected
The CNIPA and USPTO require patent applicants to use the International Patent Classification for categorizing their patent filings. Each patent typically includes multiple IPC codes. In both countries, the three most frequently occurring IPC codes for blockchain-related patents were G06, H04 and G07:
G06 (Computing; Calculating; Counting) — covers innovations associated with the mathematics of computing, image data processing and data generation.
H04 (Electric Communication Technique) — covers a broad range of electronic communications including transmissions, broadcasts, and secret communications over wired or wireless networks.
G07 (Checking-devices) — covers innovations associated with registering the receipt of cash or tokens, the handling of coins or valuables, metering tolls and fares, generating random numbers for lotteries, systems for voting, and more.
Sample Patents Include:
China Unicom — A Chinese, government-owned, telecommunications provider. It has the most patents granted by the CNIPA, with 54 thus far. One of its patents defines a method for tracking food quality on a blockchain application (Patent 108537558A).
Alibaba — founded by Jack Ma in 1999 and now the world’s largest online retailer. It has the second-highest number of CNIPA patents awarded, at 51. Alibaba, for example, has a patent for a music originality analysis method and device based on a blockchain (Patent 108595709A).
Nchain Holdings — has the third-highest number of patents awarded by the CNIPA, at 37. Nchain is a company based in the United Kingdom seeking to make cryptocurrencies more globally usable. One patent describes an operating system for IoT devices controlled by a blockchain. Each IoT device has an IP address and a cryptographic public-private key pair. Software controls the device through instructions that require access to the private key (Patent 109089427A).
IBM — an American multinational information technology company. It owns the most patents granted by the USPTO. Among its 34 patents, one provides a way to maintain and verify the status of accounts in multiplayer games (Patent 10348487).
Accenture — a global professional services firm that is headquartered in Dublin, Ireland. It has 23 patents from the USPTO. Accenture, for example, patented its invention for an interoperability node that connects different blockchains using zero-knowledge proofs (Patent 10298395).
Mastercard — a global financial services company headquartered in New York City. Mastercard holds nine patents with the USPTO, one of which is a smart parking meter verification method using a blockchain (Patent 10198949).
This November, China signaled that it may strengthen its IP laws. The rate of blockchain-related patent protection in the country is accelerating, with the sheer number of China’s blockchain-related patents outpacing the rate of the U.S., but contributing to these numbers are U.S. companies filing patents in multiple locations to increase their IP protection globally. Therefore, while China may appear to be accelerating beyond the U.S. in patent approvals on the surface, multiple leading global companies operate in both countries and protect their intellectual property as such.
The Bottom Line
Blockchain-related patents are just one indicator of a country’s blockchain dominance. Favorable regulations, the number of vacancies, the prevalence and level of financial support provided to blockchain-startups, active participation in global policy-making bodies, and the number of blockchain solutions in production are other metrics being explored by the Blockchain Center of Excellence at the University of Arkansas.
The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Mary Lacity is a Walton professor of information systems and the director of the Blockchain Center of Excellence at the University of Arkansas.
Zach Steelman is an associate professor of information systems at the University of Arkansas.
Jacob Yates is a graduate student in the information systems department at the University of Arkansas.
Jia Wei is a Ph.D. student in the information systems department at the University of Arkansas.
The Blockchain Center of Excellence (BCoE) is housed in the Information Systems Department of the Sam M. Walton College of Business at the University of Arkansas. The BCoE was officially launched by U.S. State Governor of Arkansas, the Honorable Asa Hutchinson, on Aug. 1, 2018. The center’s vision is to make the Sam M. Walton College of Business a premier academic leader in blockchain application research and education.
Top CNIPA and USPTO patent owners
We extracted the top patent owners of granted blockchain-related technology patents by the CNIPA and USPTO. In the table below, we focus on just the top three in each country. China United Network Communications Group Co., or China Unicom; Alibaba; and NChain Holdings are the top patent owners granted by the CNIPA, while IBM, Accenture and Mastercard are the top patent owners granted by the USPTO and also hold patents from the CNIPA.
Andreas Antonopoulos Slams Intuit After Payments Block For Crypto Use
American financial software company Intuit has apparently limited the account of one of the cryptocurrency industry’s best-known figures, Andreas Antonopoulos.
In a series of tweets on Dec. 4, Antonopoulos stated that Intuit had prevented him from accepting credit card payments via its accounting services due to his use of cryptocurrency.
According to Antonopoulos, who undertakes regular international tours as a speaker and educator on Bitcoin (BTC) and associated topics, the company even requested he stop referencing cryptocurrency on his official website. Commenting on the events, he appeared to refuse to comply:
“Intuit Merchant Services @intuit just told me that I can’t be using crypto if I accept credit cards for my invoices. They asked me to remove crypto from my site. I instead elected to remove Intuit and their credit card services from my life.”
Continuing, he added that Intuit had “disabled” the option for him to accept credit card payments for his activities.
Antonopoulos is a fierce critic of traditional finance, often explaining to audiences how banks stand to lose to Bitcoin and new standards of individual financial sovereignty. He tweeted today, “The banking cartel doesn’t want competition or risk. They prefer monopolies, kleptocracy and captured regulators.”
Banks Force Bitcoin Bans
As Cointelegraph reported, certain payment entities continue to adopt a seemingly random policy on cryptocurrency clients. This week, a Danish court ruled in favor of Nordea Bank continuing to prevent its employees from holding cryptocurrency, triggering accusations of hypocrisy from online commentators.
Nordea’s stance echoes those previously adopted by other banks, including Dutch institution Rabobank. The latter denied service to cryptocurrency businesses, having faced criminal proceedings over fiat money laundering.
Last month, adult entertainment website Pornhub found payments to its 100,000 web models disrupted after PayPal suddenly refused to service the business. The website began a deal with cryptocurrency project Verge (XVG) last year.
In an ironic twist, U.S. lender Bank of America subsequently closed the account of a former senior PayPal executive.
Cointelegraph has approached Intuit for comment but has not received a response at press time.
Blockchain Is A Rapidly Maturing Technology In China
Forkast Insights, the research arm of Asia-based Forkast, took an in-depth, comprehensive look at how blockchain technology is integrated in China.
