China and its complex relation with Cryptocurrency

Hello Readers,

While crypto as a whole has been accepted by most of the world, there are still Some countries where Crypto is either banned or is heavily taxed by the government, yet people are still finding ‘other ways’ to access it anyway. As an example, That I think is what will be happening in China with cryptocurrency right now. Despite China’s strict ban on all things relating and regarding crypto since 2021, over-the-counter (OTC) brokers in the country did allegedly processed more than $75 billion in crypto transactions by 2024 so far. So, if crypto transactions are supposed to be zero to nominal there, how is so much money still flowing in the market? In this post, Let us take a deep dive and take a closer look at the country China and its history with crypto. So, if you are interested, let us begin without further ado.

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The Rise and Fall of Crypto in China

In reality, China was actually one of the earliest players in this game of crypto. When Bitcoin was created in 2008, China took notice of this discovery quicker than many others and built its own crypto exchange in 2011 to capture an early opponentless market. Then in 2013, China officially recognized digital currencies - such as Bitcoin, Ethereum, USDT etc. as a payment option and opened the gateway for crypto to enter among common people. As a result, a few years later, China was home to around half of the whole world’s total active Bitcoin mining due to the low electricity cost there which boosted the ROI and within a bunk of an eye, China was a crypto powerhouse at global level.

But every good story meets an end and in the future, things took a U-turn in May 2021, when the Chinese government started an unexpected but overall ban on crypto. Finally, by September 24, 2021, China declared all crypto-related activities illegal including payment, mining, and investment and also including trading. As crypto had a mass user base, this sudden ban left most of them wondering why China would eliminate something so special that was bringing in revenue and boosting its ranks and influence in the digital currency economy on a global stage.

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Why Did China Ban Cryptocurrencies?

As predicted or stated by many, the main reasons behind China’s complete crypto ban contain more causes than just wanting control. Here are the main concerns..

1. Protecting the Digital Yuan

Around the same time as the ban, China was officially developing its own official version of digital currency, named the digital yuan. The government was testing the currency across its country and hoping that it would quickly become a strong competitor on the global stage. However, in the near future they thought other cryptos were a threat to the digital yuan’s success, stating that all these so-called “virtual currencies” had “no real value.” and by banning them, China eliminated any competition to the official digital currency Digital Yuan.

2. Environmental Concerns

While in today’s Time, many of the cryptocurrencies have migrated from physical mining to stake-based mining, back then Crypto mining used to consume a lot of energy. So in 2021, China committed to reducing its country wise Electric consumption and thus improving its environmental impact. The President of China, Mr. Xi Jinping announced a goal for China to reach a certain lower level of peak carbon emissions by 2030 and to achieve actual carbon neutrality by 2060, which is a great goal for the environment I think and will benefit the future generations. If we calculate how much total energy Bitcoin mining consumes currently, then I think that supporting the crypto industry would be a difficult goal to reach. So, part of the Ban decision was about protecting the planet and reducing emissions.

3. Controlling the Financial System

Cryptocurrency is a whole world Thing where it offers us the freedom to move money across borders quickly without any checks, but it can also lead to illegal financial activities like fraud, hacking or money laundering, etc. It seems that the Chinese government feared that crypto could allow their own valuation and control of money to slip out of the country, thus weakening the govt. control it currently has over its own economy.

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A Shadow Crypto Economy

Though the Chinese government banned crypto in the past, their people have seemed to find a way around the rules to get their hands on crypto. Over-the-counter brokers (OTC), individuals or businesses that run in the shadows or any law, perform the buy and sell crypto outside traditional exchanges, obviously they have created a “shadow market. By themselves to access and trade or invest in crypto, maybe predicting its valuation in the future? Anyway as said, it has also been heard that by 2024, this underground network had processed more than $75 billion in crypto transactions so far.

As also claimed, many of these crypto transactions were large in number, as more than half of these transactions were worth over $1 million USD. But China's Govt. has a strong grip on its country and the shadow market, however, also has not gone unnoticed since it emerged into a big thing. The Chinese regulators have increased monitoring of any digital business activities, especially such transactions that may involve any kind of fraud, terrorism or money laundering, etc. Despite all these efforts, the Govt may have decreased the activity for a while, but then crypto shadow economy again started to keep growing, showing that crazy the demand for digital currency, as it is very strong with its decentralized security system, can't easily be controlled.

Even with strict regulations, it is now clear that the crypto mania still holds a hard influence in China. The underground market continues to grow as time passes, this is also proving that at the current time, people value the freedom and possibilities that this crypto as a digital currency provides. Despite China’s strong approach of banning that crypto, as they have been trying to control this sector with only official and controlled digital currency, a lot of people still choose the decentralized crypto.

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Information Taken from

• https://www.bloomberg.com

• https://bitcoinmagazine.com

• https://www.wikipedia.org

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I Hope you liked reading my post about China and cryptocurrency, let me know your thoughts on this article in the comment section below and I will be seeing you all in my next post.

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