In recent years, the cryptocurrency has gained attention from companies and governments alike. But, despite the soaring popularity of cryptocurrencies, many are skeptical of the technology, and regulators oppose it. China falls into the latter category.
The Chinese government not only has cryptocurrencies and cryptocurrency technology, but has actively sought to nationalize them. China’s patent office has filed between 2014 and 2019 over 2,000 blockchain patents – nearly ten times as many as in the U.S. These patents are part of China’s drive to establish a national digital currency, including far-reaching restrictions.
At the end of May, the Chinese government announced a crackdown on crypto mining and trading. The move follows a history of crypto restrictions and already affects the value of crypto. If it continues like this, it could start to form more than just cryptocurrencies.
Despite tough regulations, the Chinese market has long been a crypto hotspot. China has banned cryptocurrency exchanges but allows its citizens to hold cryptocurrencies. By some estimates, China accounts for 70% of the world’s crypto supply.
The country’s government has taken a tough stance on crypto. Just three weeks ago, the Financial Stability and Development Committee began cracking down on mining and trade that pose financial risks. The government has banned banks and payment companies from offering crypto-payment services. Since the restrictions came into force, police have arrested thousands of suspects and shut down key cryptoservices.
Arrests in connection with money laundering charges and account closures are designed to prevent fraud and preserve the value of the yuan. Since China accounts for much of the world’s cryptocurrency activity, it is easy to understand how these regulations will affect the cryptocurrency. Critics point out that many of these regulations are vague and entrench China’s digital yuan.
Crypto and blockchain technology play an important role in the business, and the impact is already being felt. Recent bans on crypto-payment services, for example, have limited ways for banks to keep up with digital disruptions. Meanwhile, losses from crypto-crime fell by 57% in 2020, and more companies are engaged in crypto-services.
The increase in regulation will have a positive impact. Cracking down on risky and illegitimate cryptoservices will help regulatory-compliant companies offer safer, licensed alternatives. Providing crypto support for various payments will help businesses adapt to the changing needs of digital native consumers. If companies cannot use cryptocurrencies, they will struggle to provide the speed and security that a large number of customers want.
This change will protect consumers from fraud and boost legitimate sales by companies. The impact will extend far beyond China. China is the world’s second largest economy and on track to become the largest by 2030. As a global economic power, the changes in China will affect countless international business activities.
The law sets a precedent for China to force foreign companies to comply with its cryptocurrency and blockchain regulations. For example, companies operating in China could be required to give up their source code and encryption keys, effectively preventing access to the country. Chinese technology policy could also affect companies in other countries.
These measures will strengthen the digital yuan, but their impact will be far-reaching. Companies in various industries, from Chinese automakers to financial services companies, have already begun to trade crypto. As crypto becomes a central part of their business, these regulations will affect them. Some may not be able to operate in China, and others will have to adapt their international offerings accordingly.
Although the details are still unclear, the proliferation of crypto in China and international power means that these regulatory changes could have far-reaching implications. As the cryptocurrency gains traction among international companies, China’s cryptocurrency will not come and go. As a major market shift, the US dollar will be dominated by the global financial system, which will disrupt the global economy. The dollar will lose much of its international power, and companies doing international business will follow. Because China is a massive economy, these distortions will spread around the world.
Kiara Sofia Smith
My current focus is blockchain technology and cryptocurrency. One could even call me a blockchain “enthusiast.” I have worked for almost a decade on several financial projects related to the stock market news, fundamental research and technical analysis for several blogs.
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