On Dec. 5, Forkast Insights presented its first report on how blockchain is being applied by the Chinese government and companies across the country. According to the report, blockchain technology is rapidly maturing and has a slew of “real-world, practical use cases that are far beyond the experimental stage.”
Forkast Insights included the in-depth analysis and insights from top China-based blockchain insiders, academics, and leaders to see how one of the world’s largest economy is experiencing this innovative technology.
The report takes a closer look at how blockchain implementation in China compares to the rest of the world, how firms use blockchain and how Chinese consumers experience it in their daily lives, how China takes the lead in the blockchain patent race, and how The People’s Bank of China is racing to launch a digital token to challenge the United States dollar, among others.
China On Its Way To Dominate Blockchain Innovations
In November, Cointelegraph reported that China’s blockchain development will see a compound annual growth rate of 65.7% from 2018 to 2023, and that the technology will exceed $2 billion by the end of 2023.
With China president Xi Jinping’s recent call to embrace blockchain technology, the country is well on its way to take the number one spot in dominating blockchain innovations and overshadow the U.S., which is apparently lagging behind quickly.
Xi identified dozens of practical use cases that should be promoted: loans, health care, anti-counterfeiting, charity and food security, while he emphasized that blockchain development could help China to “gain an edge in the theoretical, innovative and industrial aspects of this emerging field.”
Big Leaps For Blockchain In China
The adoption of blockchain has found solid ground in China, with the government attaching a high level of importance to the digital economy. The cautious but promising endorsements are signs that the Chinese government is indeed considering further implementation of blockchain technology throughout the country.
Even the Chinese army is now reportedly thinking about using blockchain technology to aid its military, by implementing the technology to reward the workforce and manage personal data.
FinCEN Director Notes Improved Oversight of Cryptocurrency Industry
The director of the Financial Crimes Enforcement Network (FinCEN) says the cryptocurrency industry has begun to fall in line with the agency’s regulations on money transmission services.
In a speech delivered at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference on Dec. 10, Kenneth A. Blanco claimed that FinCEN’s May 2019 guidance was having a marked and positive impact on its oversight of the crypto space.
Crypto Reporting Has Significantly Increased Since May
In May, FinCEN published guidance for crypto businesses that clarified how its regulations relating to money services businesses (MSBs) apply to certain business models in the crypto industry and carry specific obligations under the United States Bank Secrecy Act.
In his remarks, Blanco noted that since its publication, the agency has seen a significant increase in Suspicious Activity Reports (SAR): a total of 11,000, of which roughly two thirds (7,100) are from crypto businesses, including kiosks, exchanges, and peer-to-peer exchangers.
Ahead of May, he noted, filings from entities in the crypto space had accounted for markedly less — around half of the SARs the agency received.
Moreover, he observed that crypto businesses are increasingly internalizing the agency’s key advisory terms and using them in their filings directly.
He said he considers this to be an encouraging trend and a sign that the industry is making use of FinCEN’s “red flags” and duly reporting suspicious activity.
New Scams Target Crypto Newbies And The Elderly
As regards the content of the reports, Blanco said that the agency has observed an increase in filings from exchanges that identify possibly unregistered, overseas MSBs — specifically, Venezuela-based peer-to-peer exchangers.
There has also been an increase in reporting of customers conducting crypto transactions with wallets linked to darknet marketplaces, as well as on activity that appears characteristic of scam victims — particularly novice crypto users, including the elderly.
Blanco closed his remarks with an appeal to businesses that are yet to abide by the agency’s guidance:
‘I think it is important for all financial institutions to ask themselves whether they are reporting such suspicious activity. If the answer is no, they need to reevaluate whether their institutions are exposed to cryptocurrency.”
Blanco’s speech confirms a persistent trend he had noted during a speech this August, when he revealed FinCEN was seeing a surge in SARs, with filings at the time exceeding 1,500 per month.
That same month, he directly appealed to casinos dealing crypto payments to consider how they will conduct due diligence and comply with their reporting obligations.
This fall, the U.S. House of Representatives passed a bill requiring the Director of FinCEN to conduct a study on the use of emerging technologies, including blockchain, within the agency.
SEC Cryptocurrency Approach ‘Measured,’ Chairman Clayton Tells Senate
United States regulators believe they have adopted a “measured yet proactive approach” to cryptocurrency regulation which aids both retail and institutional investors.
That was the formal view of Jay Clayton, chairman of the U.S. Securities and Exchange Commission (SEC), who updated lawmakers on official policy on Dec. 10.
Clayton: SEC Fosters Innovation
Speaking in testimony before the Senate Committee on Banking, Housing, and Urban Affairs, Clayton highlighted the potential of blockchain technology in helping market participants amass capital.
“As I have previously stated, I am optimistic that developments in distributed ledger technology can help facilitate capital formation, providing promising investment opportunities for both institutional and Main Street investors,” he said.
Summarizing, Clayton Endorsed The Sec’s General Tact On Disruptive Financial Innovation:
“Overall, I believe we have taken a measured, yet proactive regulatory approach that both fosters innovation and capital formation while protecting our investors and our markets.”
ICO Legal Action Complicated
While Clayton has sought to take a balanced view of cryptocurrencies in particular amid intense scrutiny by Washington this year, the SEC more broadly has come under fire for its policies.
As Cointelegraph previously reported, enforcement actions against certain companies which conducted initial coin offerings (ICOs) in 2017 continue. One legal battle involving the Canadian messaging app Kik almost saw the company close down altogether in October.
In a Q&A session following his testimony, disruptive finance media outlet Crowdfund Insider quoted Clayton describing the enforcement situation as complicated.
On the topic of cryptocurrency, specifically Facebook’s unlaunched Libra digital currency, he reportedly added, “It’s here, we should not go around it.”
This month, meanwhile, Clayton joined various prominent regulators in penning a report for the U.S. government which touched on potential risks posed by broader adoption of stablecoins.
This Year Proved Asia Is Ahead in Crypto-Blockchain Adoption
In 2019, it became clear that Asia was moving ahead in cryptocurrency and blockchain adoption and application. Because of internal and external drivers, Asia has been setting the pace in turning ideas in the blockchain space into reality.
