In 2016, the Chinese government added blockchain development to its Five-Year Plan. In early 2018, the president of China, Xi Jinping, stated that the government would commit $1.6 billion to the development of blockchain technologies in China.

As China continues its cryptocurrency crackdown by banning anything related to crypto trading and events, it continues to accelerate blockchain development, begging the question: is blockchain innovation truly possible with such tight restrictions of cryptocurrencies?

Chinese Crypto Mining

China is well-known for cryptocurrency mining due to competitive electricity prices, hardware availability, and the size and stability of local mining pools. At its peak, Chinese miners were producing 95% of all Bitcoin and currently produce a still-impressive 70% of the Bitcoin network.

This drop is due to the Chinese government targeting mining pools by reducing electricity supply in an attempt to make an ‘orderly exit’ from the crypto business. The Economic and Information Commision previously stated that mining operations ‘contribute nothing to the region’s economy besides consuming a spiking volume of electricity.’

Regardless, crypto mining giant Bitmain continues to flourish in China, valued at $12 billion in July 2018. Bitmain produces ASIC chips which are a popular choice for cryptocurrency mining. 96% of their revenue comes from selling mining rigs and only 3% from mining. Although controversial, Bitmain continues to grow, recently expanding to the US where they plan to invest $500 million in a blockchain mining farm in Texas.

People’s Bank of China: CryptoYuan

Alongside research into blockchain technology, the People’s Bank of China is allegedly working on their own government-backed cryptocurrency. IG Group, a UK-based company providing financial derivatives trading, assumes any national cryptocurrency would be ‘introduced alongside China’s primary currency, the yuan, with the intention of catering to the millions of citizens who lack access to standard banking services.”

It’s logical for the government to get involved with cryptocurrencies as a reported 3 million Chinese people are still holding on to their crypto assets despite bans.

Although nothing is concrete, there’s already talk that a Chinese government-backed cryptocurrency could be even bigger than Bitcoin. The Chinese government may want to cash-in on the popularity of crypto by overtaking existing coins as well as mining their own.

‘It is unlikely that any government-backed cryptocurrency would kill off bitcoin or other large cryptos completely, but some of the smaller alt-coins could have a tougher time of it…The PBoC have stated that only the digital currency issued by them will be recognised nationally, excluding other coins such as bitcoin or ether. As foreign cryptos are already banned in China, the government would essentially force mining operations to switch to the national crypto. This could impact global mining communities, and reduce the value of bitcoin as it becomes less popular. A government endorsement could see the crypto gain popularity worldwide, as it becomes seen as credible in the eyes of the public.’

One of the most notable features of crypto is its decentralized nature and independence from authorities. As we hear of governments who want to introduce their own cryptocurrencies, it is critical to ask why. For Venezuela, who will launch their national coin, Petro, in November, it is clear their primary motivation is economic, as they are currently suffering from severe hyperinflation under US-imposed sanctions.

As the Chinese economy has boomed in recent decades, their motives are entirely different. Given the introduction of the Social Credit System, which will become mandatory for all citizens and business from 2020, the Chinese government could use their national cryptocurrency to survey their citizens further, scrutinizing every transaction under the guise of tracing money laundering or illegal activities.

Regardless of motives, it is fascinating to see how the versatility of cryptocurrencies could be adopted in different ways, for a variety of reasons. As someone who believes in the decentralized, transparent nature of blockchain technology, I am excited to see how everything unfolds which will hopefully be to the benefit of people around the world who have been disregarded from our existing financial structures and let down by greedy governments.