The Chinese government has had a mercurial history with cryptocurrency and blockchain technology since its very inception, with crackdowns on miners and on the use of cryptocurrencies growing in intensity over the last several years.
Nonetheless, it appears that China is now showing support for the state-sponsored usage of blockchain technology, shunning the decentralized model that many blockchain-powered projects embrace. It is unclear at this stage what new practical usage that Chinese forays into blockchain technology will produce, but this outpouring of support seems bound to generate large amounts of research and development.
Chinese Cryptocurrency Crackdowns
Throughout 2017 and early 2018, the Chinese government took several steps to restrict its citizens’ access to cryptocurrency, as well as the applications of any coins already acquired. In September 2017, China banned the launch of new initial coin offerings (ICOs) in the country, and later that same month, Chinese bitcoin exchanges shut down all trading operations to comply with government investigations into this new space.
By January 2018, state regulators quietly announced a long-term strategy to remove cryptocurrency from the Chinese economy altogether, promising to ban foreign platforms related to cryptocurrency. Considering the substantial proportion of the world’s cryptocurrency mining that takes place in China, such news brought considerable anxiety to these markets at the time.
Newfound Approval for Blockchain Technology
Nevertheless, it seems as if the Chinese government’s animosity toward cryptocurrencies does not extend to the other practical applications of blockchain technology. In late May, Chinese President Xi Jinping publicly praised distributed ledger technology, referring to it in a speech as a “breakthrough” technology with many applications.
Citing China’s role as a leading developer of scientific technologies, Xi urged the development of blockchain technology in a number of diverse fields. In the subsequent aftermath, the Chinese state television channel CCTV ran an hour-long glowing review of blockchain technology, referring to it as “the second era of the Internet” with a value “10 times that of the Internet.”
This may seem strange to outside observers, given the aggressive stance China has taken toward the popular currency-based applications of blockchain technology, but it is important to note that the show also openly announced a break with the decentralized model of cryptocurrencies. As long as the Chinese government is able to keep new blockchain technologies on a firm leash, it seems as if its approval of these technologies will rise up accordingly. Whether or not centrally controlled applications of blockchains truly represent the technology’s purpose and potential is another question.
Early Chinese State Investment
Even before this new state investment into blockchain technology, China was already a leader in this field’s development. In 2017, Chinese-based companies filed a majority of all patents related to blockchain development in the world. Not only was this an impressive feat of scientific discovery, but it also represented a near-quadrupling of Chinese blockchain patents from 2016 to 2017.
For investors looking at China as a market that’s already expanding at a breakneck pace, it should attract great interest that the Chinese Huobi Group has already pledged an investment of $100 million toward building a public blockchain. This publicly available technology is intended as a platform for the company’s future operations, laying the infrastructure to allow millions of potential customers to access functions that rely on blockchains.
The People’s Bank of China also recently announced a plan to incorporate blockchain technology on a grand scale, using the platform’s ability to verify transactions as a way to replace paper checking systems altogether. If implemented successfully, such an ambitious plan will serve as a valuable case study for similarly broad applications of blockchain technology around the world.
The Future of Chinese Blockchain Research
State-backed support from a nation that already contributes a substantial amount of blockchain technology could become a monumental development in this space, on several levels. On one hand, of course, investors are sure to take notice of the fact that blockchain-related startups in China are already working with budgets in the hundreds of millions of dollars, providing a substantial opportunity to make gains as this market expands. On the other hand, however, projects that do not have direct opportunities for investment still can serve as a valuable proof-of-concept. If China is able to successfully use blockchain technology to place itself on the cutting edge of banking and other digital technologies, other nations and transnational corporations will surely have to follow suit.
Such experiments from China can definitively prove to skeptics that blockchain technology is able to account for projects that would require an immense amount of accounting otherwise. A desire to keep up with China may keep blockchain firms active on a global scale.