Investors in China, Japan, and South Korea are being driven into crypto markets by global and regional trade wars, currency devaluation, and tight government control of individual assets. Global trading platform, eToro, has found consistent spikes in bitcoin activity during key moments of the US-China trade war.
In May, after China announced a tariff hike on $60 billion worth of American goods, and investors immediately moved to divest their wealth elsewhere. The number of new bitcoin positions soared 139% (along with a 108% rise in new gold positions). The increase in both new gold and bitcoin positions has been consistent as the trade war between both powers has continued — with bitcoin witnessing more significant benefits than the precious metal. It seems that amidst increasing uncertainty upon the global economic stage, bitcoin is reaping the benefits.
Additionally, in 2019, Chinese consumers were the greatest users of Tether—using the stablecoin to transfer their yuan across borders, free from government supervision and sanction. While the Chinese government doesn’t allow yuan trading on domestic exchanges, Tether has allowed Chinese consumers to partake in global cryptocurrency markets—with up to 99% of bitcoin spot trades conducted using Tether according to Chainalysis.
Established Markets: Where Fintech Innovation is Commonplace
Korea, Taiwan, Hong Kong, and Singapore are established hubs for digital payments adoption and fintech innovation. In the first 9 months of this year alone, investments into Singaporean fintech companies exceeded $1 billion USD, with the Monetary Authority of Singapore stating that this was the result not only of local startup activity but also international fintech companies using Singapore is a base for global expansion.
China is perhaps the first country to be in a position to credibly claim “cashless” status. A 2017 Penguin Intelligence study has shown that 92% of inhabitants in China’s top cities use WeChat Pay or AliPay as their primary payment method.
In addition to their prowess within the fintech space, the more traditional markets of Asia’s leading economies have been dubbed as the next bastion of economic growth globally, with the Financial Times predicting that by 2025 we will have entered into a new “Asian Century”.
With regional fintech players dominating digital payments, one would question whether crypto can compete and find a foothold to demonstrate its use as a digital payments system.
Global instability has provided opportunities for alternative assets. The Chinese economy and the Yuan are continuing to trend downward amidst a trade war with the US. Hong Kong’s financial sector is suffering the consequences of increased political instability and security risks within the country. Hong Kong’s stock market was the world’s worst performer in Q3. Meanwhile, fraught relations between South Korea and North Korea, as well as Japan, are doing nothing to improve investor confidence in the capital markets, hurting the value of national currencies.
With stability increasingly in question, traditional investors and institutions are looking at cryptocurrencies as a means to hedge their assets and diversify their portfolios, creating capital flows into the digital assets space, which has been largely insulated from the knock-on effects of regime instability and international trade conditions.
Emerging Economies: Growth Without Trust
Blockchain and cryptocurrency has a different sort of role in emerging economies, like Philippines and India, where trust in local institutions remains low and new systems and structures created in the crypto markets can bolster feeble financial infrastructures.
“Crypto is offering tangible benefits within countries’ struggling to provide adequate services and solutions to consumers.”
From the use of cryptocurrencies as a remittance tool—facilitating more convenient, secure, and transparent international payments than legacy payments systems—to interbank transactions, crypto-adoption is offering tangible benefits within countries’ struggling to provide adequate services and solutions to consumers. Far removed from the inefficiencies of local governments and financial apparatus, decentralized finance potentially provides a more stable, secure means of holding and transferring wealth.
2019: Regulating a Grassroots Movement
Singapore, one of the leading hubs for blockchain adoption, now boats over 400 fintech firms within the island nation, one for every 14,000 people living in the country. “Blockchain” is the fastest growing job skill in Singapore, and among the top 3 in China, Japan, Taiwan, South Korea, Hong Kong and Vietnam, according to LinkedIn studies. While BTC and ETH continue to enjoy popularity within the region, altcoins like TRON and EOS have special status in Asia. With all of this activity, the region’s regulators have been paying attention. This has resulted in much regulatory proactivity—with countries from Malaysia and Singapore to Japan and South Korea having unveiled comprehensive guidelines for the issuance and purchase of digital assets, while other regions have lagged behind. This may well signal more things to come in the year ahead.
Big companies like Facebook entered the crypto space this year, but there is still a long way for them to go in drawing large consumer-tech firms into the cryptocurrency fold. Mature businesses and institutions are unlikely to enter into the nascent crypto sector if they believe they are rolling the dice on regulatory compliance. Enticing them into the blockchain ecosystem will require clear regulation. Asia is where they may be able to find it.
The region’s regulators have become the forerunners in establishing clear “rules of the game” when it comes to digital assets, engaging closely with groups such as the Financial Action Task Force and key industry players. While the U.S. continues to grapple with the regulation of digital assets, Singapore, Japan, and South Korea, and particularly within the island of Jeju, have outlined more comprehensive regulatory boundaries for actors within the blockchain industry. While China has taken a heavy-handed regulatory approach, the government has been nonetheless consistent and clear in the communication of policies surrounding the blockchain sector. This clarity leaves Asia’s regional blockchain sector well-positioned to serve as a vanguard for the development of real-world use cases of cryptocurrency technology and as a leader in consumer engagement.
2020: Cryptocurrencies Coming of Age?
In 2019, Asia become a testing bed for cryptocurrency adoption, presenting real use cases of cryptocurrencies in both highly developed and emerging markets. Pervasive economic tensions, structural instability, and downward market pressures may prove the headwinds necessary for cryptocurrency to finally enter the mainstream.
In 2020, FATF members need to ensure virtual asset service providers (VASPs) are compliant to Recommendation 16 aka the “travel rule” by a September deadline, and regulators, looking to maintain control over local finance and consumer technology, will look to bring in institutional finance and enterprise to the space. If this is the case, the crypto heartland of tomorrow will lie in Asia. We are prepared, and excited to see what the future will bring.
In 2019, US Students Demanded Blockchain Education. In 2020, It’s Coming
With startups and Fortune 500 companies in dire need of blockchain talent, and the average U.S. salary for a blockchain developer at $130,000, now is a good time for students to get an education in blockchain skills and a good time for universities to start offering blockchain courses. In 2019, we saw progress towards greater blockchain education, but there are still gaps that need to be filled.
