Blockchain has had a hard time in China recently: a swift crackdown and closure of almost all initial coin offering (ICO) platforms followed by a similarly sudden action against bitcoin exchanges. Not only were ICO platforms mandated to refund all purchases, the operators of bitcoin exchanges were also “requested” to remain in China. So, where does this leave bitcoin and blockchain in China?
Before we panic, we need to remember China’s MO when it comes to innovation: a watchful but laissez-faire attitude until it gets big enough to cause problems. Bike rentals, group buying, online entertainment, e-commerce, courier services, ride-hailing, food delivery and many more have all been through this. In most cases, the inevitable crackdown was a net positive for consumers and the public at large: streets aren’t littered with bikes (or at least not as much), consumers don’t have to worry about buying fraudulent or fake goods, services, or products, and riders can ride (fairly) safely in a private car knowing that they won’t get in trouble with the law. 1
The Chinese government, above all else, wants to make sure they can effectively control domestic events while also proving to the governed that it has their best interests in mind. Before we talk about bitcoin and ICOs, here’s a general framework I use in guessing how severe a crackdown might be:
- Does it solve a problem for the Chinese government?
- Does it threaten the overall stability of the economy and social order?
- Has it taken advantage of dumb money or ignorant consumers?
- Does it threaten to disrupt an area the Chinese government considers strategic and/or provides a way to go around existing strategic policy?
- Can they control its development?
Looking at both bitcoin exchanges and ICOs, the main concern was not about laundering money (even if people still seem to think this a good idea), as many have speculated, but more to do with the volatility of cryptocurrencies and potential instability in the market as people made a fortune and then lost their shirts, not to mention the technology’s ability to skirt all regulations that allowed the offering of such ridiculous ICOs. The timing, of course, was no coincidence either: the crackdown happened just weeks before the most important political event in 5 years.
Blockchain in China
So, is blockchain doomed in China? Definitely not. Instead, we should expect a boom soon as the government understands it more, how to control it, and puts its weight behind more development. They’ve made no secret of the fact that they are already taking it seriously, as early as 2014, and will reportedly launch their own digital currency “as early as possible”.
The potential of blockchain is staggering. Not only will smart contracts fundamentally change the way we do business, interact with each other, and go about our lives but as I’ve discussed previously, blockchain provides governments with unprecedented access to information about offline activity. Not only can blockchain smart contracts enable automatic transactions and activity, but they also allow near-perfect replication of the offline world online.
While it’s easy to scapegoat China for not believing in (or, god forbid, adhering to) liberal values of openness, fairness, and democracy, the same technology that will allow them to control offline transactions will allow other countries to do the same. And I don’t mean other illiberal countries, either. The introduction of a social credit system by many of China’s largest companies, as well as the one being developed by the government, has been criticized for intruding into every aspect of a citizen’s life. However, liberal democratic countries have been doing something similar since 2014.
The most useful applications of blockchain aren’t all that sexy—tracking supply chains, verifying identities, and bringing offline legal systems online—and may never be visible to the average Zhou, but blockchain has already started to change the world and China will not be left behind.
- Online entertainment was actually a net negative, in my opinion: After rounds of regulation, China’s VOD and live streaming platforms are about as a politically correct and frustratingly vanilla as you’ll find through traditional mediums.