Despite the bans on commercial turnover of digital assets in China, the country remains the front-side of blockchain and the main factor in the global cryptocurrency market.
Blockchain is a strategically significant technology for China, a priority of its development, established at the official level. The country gathers huge mining capacity, thousands of crypto companies, the largest banks, and tech giants using the technology. The authorities are testing the digital yuan and plan to turn Beijing into a blockchain hub and have already launched an infrastructure platform for third-party developers. All this should strengthen China's leadership in the blockchain industry and make it the main supplier of decentralized infrastructure for decades to come.
In 2013, the Chinese authorities reported the risks associated with the use of BTC
. In the autumn of 2017, the People's Bank of China (PBC) banned the country's ICO, the operation of crypto exchanges, and the use of cryptocurrencies by financial and payment companies.
However, China did not set a goal to ban blockchain and cryptocurrencies. On the contrary, the authorities at the official level recognize the importance of technology. In 2014, the PBC formed a research group
to study the feasibility of issuing digital currencies. Blockchain was included in the national technology development plan, and the significance of technology was appreciated along with artificial intelligence, 5G, cloud technologies, and the Internet of Things.
Despite the authorities' attempts to ban the private use of decentralized ledger, China paradoxically remains a world leader in blockchain. The country has more than 50% of Bitcoin's mining capacity. This fact creates specific country risks when, for instance, natural disasters can drop the hash rate of the main pools by 10-20%
. Periodically, the authorities threaten to ban mining and, if it happens, the industry may face troubles.
The authorities of the cities of Shanghai, Guiyang, Hangzhou and Guangzhou, Shanxi, and Henan provinces have adopted a policy of stimulating the development of blockchain technologies. And Hangzhou, the capital of the eastern province of Zhejiang, has announced plans to invest 10 billion yuan
($ 1.5 billion) in a blockchain fund that will become the largest in the world. Moreover, the blockchain was officially included in China's 13th Five-Year Development Plan from 2016 to 2020. Blockchain is described there as one of the directions of the nation's development, along with quantum computers, artificial intelligence, and autonomous cars. Following the trend, in the first half of 2018, the Chinese registered 3,078 firms with the word blockchain in their names
. This is six times more than in the entire 2017 and noticeably more than in the USA for the same time (817 firms). The Chinese authorities clearly distinguish between blockchain and cryptocurrencies. And, even though Bitcoin was the first successful application of blockchain technology, Chinese regulators doubt its usefulness and prefer to limit the potential danger of cryptocurrencies as much as possible.
In June 2020, Beijing authorities issued the "Plan for the Development of Blockchain Innovation in for 2020-2022". The main part of the plan is blockchain implementations and raise the number of blockchain-based services. It should eliminate paper documents
reducing administration costs by 40%
As a ground for blockchain, the Chinese developers prepare integrations into tax, real estate, medical data, wages, etc. More than ten other cities in China have begun their approaches to integrate blockchain into city life. However, there are two significant projects, which can impact the whole crypto market: the Infrastructure Blockchain Platform (BSN) and the Digital Yuan (DCEP).
China has a policy of "internationalization" of its currency. It is implementing the One Belt One Road Initiative, where a global transport, trade, and investment infrastructure that would bring together china-dependent countries from South-East Asia to Egypt and Ecuador. The Asian Infrastructure Investment Bank (AIIB), competing with the IMF and the World Bank, has also been established.
Since 2015, the yuan has been recognized by the IMF as a reserve currency. However, all this has not changed the yuan's role in the world economy - it is used mainly only in transactions between Asian countries. DCEP could help increase
the use of the yuan in international transactions. The digital yuan can bypass SWIFT, which means it can significantly accelerate and cheapen international settlements. Infrastructure for such operations already exists. There is the banking blockchain platform Bay Area Trade Finance, created with the initiative of the People's Bank of China, and a platform for the management of foreign exchange trading, a system of electronic tax returns, as well as foreign trade blockchain platforms of the country's largest banks.
Chinese officials publicly promote the many advantages of DCEP: reducing transaction and transaction costs
, increasing financial accessibility for citizens, increasing opportunities to fight crime and the influence of the state abroad. The digital yuan can be used not only for calculations and payments but also for the distribution of incentive payments, subsidies, and tax refunds. Now, it is difficult to say how many foreign companies and users will join.
At the beginning of December 2019, the development of a national Chinese blockchain infrastructure was announced. The Blockchain Service Network (BSN) will reduce the cost of developing, deploying, operating, and maintaining the blockchain.
The Blockchain Services Network, first announced in October 2019
, aims to be a host platform for blockchain solutions for small and medium-sized enterprises as well as individuals. It will provide tools for building blockchain applications on public business networks that can support users in the digital economy and smart city. The project is supported by the State Information Center of the People's Republic of China (State Information Center) (SIC), China UnionPay, China Mobile, and several other companies.
Launching BSN, China has a pioneering advantage, exercises regulatory oversight, deters the penetration of foreign companies into the country, and stops capital outflows. Also, the Chinese authorities gain notable control over a valuable sector of the market, as they will be able to track all transactions on the platform. China can become the main (or only) provider of infrastructure for blockchain companies from all over the world. With the launch of BSN, China can launch a blockchain race between the countries. Many countries, including the United States, can hurry up with the launch of their own blockchain initiatives and facilitate legislation on digital assets, not to be lag China in the blockchain race. In the end, it will be in the hands of the entire market.
The Chinese culture has an old saying: "building a road is the first step to wealth." The country's authorities are actively using infrastructure to stimulate the economy: they invest significant funds in the construction of highways, railways, buildings. Blockchain is the new data infrastructure, along with 5G, artificial intelligence
, and cloud computing
. The West is much inferior to China in the race for leadership in the blockchain industry. Without rivals, the latter gets the opportunity to become an integral part of the world's decentralized infrastructure for decades to come. If China's experience in mass implementation of blockchain proves successful, many countries will desire to repeat its path.