What does the recent ban by China mean for the Crypto World?
China has continued its domination in the economy and also in the Crypto Space, but its recent decision could play a major role going ahead. The Cryptocurrency World that was slowly recovering toward its July all time high had to be sent tumbling down due to the announcement made by PBOC that it will ban all Cryptocurrency activity within the nation. Although this is not the first time that China has banned Cryptocurrency, how did the country that was once contributing to more than 75% of Crypto Mining now turn against it? And what does this mean going ahead?
How did China turn against Cryptocurrency?
The story of Cryptocurrency in China has always been a love — hate relationship as it is always between the people who love the Crypto Space and the government who is not so keen about it. China’s dominance in the Crypto Space continues above their mining capabilities as its trading volumes were once estimated to be 50% of the global market. Huobi, one of the biggest exchanges, founded in China is still considered number two in the rankings by Coingecko based on its trust score.
NEO which was founded by Da Hongfei and Erik Zhan in China in 2014 was an exciting prospect that aims to resemble Ethereum. It was once considered the biggest Crypto asset to come out of the country, ranked 9th in Coin Market Cap by March 2018 but it recently slumped to 56th as of today as the tightening continues. This was the proof that the people in the country welcomed the concept of a free decentralized world but the government wanted to maintain power in the financial sector as shown that the crackdown began even before the Cryptocurrency world gained its major popularity in 2013.
Bitcoin was on the rise in China in 2013 but unfortunately that year the Crypto Space also had MT Gox. MT. Gox was the biggest exchange in the world which in 2014 held more than 850,000 Bitcoins from thousands of users but filed for bankruptcy in mid of 2013 stating that hackers had stolen the equivalent of $460 million worth of Bitcoins. In late 2013, after the backlash of MT Gox, the PBOC issued a regulation forbidding financial institutions from handling bitcoin transactions.
And over the years, it has renewed its crackdown of the crypto market with a clear aim of not adopting within the country despite the big interest. In 2017, it banned ICO, IDO or Airdrops for any Cryptocurrency before eventually in June 2021, banks and payment platforms were stopped from facilitating Crypto transactions and issued bans on “mining” the currencies — the trade of using powerful computers to make new coins.
Although trading using local exchanges was banned since 2019, transactions continued to go through using foreign exchanges but its announcement on Friday was a clear stance that China wants to shut down crypto-currency trading in all its forms. The statement makes clear that those who are involved in “illegal financial activities” are committing a crime and will be prosecuted. And foreign websites providing such services to Chinese citizens online is also an illegal activity, it said.
There are a few reasons as to why China was against the idea of Cryptocurrency, the most obvious one is that the country wanted to maintain its control over the currency and the economy within the country. This is what led to the creation of digital Yuan and the ban on Cryptocurrency was a way to promote the adoption of its CBDC instead of a decentralized finance which has no central authority.
“It should surprise no one that China doesn’t like bitcoin. It is the pure antithesis of their regime of top-down centralized currency control,” stated Chris Bendiksen, head of research at CoinShares,
There is also the issue with climate change as China is also looking to fulfill its climate targets, aiming to become carbon neutral by 2060, and mining cryptocurrency like bitcoin is extremely energy-intensive, using a lot of computer power. Mining was once an attractive prospect as these miners depend on the cheap subsidized electricity but most of them have fled to other countries like Mongolia and by April 2021, the Chinese miners which were once responsible for 75% of the hashing power had fallen to 46%.
What does this mean moving ahead?
Cryptocurrency has surely been one of its main contributors in both mining and trading activities as China pulled out from it, but as we understand that this is a chance for other countries to emerge as the potential Market Leader. Of course all eyes will be on the US which has the golden chance to take the lead from China in the Crypto Space. US has always maintained an aim to regulate the Crypto World and has seen a growing interest in its Crypto Space with Coinbase the largest US based Crypto Exchange going on IPO earlier this year. The question is will the US step in and take the charge or risk being left behind again?
From the Mining perspective, the loss of China is definitely going to be felt for sometime. As of now the world hashing power is still recovering at 70% from its highest capacity. The loss of China has also opened enormous opportunities to set up Crypto hubs and attract foreign investments to smaller developing countries with major renewable resources like Paraguay, Iceland or even Argentina. China’s Bitmain for example, which was considered the great-grandaddy of miners, supplies around 65% of the world’s mining rigs and also runs its own mining farms, has begun shifting its rigs to countries like Kazakhstan, Mongolia and Canada.
Cryptocurrency world has slowly reached its mass adoption and the loss of contribution from China will slowly be recovered by other countries and it is really impossible to ban the blockchain world as it is decentralized in nature. Cryptocurrency has also proved to be an efficient and secure payment system although it is still clouded with Volatility and Sustainability issues. Every invention is not perfect at first but it’s up to the government and its users to guide it towards the right way with proper regulations and applications.
We in Nagaya Technologies Pte Ltd. surely believe that when paired with proper regulations and guidelines, there is an enormous potential that the Crypto Space could offer going ahead in the future. Our vision is that the hybrid crypto asset we created called Nagaya could provide a seamless and reliable payment method preferred by all. To know more and receive the latest information about Nagaya, you can visit us at nagaya.io
Or you can talk to us at t.me/nagayaofficial