A Political Potentiality in the PRC
This article appears in the Weekly Newsletter for this date.
This week, a pattern began to emerge in the People’s Republic of China that may indicate the path that the nation’s CPC is taking which they believe will bring them to global blockchain supremacy.
Let’s first put into context what is happening here. Bitcoin mining is one of the only activities that individuals can perform in regard to cryptos that won’t get them incarcerated. In fact, roughly 70% of the Bitcoin mining activity comes from China. Exchanges cannot transact in China per the strict no-tolerance ban instated in mid-2017. This makes a very uncomfortable situation for the miners who need a way to put their Bitcoins into circulation and to line their fiat wallets with fresh Yuan. Why the clear conflict of interests?
More recently, Xi Jinping announced his outright support for blockchain technology; support that is so staunch, he declared that blockchain technology would be the driving force behind the next wave of major technological development. Furthermore, the country he is now the t̶y̶r̶a̶n̶t̶ president-for-life will be committing an estimated $1bil to the research and development of blockchain technology dedicated to the advancement of the prestige, infrastructure, advancement, and economic gain of the nation.
The final body flying through the trapeze are the crypto exchanges. The official ban made it illegal for exchanges to transact with cryptos and trade them within the country, but they could still have offices open across the country for business purposes, as Binance, LBANK, and others do. Then this makes liquidating valuable Bitcoins rather difficult for miners. At least one or two Korean exchanges have benefited largely from the steady stream of Bitcoins from China. The situation in China, however, is different now, and the obvious missing aspect is an exchange where one can trade their traditional Yuan fiat for cryptos and, soon, nationally-backed digital Yuan.
A Turbulent Week
Binance CEO, CZ, has lamented his poor luck this week. Apparently his Twitter account was locked for 24 hours per their security measures since he was logging in from too many different IP addresses in too many countries. His and Binance’s Weibo accounts in China were locked abruptly and inexplicably. Weibo can be described as the Chinese version of Twitter.
Reports came out late this week that the People’s Bank of China had conducted a raid of the Shanghai offices of Binance which Binance HQ in Malta found strange because they don’t have offices in Shanghai edit (11/23/2019): there is new reporting from theblockcrypto.com indicating that Binance may actually have offices in Shanghai.. Then most recently, as of about an hour before publishing, PBoC announced an official crackdown on crypto exchanges with offices in Shanghai in order to investigate false asset risk, business failure risk, and investment speculation risk.
It appears that the first official casualty of the crackdown is LBANK, whose Chinese order books appear to have been shut down, as per reports from inside the PRC on Twitter.
The Mid-term Game
This brings us to the pattern forming in China regarding their newfound love of blockchain and cryptocurrency. Chinese mainlanders tend to have a devout trust in their government, something that westerners couldn’t possibly completely understand. It won’t take long for one to note how many mainlanders seize up when conversation turns toward the PRC and their government. If the Party tells their people that something should be stopped, they will ensure that it is stopped. Take, for example, Internet access in the country which is under constant surveillance by many layers of censorship beginning with the infamous Great Firewall. The Party has made it clear that they are now devoted to developing technological solutions based on blockchain by founding and supporting existing firms in the country, but this will certainly mean the emergence of more cryptocurrencies, which will need to be traded via an exchange. It is becoming likely that the PRC will launch their own national, centralized, custodial crypto exchange.
Signs are pointing toward the exchange being launched possibly in conjunction with or around the time that the digital Yuan is released. This prediction is based on the PRC noting that the digital Yuan would keep users’ identity anonymous. The PRC we know doesn’t like anonymity. They could easily track transactions through a centralized exchange which would keep their claim about anonymous digital Yuan transactions honest, but with an asterisk.
We are looking at an era where China is increasingly throwing its re-found weight around in all corners of Asia, and discovering a new global weight that may or may not have been foreseen when they vowed to reconcile their Great Humiliation. The PRC is beginning to show its cards by signalling an embrace of blockchain technology, which has already shown an ability to disrupt existing major traditional systems that were put in place by western powers decades ago.
The new blockchain-friendly PRC will need crypto exchanges to facilitate currency velocity, not to mention international remittances which they almost certainly are banking on happening in large volumes and a phase-out of physical Yuan if that is one end they are striving for. We now see that they will not support the vagabonds in the industry who have the expertise and real sway in the market to help them, but will turn inwards, as they have done historically, to find their solutions to the global problems they perceive as threats to their hard-fought-for rebound into economic, cultural, social, and geopolitical prominence.
