Sep 27, 2021 - Technology

China's crypto throwdown

Illustration of a bitcoin coin being pierced by multiple stars

Illustration: Sarah Grillo/Axios

China's latest move to ban cryptocurrency shows how tough it will be for the technology to deliver on its backers' vision of disruptive, decentralized change.

The big picture: Control of the currency is a foundation of sovereignty, and governments don't plan on losing that control even as money inevitably turns digital.

Driving the news: Friday's announcement banning cryptocurrency transactions is only the latest effort by the Chinese government to rein in the technology as it barrels forward with plans for its own official digital currency.

  • China has already outlawed Bitcoin mining as part of a broader effort to bring the crypto sector to heel.
  • Bitcoin mining's high energy cost and carbon emissions also run counter to China's climate goals.

Yes, but: Friday's move suggests China's crypto campaign is less about the environment than about maintaining central control.

Meanwhile, in the U.S., the Biden administration Thursday announced it would nominate Saule Omarova as Comptroller of the Currency.

  • Omarova is a critic of the cryptocurrency movement who has said it is “benefiting mainly the dysfunctional financial system we already have," per Bloomberg.
  • Last month, Gary Gensler, chairman of the Securities and Exchange Commission, laid out a broad plan to bring crypto trading under the regulatory umbrella of his agency.

Between the lines: Crypto enthusiasts see the wide array of new tokens they're introducing not only as currency to trade but as a new layer of software infrastructure on which they can build a next-generation internet they're calling Web3.

  • The "coins" that drive these new software ecosystems — Ethereum's ether is the most popular, but it has many rising new rivals — aren't only stores of value or speculative investments but functional components of the contracts and services envisioned for Web3.
  • Under these decentralized apps, or "dapps," smart contracts, NFTs and other kinds of software-driven financial instruments and platforms rely on blockchains and cryptocurrency rather than central banks and laws to enforce deals and guarantee payments and property.

The dream is that, somehow, the unstoppable rise of the technology will displace existing government-backed financial systems, just as the original internet — webs 1 and 2 — displaced other powerful establishments in media, entertainment and commerce.

Yes, but: The early web's vision of decentralization lies in ruins today as a handful of giant companies have simply replaced a previous era's dominant systems with their own. At the same time, governments around the world are finding it easier than ever to place limits on the internet in its present form.

Our thought bubble: So far, the innovators of Web3 have shown plenty of enthusiasm and creativity. But they haven't demonstrated the political wiles or leadership skills it would take to outflank governments and central banks.

The bottom line: China can't stop Web3 from happening. But, just as it has with social media, the Chinese government could easily home-grow a version of the new decentralized crypto-driven software that supports its authority instead of undermining its control.

  • That would also give the rest of the world a playbook for how governments can tame this latest wave of software-driven disruption.
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