Of the 70-plus+ student blockchain organizations we work with here at MouseBelt, only about a third have access to blockchain courses on campus. Several big rural institutions, like Indiana University, have groups of passionate students leading blockchain efforts, but receive little funding or attention from administrators.
The good news first. This year, The University of California system launched an initiative to support student blockchain innovation across their campuses, IBM is working with Columbia University on two blockchain accelerators, and Portland State offers an online Business Blockchain Certificate.
Meanwhile, the industry is also taking action into its own hands. Earlier this year, 13 major crypto projects came together to launch The Blockchain Education Alliance, an initiative to provide university students with the connections and knowledge needed to enter the fast-growing blockchain workforce. Additionally, a tech recruiting firm specializing in blockchain was launched to connect projects with talent.
What’s more, students are recognizing the enormous potential of the industry and demanding education for a way in. In the past year, student interest in blockchain education doubled compared to the year prior. The 70+ student-run blockchain organizations across 16 countries include some top higher education institutions including UCLA, UCSB, UC Davis, Duke, University of Chicago, USC, University of Wisconsin, and the University of Washington. These student groups aren’t just meeting to discuss blockchain. They are incubating their own projects and even consulting for local businesses.
This is just the start. As we look towards 2020, I believe we are going to see continued buy-in from university faculty and administrations. This will manifest through more accredited courses, more specialized degrees with blockchain focuses at all levels (BA, MA, MBA, PHD), more collaboration with industry among researchers and entrepreneurial organizations and more alumni funds that accept crypto donations.
I also believe we’ll begin to see education expand to underserved areas including the rural U.S, Latin American and Africa. Currently many of the available resources are concentrated in universities located in major cities. There are blockchain use-cases in industries such as mobile, agriculture, and energy that could have significant impacts in these underserved areas, so the need for education beyond big markets will only grow.
Blockchain technology is here to stay and the need for talent today and in the future has never been more clear. 2019 taught us that the next generation is enthusiastic to be part of this future, but need education to participate properly. While we’ve already begun to see signs, in 2020, higher education and industry players will need to fully buy-in, providing students more resources and education than before.
University of California at Santa Barbara Just Finished Its First Accredited Blockchain Course
The University of California at Santa Barbara (UCSB) has just concluded its first accredited course focused on blockchain and distributed ledger technology.
The course, which was taught as a computer science class through the College of Creative Studies, was formed in response to requests from the Blockchain Acceleration Foundation (BAF), a nonprofit organization composed of students, professors, blockchain advocates, and interested individuals who want to facilitate the mass adoption of blockchain technology.
Blockchain at UCSB co-founder and Blockchain Acceleration Foundation president Cameron Dennis noted that despite blockchain’s rising popularity on college campuses, students at UCSB previously had few opportunities to learn about the emerging technology outside of Blockchain at UCSB meetings. After numerous discussions with UCSB administration, Dennis was able to convince the university that a computer science course focused on blockchain was needed. Dennis said:
“My goal with this course was to teach radically-curious computer science students about compelling blockchain use-cases that can disrupt society’s most entrenched institutions while revolutionizing corporate governance.”
The Importance of Blockchain Education
According to the 2nd Annual Coinbase Report on Higher Education, released on August 28, 56 percent of the world’s top 50 universities now offer at least one course on crypto or blockchain, which is up from 42 percent in 2018. The report also found that twice as many students have taken a crypto or blockchain course this year versus last year.
The Coinbase report also noted that while computer science classes most commonly focus on blockchain (accounting for 32.2%), finance, business and economic classes are also teaching courses on blockchain.
UCSB’s course, titled “Decentralized Ledger Technology,” taught students about consensus mechanisms, Bitcoin and Proof of Work, Ethereum Virtual Machine, Solidity and smart contract development, algorithmic stablecoins, zero-knowledge proofs and other relevant blockchain topics.
While the course was taught by Professor Murat Karaorman, notable speakers from leading companies lectured on occasion. These speakers included the co-founder of Orchid Labs and creator of Cydia, Jay Freeman; Research Scientist at Protocol Labs, Evan Miyazono; Head of Backend Services at MakerDAO, Niklas Kunkel; and CBC Casper Researcher at Ethereum Foundation, Aditya Asgaonkar.
According to Protocol Labs’ Miyazonon, it’s important for universities to start offering accredited blockchain courses as the technology enters the mainstream:
“Blockchain projects and the general set of distributed applications will transform many industries and address the important issues of our time. With these tools, we can build better, more equitable, collaborative, shared systems, whether it’s secure and decentralized data storage networks or permissionless identity solutions.”
Moreover, Miyazonon noted that university courses are necessary in order to combat the hype and scams commonly associated with the blockchain and cryptocurrency space:
“The space is fraught with hype and misleading claims. I had the pleasure of meeting a number of students in the UCSB class who were an impressive balance of well informed, optimistic, and critically insightful. I wholly believe that there are few institutions better suited to instill and foster these qualities than accredited courses at universities.”
Other Blockchain Courses
While UCSB just concluded their first blockchain-focused course, Ripple’s University Blockchain Research Initiative (UBRI), which was launched in June 2018, has committed over $50 million in funding to 29 universities around the world.
According to Ripple, this funding allows academics and university administrators to work on researching critical issues facing blockchain, while educating students on the subject matter.
Other leading universities such as MIT and Stanford University have also been offering blockchain courses since 2018.
Blockchain Advisor at the University of California, Davis, Kirk McGregor, commented that blockchain will influence economic development and social reform, therefore courses on the subject matter are necessary:
“Understanding blockchains is crucial for both technical advancements in digital services and for policy improvements in a community. Scholastic accreditation of curricula for blockchains and their analogues ensures not only high-quality education but also cultural alternatives to orthodox business practices, both of which significantly influence economic development and social reform.”
US Fed Official Says 50% of Bitcoin Transactions Associated With Illegal Activity
A member of the United States Federal Reserve’s board of governors appears to believe that one in four people who use Bitcoin (BTC) are criminals.
In a panel speech honoring Benoît Coeuré, a member of the executive board of the European Central Bank (ECB), Lael Brainard highlighted the perceived risks still posed by cryptocurrencies.
