Blockchain! Cryptocurrency! Digital Assets! I can already feel the onslaught of eye-rolls as readers first glance at this article (trust me, I get it from my friends all the time). “Great, another story about Bitcoin.” I know, I know, the recent explosion of Bitcoin’s price has plastered its presence all over media outlets everywhere.
But let’s forget about that for a second and focus on something less known and more interesting: How governments, particularly China’s, are responding to a technology originally designed to take away power from institutions such as themselves, and a few futuristic projects that could change our everyday lives.
On September 15th 2017, crypto enthusiasts awoke to headlines such as, “China Moves to Completely Ban Cryptocurrency Trading at Home and Abroad” and “Is the Party Over? China Cracks Down on New Asset Class.” The markets reacted immediately and lost over 40% of their value. Fear and doubt filled the crypto-community, leaving many people wondering, “Waddammuhgunnado?!?!”
What would happen to crypto as the world’s most populous country barred the public from participating in the purchase or exchange of digital assets? In response, many Chinese investors looked abroad for solutions, registering for South Korean or Japanese exchanges through intermediaries to continue their now illicit, yet easily executed investment practices.
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While private investment is still permitted under this new policy, the flagrant disregard of Beijing’s authority through over-the-counter trades and foreign intermediaries drew the ire of Chinese authorities. Consequently, February witnessed a more severe crackdown, aiming to stamp-out Chinese crypto traders operating at home and in neighboring countries.
Despite China’s new strict policies regarding cryptocurrency, Chinese blockchain projects remained optimistic. Many remained in China while others registered their headquarters in Singapore, a country whose Deputy Prime Minister stated that there was “no strong case to ban cryptocurrency trading” and whose regulators saw no serious risk in regards to cryptocurrency threatening the integrity of the existing financial system.
South Korea’s Finance Minister, Park Sang-Ki, also stated that while the government intended to regulate cryptocurrency exchanges, there were no plans to place an outright ban on digital assets. Japan, in a move that filled investors with shock and joy, implemented the Virtual Currency Act which classified Bitcoin as legal tender throughout its provinces. The United States, Portugal, Germany, and Russia are also part of a growing list of countries that are taking an increasingly friendly stance towards cryptocurrencies.
So, at present, it would appear that blockchain is here to stay. Leading world powers are beginning to see the potential of blockchain technologies and their ability to disrupt traditional institutions of finance, energy, supply chains, and yes, even memes. Eventually, if China wishes to remain competitive and continue to pursue its ambitious global economic program, it too will have to foster a welcoming environment for blockchain projects.
Blockchain tech, its founders, and community contain strong libertarian values. It is no secret that Bitcoin was created in response to the irresponsible and fraudulent behavior of banks and policy-makers that caused the 2008 financial crisis.
Blockchain’s significant commitment to decentralization and personal ownership are in clear conflict with Beijing’s historic planned economic policies. While an in-depth discussion of China’s geopolitical, monetary, and cultural agenda lies outside the scope of this article, there are a few things worth mentioning to frame China’s blockchain dilemma and what this new technology may look like here.
First, China’s efforts to challenge the US dollar’s place as the global reserve currency are still in full swing. Beijing wants to see the RMB grow in strength and influence, while chipping away at the privileges enjoyed by the United States as the dominant force in global monetary economics. Therefore, introducing or accepting a decentralized currency independent of their sovereignty and control is, you guessed it, out of the question.
Second, beyond a state-backed currency directly under the purview of a centralized authority, any government (especially China) values the centralized accumulation and management of data. Luckily, blockchain is not exclusively decentralized, offering a wide array of private, closed-source options that offer many of the same benefits described by these fancy words: security, consensus, and efficiency.
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With these factors in mind, it seems likely that China will retain its strict ban on exchange and investment while it decides the regulatory framework for blockchain enterprise within its borders. This is further supported by the authorities’ long history of shutting-out disruptive or aggressive new industries to pave the way for their own under their direct oversight.
These popular speculations seem almost certain in the wake of an announcement on March 9th by Chairman Zhou Xiaochuan, the governor of the People’s Bank of China, who stated that while the ban remains, the People’s Bank of China (PBOC) is currently developing a digital currency for China that will focus on payment solutions. He went on to state that while no further sanctions will be made in the future, existing projects will be tested and validated for market application.
