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Cryptocurrency and the Chinese Government

Coin Gabbar
Cryptocurrency and the Chinese Government

China invented paper currency in the year 806 AD, a time when money was directly associated with coins. They were used as "flying currency" due to the use of letters of credit transferred over large distances, and with time they became the new face of currency. And now the Chinese government is minting cash digitally in a re-imagining of money that could rock a pillar of American power.

It may seem that money is already virtual, like credit cards and payment apps such as Apple Pay in the U.S., and WeChat in China eliminates the need of carrying money. But they are just ways to transfer money electronically. China is on the way to converting legal tender into computer code. It has been observed that they have recently declared all crypto-currency transactions illegal in order to give a proper place to their digital currency.

There could be another reason for this, cryptocurrencies such as bitcoin portend a possible digital future for currencies,  but they exist outside the traditional global financial system. On one side they are not legal tender like cash issued by governments and on another side, the government doesn’t have any control over them. They can’t even access the transaction data and accurate holding details.

As we are aware of the way the Chinese government operates, they like to have control over everything in their hands, and cryptocurrencies seem like a rebellion in their policy. In this article, we will talk about some of the recent decisions taken by the Chinese Government on Cryptocurrency and their impact as well. 

Decisions of the Chinese Government on Cryptocurrency

Activities related to cryptocurrency have always received a little objection from the Chinese government. It was on September 4, 2017, when the government banned Initial coin offerings (ICOs) in China. 

On this day seven government agencies of China, i.e. the People's Bank of China ("PBOC"), the Central Cybersecurity and Information Technology Lead Group of Communist Party of China, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, China Banking Regulatory Commission, China Security Regulatory Commission, and China Insurance Regulatory Commission, came together and jointly issued the "Notice regarding Prevention of Risks of Token Offering and Financing". 

This particular notice banned all ICOs in China and also directed organizations/individuals who had previously held and completed ICOs to return tokenized assets to investors in order to protect the rights of investors.

Exchange platforms that were allowing trading of cryptocurrencies or provided facilitation services were also directed to shut down following the havoc on ICOs.

After ICOs were banned, a new business model called Initial Miner Offerings (IMOs) became famous in no time. Unlike ICOs, in this model organizers initially sell mining equipment to investors, and investors are awarded tokens or points for the mining activities they do use the equipment.

However, Soon IMOs also came under the radar of the Chinese Government, and finally on January 12, 2018, the National Internet Finance Association of China ("NIFA") published the "Risk Alert concerning Prevention of Disguised ICO Activities". In this, NIFA stated that IMO involves fundraising activities and it is just a disguised form of ICO. After this statement, the IMO market of China also registered a decline.

The government also targeted cryptocurrency exchanges with notice and ordered that any so-called fundraising and trading platforms shall not 

  • Provide exchange services between fiat currency, tokens, and virtual currencies;
  • Buy or sell tokens or virtual currencies, or buy or sell virtual currencies as central counterparties (CCPs); or
  • Provide pricing or information intermediary services for tokens or virtual currencies.

To prevent Chinese investors from buying and trading cryptocurrencies on foreign exchanges, Government soon also blocked internet access to the websites of some foreign exchanges from China.

According to Chinese laws, No person should access the Internet to view information that violates Chinese laws and regulations. Those accessing Overseas Exchanges through a Virtual Private Network (VPN) could potentially face risks if the exchanges contain prohibited information. However, in 2017, the Ministry of Industry and Information Technology ordered that only authorized VPNs could be used in China.

Again on January 2, 2018, a special task force formed under the State Council, the Working Team on Internet Finance Leading Risk Control and Rectification, circulated notices to local governments guiding bitcoin mining operators to exit their respective regions.

After which, major miners have reportedly scaled down or closed their mining activities in China, and started moving to more favorable countries, similar to what cryptocurrency exchanges were forced to do before.

Crypto-currency trading has been officially banned in China since 2019 but continues online through Forex. In the last few years, some restrictions were also lifted but it all again started from April 2021 when some updates have been received that China is working on its own version of digital currency.

In May 2021 China banned financial institutions and payment companies from providing services related to cryptocurrency transactions and also imposed some restrictions similar to 2013 and 2017.

In June 2021, the government asked banks and payment platforms to stop facilitating transactions and issued a ban on the mining of currencies - the trade of using powerful computers to create new tokens or coins.

Finally, in September 2021, when the People's Bank of China confirmed its continued activity in the cryptocurrency segment, the crypto market was shocked. The PBOC stated that all activities related to crypto are illegal in China, including services such as offering to trade digital assets, order matching, token issuance, and derivatives. In addition, foreign crypto exchanges providing services in mainland China are also illegal.

Impact of These Decisions in the last decade

Once the largest mining base in the world is now the reputation in the crypto market. It is all because of all the above and other decisions of the Chinese government.

In between 2013 to 2017 major miners and exchanges along with some of the crypto-focused organizations have reportedly scaled down or closed their operations in China. And they moved to more favorable countries.

With the latest move, the Chinese Government is also on the way to chocking all the small crypto-currencies and organizations that are desperately working on it.  

Given China's harsh attitude towards cryptocurrencies, ICOs, cryptocurrency exchanges, and mining activities, some might assume that it would be illegal for the Chinese to hold or trade bitcoin or other cryptocurrencies.

For now, it seems like there is not a bright future for cryptocurrencies in China but the picture can be more clear when the government will introduce its own digital currency. It may or may not be a cryptocurrency but it will give clarity to the people of the crypto-verse.

Coin Gabbar
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