What benefits can cryptocurrency provide to economically strong countries that aren’t necessarily in immediate times of crisis, and how can digital asset adoption offer real, long-lasting change that improves the lives of citizens worldwide?

Crypto as a Form of Resistance: A Look at China

Surveillance State: Inside China’s Quest to Launch a New Era of Social Control is the title of a newly published book by award-winning Wall Street Journal journalists Josh Chin and Liza Lin. The book focuses on how China’s Communist Party is building a new kind of political control through the harnessing of data that keeps millions under the constant gaze of security forces.

China’s authoritarianism is fostered through data and artificial intelligence. The goal? A “perfectly engineered society that automatically neutralises dissidents while rewarding those who comply with lives of convenience, safety, and predictability” (thediplomat.com). These tools make it easier for autocratic leaders to stay in power.

The Chinese government has already been working on a more cashless society. While this provides many benefits, in a country with a strict regime, it can also be dangerous. If a citizen disagrees with or opposes the government, their access to credit cards or savings could simply be turned off. In a society without cash, this could be an effective method of interrupting cash flows and taking power away from regime critics.

This form of financial de-platforming is dangerous and has frequently been seen among more authoritarian regimes. It is also one of the main reasons why many Chinese citizens have been interested in a currency independent of a country that only they have control over. Digital currencies are censorship-resistant and decentralised. They pose a danger to any authoritarian regime as the power is no longer in state control.

This also explains why China has been embracing blockchain technology whilst seeking to make sure the average citizen has no access to cryptocurrencies. Forbes states: “It only makes sense when you realise that the Chinese state is afraid of cryptocurrencies because it is afraid of delegating control and power. It is afraid of the individual liberties cryptocurrencies represent” (Forbes.com). Unsurprisingly, China is cracking down on cryptocurrency.

China’s War on Crypto: An Overview

In September 2021, the People’s Bank Of China banned all cryptocurrency transactions, citing illegal activities and their highly speculative nature as the main reasons. Trading cryptocurrency, in general, has officially been banned in China since 2019 but has continued to flourish on foreign exchanges.

After the ban, many speculated that it was really more about implementing China’s strict capital controls. As of 2022, there is an annual limit of $50.000 for the purchase of foreign currencies. Given the decentralised and borderless nature of cryptocurrencies, Chinese citizens had been able to obtain foreign assets without having to go through the traditional (state-controlled) banking system.

The government also published a regulatory notice on shutting down cryptocurrency mining. Previously, China had a thriving cryptocurrency mining scene, with an estimated 60–70% of global digital currency being produced in the country from 2017–2020. The note also issued a statement on wanting to shut down foreign cryptocurrency exchanges. Domestic exchanges had already been illegal in China since 2017, with the Chinese Communist Party frequently voicing concern and dislike of cryptocurrencies.

While China does see value in a digital currency, they want to have full control over it, defying the root mission of cryptocurrencies. A CCP-issued digital Yuan is currently being developed, driven by the regime’s desire for full control over the economy. Stored in a digital wallet instead of a bank account, it is meant to replace cash. As mentioned above, this can be dangerous in a surveillance state like China.

A digital yuan would undoubtedly have a significant impact globally as it would create the “most extensive database of centrally regulated financial transactions” (japantimes.co). The government fails to realise though, that only the mechanism of currency is changing from physical to digital. China’s central bank would still control fluctuations of the digital yuan and its supply depending on the economic circumstances, hence making the digital yuan the opposite of what cryptocurrencies are designed to be.

It is clear to many that the Chinese government wants to harness blockchain technology and match it with its own interests and goals: take the benefits of a blockchain but interfere with digital currencies that would give freedom and true ownership to many. Unsurprisingly, citizens are sceptical, if not fully opposed to using a digital yuan and are continuing to find ways to stay in the cryptocurrency space.

Cryptocurrency Adoption in China Today

Despite the ban on cryptocurrency trading, China’s blockchain industry is very much alive. Three of the largest cryptocurrency exchange platforms, Binance, Huobi, and OKCoin, were founded in China. Though most of them have moved their headquarters abroad, there is no doubt that many talented Chinese citizens and business owners have seen the benefits of cryptocurrency early on.

According to The 2022 Chainalysis Geography Of Cryptocurrency Report, China ranks 10th on the global cryptocurrency adoption index. The country is especially strong in the usage of centralised services, placing second overall for purchasing power-adjusted transaction volume at overall and retail levels (Report here).

China places first among East Asian countries by cryptocurrency value received (Chainalysis: Geography Of Cryptocurrency Report)

This suggests that while the ban initially caused a significant dropoff in crypto activity, China’s market has bounced back in recent months, suggesting that the ban is somewhat ineffective or loosely enforced. Despite a 31.1% dropoff in transaction volume, China remains the most significant cryptocurrency market in the region, 4th overall in the world, and, as mentioned above, 10th for grassroots cryptocurrency adoption.

Funnily enough, despite many bans on crypto-related activities, there is one thing that was never actually banned: possessing digital currencies. Ownership of crypto is still legal and even legally protected in the country. Investors have mastered the grey area of cryptocurrency in a country of contradictions: “China is the only country in the world that has managed to remain officially communist while operating a hyper-capitalist economy. Likewise, the country has managed to be the largest economy with the strictest crypto regulation and at the same time one of the most active crypto markets” (beincrypto.com).

Cryptocurrency remains popular in China due to an authoritarian government, strict capital controls, manipulated stock markets and widespread state surveillance. All these aspects drive demand for nation-independent, privacy-focused and freely transferable assets: “Chinese buy crypto because there is no other way to protect our assets. Everyone also knows that the stock market in China is manipulated and inefficient, and property prices are already immensely high. How else can we invest and hope to create wealth for ourselves”(beincrypto.com).

China is undoubtedly an interesting nation to look at: a repeated crackdown on cryptocurrencies while building a grey area that allows investors to own cryptocurrencies and celebrate blockchain technology simultaneously. We no doubt see China as a global player in the cryptocurrency ecosystem and we are curious to see how the space continues to evolve in the country in the coming years.

(By Tina)