China had a short, whirlwind relationship with Bitcoin before unceremoniously dumping it last September. Now, President Xi Jinping calls the underlying blockchain technology a "breakthrough."
Axios' Erica Pandey writes: Xi is differentiating between cryptocurrencies and blockchain. In his view, Bitcoin and other cryptocurrencies could fuel financial risk and even jeopardize Communist Party authority. But in blockchain, the powerful Xi sees something he cherishes — even greater government control.
How it works:
- Blockchain uses a network of computers to create a record of any string of events, from financial transactions to the origin of an oyster. Every time the thing being tracked changes hands, it's publicly recorded, so its legitimacy can be verified while eliminating human intermediaries.
- Cryptocurrencies — Bitcoin being the most prominent — are digital monies that live on the blockchain.
When Bitcoin came to China, it was hugely popular...
Until February 2017, Chinese exchanges accounted for some 95% of official global Bitcoin trading, when it fell to 20%, says Lauren Gloudeman, who analyzes China's markets at the Rhodium Group.
- In 2013, the People's Bank of China began to regulate Bitcoin, saying it couldn't be legal tender but that people were still free to trade.
- In February 2017, PBoC froze withdrawals for four months.
- Then, seven months later, domestic Chinese exchanges officially exited cryptocurrency markets.
In banning Bitcoin trading, authorities had three main aims: Preventing undetected capital flight, a tulip-mania of gambling by grandmothers in cryptocurrencies, and a crime wave of tax evasion or drug deals.
Yet none of this discredited the underlying technology. China wants to be at the cutting-edge of an innovation that many experts forecast will experience a commercial boom in the coming years. No one knows precisely how blockchain will be used, but among its applications could be trackable and ethical food.
- One example — alcohol tracking: Ant Financial — Alibaba's mobile payments arm — is working on a way to trace and verify the authenticity of Maotai, a pricey brand of Chinese liquor (白酒).
But, but, but: Xi might have other ideas.
- Beijing could use it as a tool to monitor citizens' financial activities, says Yao Zhao, an economist at Beijing Normal University who formerly worked at the People’s Bank on its cryptocurrency regulation. The PBoC is working on a "Central Bank Digital Currency," an effort to move China — already largely cashless in big cities — even further away from traditional currency, though Zhao says that's still a long way in the future.
Read Erica's whole post.