China Say Yes to Blockchain

But Is That Good for the Cryptoeconomy?

The biggest news story of the week is China’s about-face on blockchain technology. Now, China is in favor of its use and the application of the technology in a digital yuan.

If you had asked people 2 weeks ago what they thought China would do about Bitcoin and blockchain, the most common answer you would have heard was either an outright ban on Bitcoin or possibly a ban on Bitcoin mining. China’s National Development and Reform Commission (NDRC) had listed bitcoin mining as an industry that should be phased out of the country in a study 6 months ago.

And usually something ‘to be phased out’ in China means a ban is coming. And now, Coindesk reports that idea has been scrapped completely.

Why?

China wants a digital yuan. And they want it before Facebook’s Libra comes out. Decrypt states it even more simply, China wants its digital currency ‘partially as a means of shutting FB Libra out’.

How China Might Use Blockchain

China will use blockchain for

  • Issuing a digital yuan

  • Smart city technology

  • Identification

  • Financial surveillance

  • Authentication & provenance for Chinese high-end products

Blockchain has lots of interesting features that those of us in the cryptoeconomy like including:

  • Distributed network- the network has many nodes all over the world

  • Decentralized- no one person or group controls it and no central point of failure

  • Immutable- once a transaction is added into a block that’s confirmed, the information in that block can’t be changed

  • Cryptography for security- the cryptography secures the network

The People’s Bank of China (PBoC) says it wants to issue a digital yuan for use in payments and as cash. They say in this Coindesk quote that unlike Bitcoin, the digital yuan will be ‘a centralized legal digital currency’.

But here’s the thing. China is not open and permissionless like good blockchains like Bitcoin and Litecoin are. China is very closed and you do nothing without permission over there.

Take 2 of our 4 features of blockchains above, decentralization and immutability. The Chinese government can take these things and use them against their people. First of all, we know it won’t be decentralized. They have said it will run as a top-down system and we know who the top is. As for immutability, this means access to gobs and gobs of Chinese citizen data that can be used in any number of sinister ways. As the central figure running the blockchain that issues the digital yuan, they would have access to every wallet (including the ability to shut wallets down) and every transaction that goes across that network.

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There’s little doubt that blockchain can and will be used for increasing mass surveillance of its citizens. The Decrypt article discusses Chinese automaker Wianxiang and their investment in smart city technology with blockchains as a way to track residents’ data.

China will also use blockchain as identification. Decrypt reports that this is already happening. Data sharing between cities and having multiple smart cities connecting to each other are all part of the surveillance plan.

Lastly, China has its own high-end products and issues with counterfeiting. We can expect that they will use blockchain tech for provenance like the diamond industry does and for authentication.

Here’s a good take on the problems this could cause for the citizens

What Does This Mean for Bitcoin?

Many people think there are 5 countries that can have a big influence on Bitcoin. Those 5 are the US, the UK, China, Japan, and South Korea. The actions and statements of these 5 governments could impact Bitcoin now and in the future. South Korea already has a partial ban on Bitcoin and that’s only increased trading activity there. China is the biggest market for Bitcoin. As much as those of us in the cryptoeconomy don’t want to admit it, what they say and do matters. And now China is saying blockchain but not Bitcoin. There are no bans on Bitcoin but it’s clear they are interested in using blockchain tech for their own specific purposes. The idea of independent, public cryptocurrencies that are not the CNY is NOT one of those purposes.

Many of us have been saying that Libra is good for Bitcoin because after trying the imitator, they will want the real thing. After all, Libra is centralized, not a real blockchain, and no expectation of privacy at all.

Is the same true for China? Maybe. China’s overall closed society will make the transition from their tech to real cryptocurrencies more difficult. Yet, many Chinese already own Bitcoin so maybe it’s a moot point.

What do you think?

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