Though China has banned trading in bitcoin (BTC) as well as other virtual currencies the most populous country in the world does not want to be left behind when it comes to blockchain technology. Just like with other technology trends in the world such as machine learning, artificial intelligence, autonomous cars China does not to miss out on the benefits that come with blockchain-based applications.
The technology received the first official mention in 2016 after it was included in the 13th 5-Year plan which is meant to serve as a road map for the development of China for a period of half a decade starting in 2016. In the plan blockchain was cited as one of the country’s major projects alongside quantum communication, driverless cars and artificial intelligence.
Dualism in policy
China’s welcoming attitude towards blockchain technologies indicates there is a dualism in Beijing’s policy. This is especially in light of the efforts China has made to crack down on virtual currencies. Initially China imposed a ban on Initial Coin Offerings before local exchanges were asked to stop trading in virtual currencies. China also outlined proposals aimed at discouraging the mining of bitcoin. However trading in bitcoin in China is still allowed but this is only in OTC markets. This is a slower process which increases credit risk according to some analysts.
Some of the reasons China is citing for the crackdown on digital currencies include financial risk prevention. The Chinese government is reportedly concerned about the shadow banking sector which is said to be booming. This sector is a source of loans which are unregulated. Additionally virtual coins are a way of moving capital out of China and this is coming at a time when the government is trying to stem outflows.
Impact of the crackdown
The impact of the actions taken by China have had an impact on the global bitcoin mining sector and has led to an increase in costs. Initially miners were attracted to China due to the fact that the country had relatively inexpensive electricity. Other factors that attracted the miners to China included cheap labor and the presence of local chip-making firms. With the crackdown these miners now have to turn elsewhere.
One of the biggest bitcoin mining collectives in China, Bitmain, is relocating its regional headquarters to Singapore and already has mining operations in Canada and the United States. Another large mining pool, BTC.Top, is also launching a facility in North America.
Besides the financial risks that China wants to stem, other reasons Chinese officials have given for the crackdown on bitcoin mining include the high electricity consumption levels of the activity. Government bodies have already expressed concern over energy usage as it is estimated that bitcoin mining is consuming about four gigawatts of electricity.
Besides miners, Bitcoin wallets and exchanges are also leaving China and relocating to Hong Kong where they are setting up OTC markets outlets. Others are also moving to South Korea or Singapore. According to analysts one of the reasons why virtual currencies have experienced heavy losses this year is the increased Chinese regulation.
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