Formerly a leading country in crypto, with Bitcoin mining booming, the Chinese government has since banned cryptocurrency altogether in the country, leading crypto companies to take their offices global. Still, the Chinese government remains involved in the digital asset space—they’ve shifted to their own government-backed digital currency, e-CNY, and sponsored NFTs. 

Chinese Crypto Policy — A Timeline of the Great Ban

China banned crypto in three phases throughout 2021. In May 2021, China prohibited financial institutions from participating in any crypto transactions. In June, the country banned all domestic crypto mining. As of late September 2021, the People’s Bank of China (PBOC) banned all cryptocurrency transactions.

Chinese Government Initiatives

Likewise in 2021, the Chinese government launched two major initiatives in 2021 to centralize financial network infrastructures within its technological ecosystem: the Blockchain-based Service Network (BSN) and the digital yuan. 

The BSN network’s purpose is to make blockchain hosting affordable and easily accessible for small and medium enterprises (SMEs). Since the ban, however, the BSN plans to introduce support for NFTs denominated in Chinese yuan. Different from public blockchain NFTs, the state-sanctioned BSN ones are referred to as “BSN-Distributed Digital Certificates (BSN-DDC). The BSN-DDC will make it cheaper to mint NFTs compared to major Chinese platforms, likewise making ten Open Permissioned Blockchains available on the BSN-DDC. These blockchains are localized versions of their Chinese unapproved counterparts, with restrictions on who can use fiat currency for payment and participate in the network governance. Of early 2022, five of the Open Permissioned Blockchains have been announced:

1. Ethereum-based Wuhan Chain
2. Wenchang Chain powered by Cosmos-based IRISnet
3. Corda-based Zunyi Chain
4. EOS-based Zhongyi Chain
5. FISCO BCOS-based Tai’ian Chain

China has pushed for the use of digital currency in the form of digital yuan, also known as e-CNY, as opposed to cryptocurrency even before the complete ban of cryptocurrency. Why? The digital yuan gives the government greater visibility and influence of its citizens’ financial transactions. Cryptocurrency, on the other hand, hides the privacy of its citizens from the government – something the Chinese government is wary about. Selective Chinese cities have already been piloting the digital yuan since the second half of 2021, with over $8 billion worth of transactions.

Companies’ Responses to the Cryptocurrency Ban

Most crypto-based companies and projects have either moved their headquarters abroad and expanded their user base globally, or alternatively, become extremely quiet. The cryptocurrency ban is costing China $6 billion worth of annual Bitcoin mining revenue. China was once responsible for three-fourths of all Bitcoin mining, but now those entities have scrambled to Russia, Kazakhstan, and the United States for relocation. 

For the “great mining migration,” Kazakhstan and Russia are attractive for their cheap electricity costs; however, state infrastructure is subpar. Despite higher power and labor costs, the United States has recently become a popular mining relocation destination for its reliable and legal protections over private mining property. Miners are much safer in the United States compared to Kazakhstan and Russia, not running the risk of the government shutting down operations and taking away all equipment.

Within China, though, companies are pivoting into NFTs. The rise in NFTs in China is saving the Chinese crypto community from being completely eliminated. Big tech companies including Alibaba, Bytedance, and Tencent have begun piloting the use of NFTs in small ways. Alibaba, for instance, tested NFT-themed mobile app backgrounds for select users;Tencent likewise issued NFTs as employee gifts.

The Future of Cryptocurrency, Blockchain, and Digital Currency in China

While the future of cryptocurrency has gone underground in China, the phenomenon has urged many Chinese-based cryptocurrency projects, companies, and Bitcoin mining operations to go global—meanwhile, the Chinese cryptocurrency ban has shed light on growing state-backed initiatives such as the BSN, BSN-DDC NFTs, and the digital Chinese yuan. 

ABOUT THE WRITER 

Elizabeth Sun is a contributor to Identity Review from the University of Southern California. Do you have information to share with Identity Review? Email us at press@identityreview.com. Find us on Twitter.

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