Our crypto journey continues! This time, we’re going to visit a country with an immense density of crypto miners and traders, where cryptocurrencies are viewed as a valuable asset and a means of safe investment. You guessed right: we’re talking about China — one of the main exchange markets and home to some of the biggest bitcoin ‘mining pools’ in the world.
Let’s go sightseeing!
In 2016, blockchain technology development was added into the 13th Five-Year Plan — the plan for national development over 2016–2020 — thus making China one of the first states in the world to accept the technology in its official policy. It’s important to note that state-sponsored usage of the blockchain is heavily favored, as opposed to decentralized practices characteristic of many blockchain-based projects. It might still be too early to make any conclusions, but at the very least, this governmental support is likely to boost the country’s R D.
Bitcoin hasn’t enjoyed such a warm welcome from Chinese officials, though. Let’s take a quick look at the timeline:
- December 2013: People’s Bank of China (PBoC) issues a “Notice on Preventing Financial Risk of Bitcoin”, prohibiting all crypto-related operations for banks. The main reason for this measure is the lack of safety due to Bitcoin’s decentralized nature. At this point, Bitcoin has already gained massive popularity throughout China;
- December 2016: China introduces blockchain technologies into its 13th Five-Year Plan;
- September 2017: China bans all ICOs. Shortly after, Chinese BTC exchanges are forced to halt all trading operations (particularly crypto-to-fiat ones) because of government investigations in the crypto industry. Eventually, the oldest Chinese crypto exchange, BTCC, shuts down all domestic operations. Yet even after the ban on cryptocurrency trading, the Chinese government along with local corporations like Tencent and Alibaba continue to see huge potential in blockchain technologies and focus on developing decentralized financial platforms;
- January 2018: China bans P2P and OTC markets. By this point, Chinese state regulators have worked out a long-term strategy to eliminate cryptocurrency from the national economy by announcing a ban on foreign crypto-related platforms. This is obviously seen as a big deal given the immense amount of crypto mining conducted in China;
- February 2018: Access to offshore crypto exchanges and ICO websites is blocked;
- May 2018: China’s president Xi Jinping praises the blockchain technology, calling it “a part of technological revolution”. The State Council of China urges local financial authorities and state-funded research centres to put extra effort into the development and commercialization of blockchain technologies. A blockchain-powered system to combat fraud is revealed by the PBoC;
- June 2018: China’s largest TV broadcaster CCTV informs the viewers that “the value of blockchain is 10 times that of the Internet”. In the hour-long video, Chinese government officials team up with international experts to educate the audience on the concept and potential of blockchain technologies.
China is known for its numerous plants manufacturing video cards and ASIC miners. Thus, Chinese miners are able to purchase the necessary equipment at a much lower cost compared to the rest of the world.
The country can already boast a remarkably low price for electricity; add to it the decision of the Chinese government to encourage the industrial production of cryptocurrency by offering additional discounts on electricity to crypto farm owners, and you can see why China is one of the world’s largest mining centers.
Farms for crypto mining are strewn all across the country. Notable examples include Sichuan (also known as “the capital of bitcoin mining”, with its industrial farm placed right next to a hydroelectric power station), Liaoningprovince (with a three-story farm in its small city of Dalian accounting for over 3% of the entire Bitcoin network’s hash rate), Xinjiang, Inner Mongolia and Yunnan.
China is one of the most technologically advanced countries in the world. With its tendency to be among the first adepts of new concepts (such as QR-powered payments), it comes as no surprise that even before the new state investment into blockchain technology, China had already become a leader in that area:
- In 2017, in an impressive feat of scientific capacity, Chinese-based companies filed the majority of all blockchain-related patents in the world, increasing the number of Chinese blockchain patents almost 4 times since 2016;
- Chinese e-commerce titan Alibaba holds the most Blockchain patents globally: an estimated amount of 49 licenses which are mostly app-oriented and have been utilized in such areas as healthcare, public welfare and supply chains. However, this doesn’t stop Alibaba’s founder Jack Ma from calling Bitcoin “a bubble”. Apparently, just like Chinese government, Alibaba is more invested into blockchain technology itself rather than in cryptocurrencies;
- Another of Jack Ma’s creations, ZhongAn Tech, is planning to use blockchain technology to cut risk and costs in healthcare insurance. It is reported that ZhongAn Tech is currently working with Shanghai’s insurance regulatory arm on building a blockchain reinsurance platform;
- Huobi, the world’s third largest cryptocurrency exchange by trade volume, has launched a $93 mln China-South Korea investment fund for blockchain companies in partnership with Chinese investment firm NewMargin Capital and South Korean securities firm Kiwoom Securities Co., Ltd.;
- Chinese search giant Baidu is planning to launch a new blockchain-based game called Du Yuzhou. This is going to be Baidu’s second foray into blockchain-based gaming apps: in February, Baidu launched a blockchain-based game “Leci Gou”, where players are supposed to take care of dogs. In addition, Baidu has recently announced another blockchain-based product: a “super chain” protocol;
- Other important players in China include Wanxiang Blockchain Labs (co-founded by Wanxiang Holdings and Vitalik Buterin) and China’s largest online retailer JD.com, which has recently announced the first four startups for its Al Catapult Blockchain incubation program.
The population’s interest towards cryptocurrencies has been unwaning for years now. Crypto trading seems to be one of the nation’s favourite pastimes! Seriously though, take a look at these few cases:
- Reportedly, the most popular asset classes for Chinese investors are Bitcoin and Real Estate. Real estate is a safe bet, but why Bitcoin? The reason might be that unlike other asset classes, Bitcoin is not correlated to the Chinese economy and thus provides a good hedge to other local investments. The recent ban on cryptocurrency trading might have dampened the enthusiasm somewhat, yet Chinese traders, investors and exchanges alike seem to be finding ways out;
- A mysterious Chinese “whale” — an investor with enough assets to control market prices — has amassed one of the largest BTC wallets in the world. In total, 93,947 BTC have been transferred to the whale’s wallet;
- Jihan Wu, a 32-year-old Chinese billionaire also known as the “Mining King”, is considering in IPO for his company. Wu runs Bitmain Technologies Ltd., the world’s dominant producer of cryptocurrency mining chips. Founded five years ago, the company is currently looking to expand beyond crypto and sees an IPO as a way to do that. One of the most attractive non-crypto areas for Bitmain is artificial intelligence development, which is generously funded by the Chinese government;
- Industrial mining farms in China may, in fact, resemble traditional industrial cities, where workers might live without visiting the outside world at all. The country’s huge population leads to immense competition in the job market; as a result, mining farm administrators are ready to live near the farm 24/7 and ensure constant production of cryptocurrencies for a relatively small salary.
While China has had a rocky relationship with cryptocurrency trading at state level, its enthusiasm towards blockchain technologies is massive. Among the state-funded research, the governmental support towards industrial crypto mining and the country’s general tendency to be at the pinnacle of technology, it is safe to say we should expect a number of blockchain-based breakthroughs from China in the near future.
Do you live in China? If so, please tell us more about the state of crypto in your country. We are eager to hear your point of view in our Telegram channel!