Brainard: Crypto Exchange Security Troubling
Specifically selected for the panel, which formed part of the “Monetary Policy: The Challenges Ahead” event in Frankfurt, Germany, was illicit activity involving Bitcoin.
According to Brainard, who cited an academic study from earlier this year, Bitcoin still contains a significant malicious user base.
“Only a third of the most popular exchanges require ID verification and proof of address to make a deposit or withdrawal. This is troubling, since a number of studies conclude that cryptocurrencies support a significant amount of illicit activity,” she told the audience.
Continuing, Brainard added that as much as 50% of all Bitcoin transactions were in some way conducted against the law:
“One study estimated that more than a quarter of bitcoin users and roughly half of bitcoin transactions, for example, are associated with illegal activity.”
Calculating The Incalculable
The admonishing tone of the speech adds to the sea of misconceptions over Bitcoin’s real-world usage.
As Cointelegraph reported, studies into transactions regularly produce opposing conclusions — others suggest that a lack of anonymity means genuine criminals still prefer cash.
Further difficulties lie in stating exactly how many people use Bitcoin, as a user can control an infinite number of addresses.
The speech comes ahead of sweeping new cryptocurrency regulations coming into force in the European Union. For his part, Coeuré has remained highly critical of Bitcoin in particular, previously describing it as the “evil spawn of the financial crisis.”
China Continues To Streamline Its Blockchain Patent Application Process
The National Intellectual Property Administration (NIPA) in China continues to clarify the guidelines for blockchain patent applications, which are set to become effective as of Feb. 1.
At the end of December 2019, the NIPA announced the revised guidelines to patent applications for new emerging technologies such as blockchain, artificial intelligence, big data, and business rules and methods.
One example of the revised guidelines is a method and device for secure communication between blockchain nodes. The invention patent application proposes a blockchain node communication method and device that solves the problem where blockchain business nodes leak privacy data while communicating with each other. The guidelines reads:
“Before a business node in a blockchain establishes a communication connection, it can determine whether to establish a communication connection according to the CA certificate carried in the communication request and a pre-configured CA trust list. This reduces the possibility of business nodes leaking private data and improves the security of data stored in the blockchain.”
Analysts said that the revision of the guidelines is in direct response to the needs of the development of new industries such as blockchain. It also reflects China’s strategic direction of strengthening intellectual property protection, by being more friendly towards patent applicants in these emerging fields — all of which seems to herald the much-anticipated digital renminbi.
China Paves Way For Its Central Bank Digital Currency
China has formally implemented a law governing cryptographic password management as part of its pre-release plans for its central bank digital currency. The Standing Committee of the 13th National People’s Congress in China passed the crypto law at the end of October. The law divides passwords at large into three distinct categories — passwords, common passwords, and commercial passwords — and aims to facilitate China’s transition to blockchain technology.
What Happens If The US Loses The Blockchain War?
While Mark Zuckerberg was fighting with the United States Congress over Facebook’s Libra, China took another step forward in the global technology race. President Xi Jinping called on his country to “seize the opportunity” in order to become a leader in blockchain technology as it tries to do likewise with artificial intelligence.
This could be an opportunity for China, which has already become the world’s leading trading nation, to stand up to the first economic world power and flex its muscles. But how significant is this move, and what happens if China really wins the blockchain race? “For the Chinese, digitizing the renminbi is a way to get out from under the U.S.’s thumb,” said Eswar Prasad, an economics professor at Cornell University and former head of the IMF’s China Division.
China’s goal isn’t necessarily to overthrow the dollar either. Prasad added, “but they want to give their allies an alternative to the dollar and create a system that couldn’t be disrupted by the U.S.”
Blockchain: The Technological Democracy
Satoshi Nakamoto introduced Bitcoin in October 2008 in response to the financial crisis and as an alternative to banks. As the currency was gaining popularity, the underlying technology quickly became a model for creating the so-called trustless systems. “Blockchain allows the tracking of various transactions ensuring immutability and incorruptibility of such records,” explained Raja Sharif, a qualified U.K. barrister and CEO of FarmaTrust, a company that tracks medical supplies via blockchain, in a private interview. He continued:
“Blockchain can be used for cryptocurrencies such as Bitcoin but can also be used for other purposes e.g. supply chain management, land registries, record keeping, and other transaction management.”
The trustless, almost hackproof and identified transactions that blockchain provides caused many to call it Web 3.0 or “the next internet.” Sharif added:
“China has clearly decided that blockchain and artificial intelligence technologies are important to help her reach a global dominant commercial position. It is easy to see why they would want to focus on these technologies… Once one can ensure data integrity, AI capabilities and results can be much better and trusted. These two advantages can help China accelerate its strategic imperative of trade dominance.”
Of course, China is still far from public, trustless systems. The country has only welcomed private and much more restrictive blockchains while still being at odds with cryptocurrencies. But this move could make China’s renminbi the preferred currency for trading ー cross-border, online and eventually, offline. Since the sham-communist, practically capitalist regime still sticks to centralized methods of ruling, like the iron repression of dissidents and pure censorship, leading a decentralized revolution remains a philosophical question.
What’s At Stake
Blockchain projects have struggled for real-life use. Other than generating new “overnight millionaires,” they have not offered a service the world could not live without. Bitcoin remains the most popular blockchain tech by market cap, while some projects claim they are two generations more advanced, introducing features like smart contracts and scalability. This underlines the importance of adoption: It’s not necessarily the more advanced tech that wins, but how much people believe in the project and actually use it.
That’s what made Libra an alarming development, and many countries actively opposed it. It has the potential to onboard billions of people and make crypto mainstream overnight ー a dream many crypto enthusiasts have been waiting for. Now, China is in a similar position, but this time it would be China’s yuan and blockchain.
With China taking the lead, the U.S. dollar would be undermined. It will not be as easy for U.S. regulators to halt a Chinese blockchain as it was for them to block Libra or Telegram’s ICO. Just as we saw during the trade war, blocking Huawei from U.S. markets did not stop China’s race for 5G superiority. But more important than losing the dollar’s hegemony is losing the domination of our values.
