In 2019, the Chinese government banned cryptocurrency exchanges and other ICOs in the whole country. Such regulations might make one think that China is anti-crypto and does not respect its long-term value for the entire world. However, the Chinese approach to crypto is much more complicated than that and requires in-depth analysis to comprehend fully.
The Chinese government recognizes blockchain technology’s global and unique potential. The officials and large Chinese corporations have invested billions in blockchain development and cryptocurrencies. Behind regulations and strict rules that have caught much of the press attention, China is quietly building an entire blockchain ecosystem to keep up with the digitalized global economy.
China is a Crypto Giant
It’s common for blockchain enthusiasts from the western world to forget how much money flows in China. The Asian giant has invested vast amounts of money in mining, investing, and research. 90% of global cryptocurrency exchanges’ transactions originated in China at their peak. Generally, digital payments in China have been rising for a long-time, and this trend accelerates the popularity of cryptocurrencies.
Millions of retail investors invested in Bitcoin before China legislated the ban. ICOs and various types of cryptos also had enormous success in the Chinese market. It is also worth mentioning that a large portion of cryptocurrency ownership belongs to the Chinese people.
China is also one largest crypto miners globally. It offers cheap electricity-powered local factories to produce specialized computers to mine cryptocurrencies. The labor cost is also meager in China, making it very appealing to many investors worldwide.
At the peak, 3/4 of all world’s mining power came from China. Even today, the majority of Bitcoin mining still comes from China. At the height, three-quarters of the world’s mining hash power came from Chinese miners. The vast majority of Bitcoin mining even comes from China, although that may change soon.
Regulation and Its Affect on the Market
Because many investors are pouring their savings into crypto, the Chinese government took measures to protect the economic environment and rinse the financial market of high-risk investments. Cryptos are not the only regulated institutions; the Chinese government has also been battling several banking organizations that lend unregulated, high-interest loans to speculators.
The government also has an interest in protecting the national currency yuan and maintaining control over its trade and economic value. Cryptocurrency is also an excellent way to move money across borders, avoid any regulations, and give many speculative transactions and money laundering.
The Chinese government is aggressively tracking and limiting the country’s outflow of wealth. Regulating the crypto market was the way to control China’s wealth export and the black market.
The Largest Country for Mining
China was the leading destination for mining operations globally in the early days. Low electricity costs were the driver for miners and local manufacturing facilities for low-cost, high-efficiency mining hardware. Local governments were happy to welcome Bitcoin miners at first as they used up excess electricity from hydropower facilities. As government attitudes toward cryptocurrencies have become increasingly hostile, miners have begun to look elsewhere for future locations.
It’s worth remembering that the world’s most significant mining operations started and developed in China. Bitmain, the world’s largest Bitcoin mining operator and hardware manufacturer, operates most of its mining farms and manufactures its Antminer chips in China. Today, the company is worth $9 billion. Combined, Chinese miners produce two-thirds of the world’s Bitcoin.
Electricity consumption is indeed one concern for the Chinese government. Chinese mining uses 4 gigawatts, the equivalent of three nuclear reactors worth of power. However, the tightening mining regulations also fit into the larger monetary control narrative.
Is China the Future Blockchain Hub?
China’s blockchain goals aren’t decentralizing. The country hopes to dominate development and research in blockchain because it can gain greater control and power over Chinese-backed closed blockchains’ services and platforms. This is an apparent contradiction of much of the blockchain community’s transparent and decentralizing motivations.
While making strategic investments in blockchain projects, banning cryptocurrency is China’s attempt to maximize control over the blockchain ecosystem while minimizing risk. There is no doubt we will see cryptocurrency rise to China’s latest levels.