Beijing is notoriously secretive while developing broad, sweeping policies, and this case is no different. While we receive hints about their plans here and there, whether in the form of a speech by President Xi Jinping stating China’s commitment to pursuing innovative and disruptive tech, or in the brief official statements from the governor of the PBOC, much remains uncertain and left to speculation.
Fortunately, throughout the fear and tumult, many Chinese blockchain projects push forward with development and partnerships, giving us a somewhat more concrete view of the direction the industry is headed. In fact, some of the most exciting projects in the world of crypto are either China-based or comprised of teams almost exclusively from China.
Below is a small preview of a few of these projects and what they aim to achieve, as well as some of the industry giants whose eye’s they have caught.
Neo is a blockchain project focusing on the development of what they call the “Smart Economy.” Their vision is of an economy of digital identities and digitized assets that are managed by smart contracts on a distributed ledger. Much of the process will be automated, removing the need for silly, outdated concepts like trust (crazy right?).
This can all be very confusing, so without going into coding languages, I will explain what a smart economy is in its basic form (or try my best – it’s super complicated). Instead of physical or traditional assets, Neo will host digital ones. The ownership of these digital assets will be associated with a specific digital identity, and can be bought, sold, or traded. The whole process is trustless in that all actions are approved and executed through a series of consensus nodes that run on the blockchain, keeping track and recording actions into separate blocks on a public ledger. The applications are vast, making many existing occupations and institutions (such as lawyers, banks, etc) redundant.
Neo is unique amongst its competitors in that it is aiming to be fully regulation compliant, demonstrating a significant focus on adoption over libertarian ideals. There is so much more to say on this project; I even considered making this entire article about Neo, but let this serve as a starting point from which to conduct further research.
Ontology aims to provide a trust network for Neo’s public blockchain. Wait wait wait, didn’t you just say that distributed open-source ledgers remove the need for trust? Yes I did, but if you recall I also said it’s complicated, so let me explain.
Ontology wants to help existing businesses transition to the blockchain. They will provide a range of services to various businesses, helping them create public chains, private chains, connecting between the two, and managing their data on the blockchain.
They can also help companies issue trust depending on what networks or entities they want to interact with, and provide them with digital identities. So, most of the trust in this case, is allowing companies to control the speed and extent of their transition to the blockchain. It is extremely difficult to convince a corporation that they should entrust consumer data, or a lawyer their clients information, to a decentralized public blockchain completely out of their control.
Think of Ontology as a blockchain emporium, in which experts will help you find the appropriate products that suit your needs and wants as you shift into the new and exciting world of blockchain. They will be ready to serve you pre-made or customizable packages that you can then utilize when integrating into the future smart economy.
This project is exceptionally ambitious, which might be an understatement, but boy oh boy is it exciting. In short, Elastos wants to create Internet 3.0, a completely decentralized internet based on the blockchain.
Developers looking to create dApps (like regular applications but decentralized) on Elastos’s operating system can do so without burdening its blockchain with excessive volumes of data. If any readers are familiar with the development of the World Wide Web and the scaling issues it experiences as it expanded, the benefits are clear: potentially infinite scaling, as the Elastos blockchain will never be clogged with data traffic or applications.
Elastos is also secure. Someone using Elastos runtime can take an ebook or movie they own, assign it a digital identity, then secure it on the blockchain. Think of it as a digital stamp that says, “this is my property, and I can do with it as I please.” These can also be traded or sold, reviving the second-hand markets that ebooks and direct-to-console videogames destroyed.
Perhaps one of the more clever innovations Elastos employs, is that your device never directly accesses the internet, protecting you from hackers, malware, and other nefarious threats. Did I mention that you won’t need an exorbitantly expensive or complicated device for this? That’s right, you will be able to run Elastos from your smartphone, no matter the carrier or operating system you use.
The projects mentioned above are already working with some heavy hitters, such as Fenbushi Capital (a China-based venture capital firm), Onchain (dedicated to working with businesses and governments to establish blockchain architecture), Bitmain (the world’s largest provider of bitcoin mining equipment), Foxconn (the world’s largest contract electronics manufacturer), and many more. Even industry giants like Baidu, Alibaba, and Tencent have begun working with various blockchain projects, aiming to ensure that if/when the world of blockchain experiences mass adoption, they will be trailblazers not laggards.
Indeed, despite the uncertainty that surrounds the country’s relationship with blockchain at present, one thing is certain: China and its blockchain companies will play a significant role in the development and implementation of the future Smart Economy.
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