When it comes to international technological battles, the cold war has taught us a valuable lesson. The space race between the U.S. and the USSR wasn’t about who’s going to land on the moon first. Rather, it was a struggle of values deep down in people’s hearts and minds.
The internet was mainly built on western values: openness and democracy. This allowed the U.S. to take the jump on its competitors and dominate the global market. As China becomes more of an industrial and technological superpower, its influence is forcing western companies to play by its rules.
Google, once loved for advocating open access and fighting censorship, secretly worked on a Chinese version of its search engine called Dragonfly, and thus became a tool of the Chinese government to filter out human rights-related search results and websites. Activision-Blizzard, a popular game development company, punished a gamer who had expressed support for pro-democracy protests in Hong Kong. This makes sense, since the Chinese giant Tencent owns a share of Activision-Blizzard.
While both examples cited above were pulled back to some degree after facing heavy backlash, the worrying trend persists. The NBA felt the pain after Houston Rockets General Manager Daryl Morey tweeted in favor of the Hong Kong protests, which resulted in all 11 of the NBA’s official Chinese partners suspending ties, threatening the league to lose at least 10% of its revenue.
Subsequently, LeBron James, who was praised for his advocacy for the Black Lives Matter movement, called Morey misinformed, a position which backfired on the NBA star. As long as short-term gains are favored over strategic benefits, we can expect more decay in western values. So, the question still remains: Are we dealing with a technological race or the balance of power?
For The Sake Of Liberty
It is unrealistic to expect companies, in general, to turn down huge profits. However, better cooperation between the public and private sectors could be a good start. The administration’s inaction and the regulators’ continuous skepticism without any determination to address the inevitable are not stopping the bad actors or our adversaries from taking advantage of the unregulated. Failing to do so, particularly when it comes to blockchain technology, would leave the doors open for China to win the race and not only affect the economy but also our principles.
Chinese Blockchain-Based Mobile Payment Revolution: How Is the Biggest CO2
Polluter Becoming Leading World Solar Panels Producer.
Society is now witnessing the implementation of digital currencies, AI and blockchain technology worldwide. These new digital technologies require a high consumption of electric energy, which is currently produced with coal and fossil fuels that adversely impact the environment. A global shift toward green energy will require the removal of the technological, infrastructural, regulatory and tax policy barriers. In a series, my articles evaluate the tax, digital technology and solar policies (including space power satellites) of the top-CO2-emitting countries.
For the last three decades, China has been on an economic and technological growth path unequalled in size and duration in human history. Its government is playing an active role in shaping the global digital economy, serving as one of its biggest backers and building a world-class infrastructure to support digitization by acting as an investor, green-developer and consumer.
China’s leadership role in the digital payment area comes as no surprise and includes establishing the world’s first blockchain-based central bank issued digital currency — a stablecoin and mobile payment system called DCEP.
After all, China pioneered the issuance of paper money during the Tang Dynasty (A.D. 618–907), which finally caught on in Europe and the United States during the 17th century, and still remains at the foundation of the modern economy.
The world’s first central bank issued digital currency
The chairman of the China International Economic Exchange Center, Huang Qifan, explained that the organization has been working on DCEP for five to six years now, and he is fully confident it can be introduced within the next few months by the People’s Bank of China to seven institutions:
* The Industrial and Commercial Bank of China
* China Construction Bank
* The Bank of China
* The Agricultural Bank of China
* Union Pay
DCEP will eventually be available to the general public in 2020.
The DCEP’s partial blockchain-based design will provide the PBoC with unprecedented oversight over money flows, giving them a degree of control over the Chinese economy that most central banks do not have. DCEP will be pegged 1:1 to the Chinese yuan, with the overall objective that it will eventually become a dominant global currency like the United States dollar.
It will not be possible to mine or stake on the DCEP network.
Despite concerns from G-7 and G-20 regulators, Tether recently launched an offshore yuan-pegged stablecoin dubbed CNHT after launching a stablecoin pegged to the U.S. dollar, which is blamed for causing the world’s largest cryptocurrency bubble during 2017 by several class action attorneys in the U.S. who are suing the company for trillions of dollars in damages. Steven Mnuchin, secretary of the U.S. Treasury, supports the launch of stablecoins, including Facebook’s Libra — as long as U.S. financial regulations are followed.
EU finance ministers, on the other hand, banned the launch of stablecoins in the region until the bloc has a common approach to regulation, since the EU parliament acknowledged in its latest report on “Financial crimes, tax evasion and tax avoidance” that cross-border cryptocurrency transactions remained a very high risk in terms of money laundering, financing of terrorism and tax evasion in the EU.
Users all over the world are able to earn stablecoins by mining.
Blockchain-based Mobile Payment System
Recently, Chinese President Xi Jinping passed a cryptography law and called on his country’s tech community to accelerate efforts in blockchain adoption. So far, China dominates in global blockchain patents, and according to a study conducted by the Central Committee of the Political Bureau of the Communist Party of China, there are over 700 blockchain companies in China.
But according to the PBoC, the number of Chinese black market blockchain companies are about 40 times higher — at 28,000 — with 25,000 of these companies issuing their own crypto assets valued at over 110 billion yuan ($15 billion).
In its latest report, CipherTrace estimated crypto crime activity at $4.4 billion for the first nine months of the year, noting that it had risen 150% compared to a year earlier. According to the global monetary watchdog, the Financial Action Task Force, this sharp increase is due to criminals constantly developing new and more sophisticated methods to obfuscate the flow of illicit funds via blockchain-based mobile devices.
Crypto Assets Can Be Earned By Mining, Even On Cell Phones
For better or worse, mobile blockchain payment technology adoption seems unstoppable. Huawei — currently the only company in the world that can offer the fifth generation of cellular network technology, or 5G — has boldly implemented the world’s first channel coding scheme (polar codes), pioneered by professor Dr. Erdal Arikan, and is collaborating with the PBoC on mobile blockchain payment projects.
China Telecom is actively developing blockchain-enabled 5G SIM cards to become one of the world’s leading platforms for mobile-based crypto asset transactions. At the end of October, 5G services were launched in more than 50 Chinese cities, creating one of the world’s largest 5G networks, with as many as 110 million 5G users.
China’s Belt and Road Initiative (BRI), a massive free-trade plan involving over 130 other countries across Asia, Europe, Africa, and South America, is creating the Digital Silk Road of the 21st century and transforming China into a cyber-superpower.
Chinese tech behemoths Alibaba and Tencent have already led the way in cross-border mobile digital payments by driving the shift away from cash, and now collectively control 90% of the $17 trillion mobile payments market, sharing a combined 1.5 billion users between them. Traders of the Digital Silk Road are sending cross-border payments from Hong Kong to the Philippines in mere seconds using blockchain-based, mobile digital wallets from Alipay and WeChat Pay.
Crypto Asset Mining
Inspired by its new focus on blockchain, China is committed to maintaining its world-leading position in cryptocurrency mining and keeping its massive mining farms in business. The specialized processors used for mining crypto (the world’s supply of which is largely provided by China) consume large amounts of electricity, mostly fueled by coal — a resource that has been fundamental to China’s unparalleled economic growth.
China burns about half of the coal used globally each year. Between 2000 and 2018, its annual carbon emissions nearly tripled, now accounting for about 30% of the world’s total. China emerged as the world’s top CO2 polluter starting in 2017, when cryptocurrencies experienced an unprecedented global bubble, and continues to maintain this ranking to date.
China currently accounts for roughly 60% of the global Bitcoin hashrate, down from a previously estimated high of 90% in 2017. In a private email, Tsou Yung Chen, Global CEO of RRMine — a cloud mining company — explained, “Our platform doesn’t own data centers, we are a Hashrate service provider.
We cooperate with global data centers, convert Hashrate into liquid asset and provide it to investors. Most of our cooperative data centers are in Southwest China, which has abundant hydropower for cryptocurrency mining.”
Inner Mongolia is home to the world’s largest “Ordos” solar power plant, together with Xinjiang and Sichuan, constitute the big three Bitcoin mining bases in China. All three provinces also have the worst air quality. Susanne Köhler and Massimo Pizzol at Aalborg University in Denmark found that coal-heavy Inner Mongolia accounted for 12.3% of Bitcoin mining, but resulted in more than a quarter of the total country’s CO2 emissions, which has only increased since countries signed on to the Paris agreement.
Liu Cixin, the celebrated Chinese science fiction writer, has advocated for “abolishing crude technologies such as fossil fuels and nuclear energy and keeping gentler technologies such as solar power and small-scale hydroelectric power.” During the past 25 years, China went from having virtually no solar panels to leading the world by a margin of more than 100%.
The country surpassed Germany to become the world’s largest producer of photovoltaic power based on its 2011 five-year plan for energy production in 2015, became the first country to surpass the 100 GW of installed capacity in 2017. Estimates see China’s photovoltaic panel installations hitting a cumulative total of 370 GWdc by 2024 — more than double the projected capacity for the U.S.
During the past 10 years, China has also ranked number one in terms of the sums invested in renewable energy capacity by committing $758 billion between 2010 and the first half of 2019, with Chinese companies emerging as technology leaders in green transport and energy as well as digital infrastructure. Currently, China accounts for around 24% of global investment in renewables, with solar and wind capacity in BRI countries surging from 0.45 GW to 12.6 GW between 2014 and 2019 as a result.
According to an Energy Transitions Commission report, it is technically and economically feasible for China to become a fully decarbonized and green-developed economy by reaching a net-zero carbon emissions by mid-century, with solar energy comprising 44% of all renewable capacity additions until 2040, according to the International Energy Agency’s World Energy Outlook report.
Subsidy-free solar projects can be built not only in most Chinese cities — and at a significantly cheaper price than coal, hydropower, nuclear and other grid-fed generation-sources — but also in the nations covered by the BRI.
The reality is, wind and solar only accounted for 5.2% and 2.5%, respectively, of China’s national power generation in 2018, and during May, the Chinese National Energy Administration announced that it would stop providing subsidies for onshore renewable energy projects, which must now compete directly at auction with other forms of power generation.
Solar energy also competes with the thick, gray air pollution that dims Chinese sunlight by about 13%. Renewable energy investment in China already dropped by 39% in the first half of 2019 compared to a year earlier, and starting Jan. 1, 2020, the pricing of electricity underwent a seismic change that may impact the competitiveness of renewable energy pricing in favor of coal.
China’s Space Power Satellites (SPS)
China is very serious about the idea of building renewable-energy projects in space to beam the sun’s energy back to Earth, fundamentally reshaping the way grids receive electricity. If scientists can overcome the formidable technical and economical challenges involved, SPS projects could represent a monumental leap in combating China’s addiction to coal power sources, which worsen air pollution and global warming.
Pang Zhihao, a researcher from the China Academy of Space Technology Corporation, described SPS as an “inexhaustible source of clean energy for humans.”
China’s solar power station plans under contemplation include the launch of small solar power stations into the stratosphere between 2021 and 2025 to generate electricity, followed by a space-based solar power station that can generate at least a megawatt of electricity in 2030, as well as a commercial-scale solar power plant in space by 2050. A receiving station will be built in Xi’an — the region’s space hub — to develop the world’s first SPS power farm.
The China National Space Agency has been collaborating with India Space Research Organization in fields such as lunar and deep space exploration. On Jan. 2, 2019, China made a historic first landing on the far side of the moon. The milestone marked a turning point for China’s space exploration and may factor into China’s SPS ambitions.
China’s Tax Policies
China is the world’s most populous country and number one in CO2 emissions as well as coal consumption. It is number two in the consumption of oil products, and number three in natural gas consumption. The country taxes 8% of CO2 emissions from energy use.
According to an IMF report, China ranks number one in subsidies to the hydrocarbon industry, at $1.4 trillion, and is world-third in terms of total coal reserves behind the U.S. and Russia. Fossil subsidies are used as a tool to influence the energy mix and energy prices in both China and at coal-fueled electricity plants across the BRI countries it heavily lends to and invests in.
It is undeniable that China is once again taking the lead, this time by providing the world with a new blockchain-based mobile payment system, with the steep energy requirements that come with this new payment system being electrified by coal. Taking a proactive stance on the matter, Ziheng Zhou, partner and chief scientist at blockchain company VeChain, explained:
“We recognize that traditional carbon reduction is mainly driven by administrative orders. To counter this, we rolled out a market oriented Digital Carbon Ecosystem (DCE), the world’s first blockchain-based program that incentivizes people for protecting the environment.”
Only time will tell whether VeChain’s blockchain-based, market-oriented approach will end up contributing to environmental protection and reversing the effects of climate change as China takes the global lead in the wake of U.S. President Trump’s administration formally beginning the year-long process of pulling out of the Paris Agreement.
In the interim, the failure of free markets to consider environmental costs and damages is being addressed by climate change-based class-action lawsuits against governments and corporations — originally a uniquely American undertaking and historically prohibited in most other countries — have ramped up and spread across 28 countries, including China, where public interest claims for such damages have seen some success.
Over 700 Blockchain Firms Founded This Month In China, Over 26,000 In Operation
Chinese entrepreneurs registered 714 blockchain firms in China this month, resulting in a total of 26,089 such companies operating in the country.
According to cryptocurrency data firm LongHash on Jan. 26, the total number of blockchain firms registered in China is 79,556, while 57,257 Chinese blockchain firms also lost their legal status or had their licenses revoked.
From 2009–17, the annual number of founded blockchain firms remained relatively static, before a notable jump upward in 2018.
While it remains to be seen whether funding remains stable for the remaining 11 months of 2020, if the average monthly rate of founded blockchain firms remains the same as in January, China would see 8,565 new blockchain-related companies this year.
Blockchain Firms Registered In China Per Year
As per the map below, the lion’s share, 28.5%, of blockchain firms in China are in the province of Guangdong, which is home to the major city of Shenzhen and shares a border with Hong Kong. Both of these cities are known for their tech hubs and initiatives to apply blockchain in civil administration and other aspects of municipal development.
Average Funding Remains Low
The data also reveals that over 46% of Chinese blockchain firms have no more than 5,000 yuan of registered capital, which is equivalent to just under $721. Furthermore, 8.32% of firms have between $721 and $1,442, 26% have between $1,442 and $7,208, while 9.17% of firms have $7,208 or more.
This apparent lack of capital in the Chinese blockchain space is in line with the results of a recent joint study by China’s government-run financial information and media firm Xinhua and financial data platform Rhino Data. The study states that investment and financing deals in the Chinese blockchain space dropped over 40% in 2019.
China’s Official Blockchain Development Efforts
As Cointelegraph reported in October 2019, Chinese President Xi Jinping called for the country to accelerate its adoption of blockchain technology:
After the announcement, reports suggested that blockchain technology was rapidly maturing in China as it is increasingly implemented in government projects. The consequences of Jinping’s talk are far-reaching, as some noticed that reports criticizing blockchain technology are now banned from local media.
Shenzhen Giving Away Millions In Digital Yuan In Lottery To Boost Consumption, Test Tech
The rapidly growing city of Shenzhen will be giving away 10 million yuan (US$1.47 million) of China’s new sovereign digital money via lottery, as China seeks to test out and stimulate the usage of the digital funds, according to a report in the South China Morning Post.
- Winners will be announced on Sunday and the currency can be used at 3,389 shops. They can’t be transferred or moved into a regular bank account, the report said.
- The promotion is part of China’s plan to move solely to digital currency, known as the Digital Currency Electronic Payment (DCEP).
- The new currency has been used in more than a billion yuan worth of transactions across the country n a series of test programs over the past 12 months.See also: China Sees Advantages in Being First on New Digital Currency ‘Battlefield’
‘It’s Something We’re Studying’: Deputy Treasury Secretary Discusses US CBDC Plans
The U.S. Treasury Department is evaluating the merits of a government-sponsored digital currency, said one of its top officials Wednesday.
Deputy Treasury Secretary Justin Muzinich, speaking to the Atlantic Council during a digital seminar on trans-Atlantic economic relations, said the administration is studying a potential central bank digital currency (CBDC) tied to the dollar, alongside the Federal Reserve, the U.S.’ central bank.
“It’s something we’re studying … [T]his is really a decision which sits as much with the Fed as it does with Treasury,” he said.
Muzinich noted the Boston branch of the Federal Reserve is already evaluating CBDCs, pointing to Governor Lael Brainard’s recent comments and the group’s work with MIT’s Digital Currency Initiative to research different technologies.
The Boston Fed has confirmed it’s evaluating a potential CBDC, though it may take years to proceed.
The Federal Reserve and the Treasury Department are both part of an international working group evaluating digital currencies as well, Muzinich said.
“There are clearly efficiency benefits and cost benefits to using a distributed ledger,” he said. “And I also think, more broadly, it’s important for government to embrace innovation and not be scared by it.”
At the same time, Muzinich said finding a balance between preventing illicit activity and respecting consumer privacy will be a challenge.
“Because how much of a consumer’s daily transactions should the government see, in a digital world, for instance? So there are a variety of factors that we are thinking through,” he said.
During prepared remarks prior to the Q&A, Muzinich also said the U.S. and Europe must cooperate in regulating cryptocurrencies.
“Cryptocurrencies are a fascinating topic, because they have implications not only for private business but also for a number of activities,” he said.
Cryptocurrencies can be used as more than just a means of payment, but can also provide some functions typically performed by governments.
However, he said the government would be concerned by the fact that cryptocurrencies can be used to evade anti-money laundering (AML) rules. There are also monetary base and financial stability concerns. (While Muzinich did not mention libra, regulators and policymakers worldwide warned of financial instability after Facebook unveiled the stablecoin initiative in June 2019.)
“Treasury has made it clear that the obligation to comply with U.S. laws is the same, regardless of whether a transaction is denominated in traditional fiat currency or digital currency. Existing laws apply to digital assets in no uncertain terms,” he said.
Even digital currency efforts that comply with the spirit and letter of AML laws might raise concerns, such as if a stablecoin shifts from being fully reserved to being partially reserved or decides to change the makeup of its underlying basket of reserve currencies.
“This could alter money supply or cause financial disruption when such a decision is being made by a private governing association, or by a majority of coin holders,” Muzinich said. “What if foreign actors had acquired a majority of the coins? In any case, would important decisions about our economic system have been taken out at the hands of governments accountable to the people?”
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