Throughout the summer, cryptocurrency values dwindled as hopes of Facebookʼs Libra global currency project gaining regulatory favor dwindled. With Facebookʼs global recognition such as it is, blockchain had unwittingly pinned its fortunes to those of the embattled social media giant.
Last week, however, the industry found a new champion – one that is arguably just as – if not more – influential than Facebook. Chinese President Xi Jinping made his first public comments on blockchain, stating that the nascent technology would play “an important role in the next round of technological innovation and industrial transformation."
He went on to make clear that China should embrace blockchain by vigorously investing in it, while adding beating other countries to adoption matters.
At first sight, China and blockchain make an odd pairing. One is a powerful nation-state that favors control of its citizens while the other is a technology strongly associated with decentralization, dissent, and individual autonomy. How, then, did the two become linked, where does the road lead from here?
Not Chinaʼs First Foray Into Blockchain
Back in 2017, the cryptocurrency market was finding its feet when the Chinese government nearly pulled the rug out. Authorities put an outright crypto ban into place, knocking Chinese exchanges out of service and withdrawing millions of market participants from
The effects of Chinaʼs trading ban dampened price action in the market throughout that summer and fall, but didnʼt hamper Chinese blockchain development in the slightest. Blockchain projects from the country simply registered elsewhere, such as Switzerland, and raised ICO funds without the inclusion of Chinese citizens (officially).
Additionally, Chinese VC funds began sprouting up in earnest. Node Capital, Parallel Labs, Sora Ventures, and Fenbushi Capital thrived on investments made in foreign ICOs, while officially, the nation existed under a moratorium on retail crowd ICO investing.
Since that ban, China remained quiet on all matters concerning blockchain – until now.
This Time, Itʼs Different
In 2017, the Chinese governmentʼs intervention came at the cost of slowing its own innovation in the industry. Chinese exchanges, once the top of the litter, went all but bankrupt as they shut down en masse. ICOs were left in positions of precariousness, while VC funds closed their doors by late 2018. By some estimates, 90% of the latter went out
of business after the ban and subsequent crypto bear market.
While it is impossible to pin the entirety of the 2018–2019 bear market on Chinaʼs crypto ban, the admixture of the Chinese ban, South Koreaʼs similar move in January 2018, and the American SECʼs pursuit of ICOs were all major contributing factors.
What has been witnessed up to now, therefore, have been a few different stages of government intervention – the effects of which greatly affect both the market and its underlying technology for all participants.
1. Government non-intervention. At first, governments declined to
intervene in the blockchain space. Bitcoinʼs first block was mined in
2009. By early 2017, most governments still did not have a blockchain
strategy in place, meaning they were either unconcerned with the
technology, unthreatened by it, or cautiously allowing its development.
The hands-off approach, whether intentional or not, had the effect of
enabling early and under-funded projects the space to build out
primary versions of blockchain tech.
2. Government intervention. After the ICO market took off and
blockchain became a household word, governments began paying
much closer attention to it than ever before. Officials scrambled to put
strategies in place for dealing with it – the effect being that many of
those strategies were shortsighted, placing regulations suited to
traditional industries upon blockchain. Libraʼs showdown with global
regulators represented the apogee of national interventionist
techniques, but with Jinpingʼs comments, a new leaf has been turned.
3. Government acceptance. Once the cryptocurrency market cooled
off and the bear market thoroughly doused the bullʼs flames,
governments around the world appeared to warm to blockchain tech
again. Malta, Switzerland, and Singapore created crypto development
sandboxes, while localities like Lisbon, Berlin, and Tokyo became
hotbeds of activity. Chinaʼs reentry to the promise of blockchain
exemplifies the arrival of a long-suspected government approach –
embracing the underlying technology while remaining distrustful of
Governments Embrace Blockchain, but not Crypto
Chinaʼs about-face on blockchain makes evident a long-standing suspicion that governments love cryptocurrencyʼs underlying technology, but not the decentralized assets themselves. The Chinese governmentʼs warnings that investors should stay away from “aircoins” at the same moment it promises the dispersal of blockchain across its economy signals a new phase.
Worldwide, it is likely that governments will also begin embracing blockchain in a bid to keep up with China, which believes that blockchain is the key to building a smarter economy. However, one can deploy blockchain without creating opportunities for retail investors. The shift away from ICOs to private funding rounds heralded the current moment.
While decentralization and blockchain started together, they are likely to take different paths on the road to adoption. Libra, for one, is not a decentralized currency, despite becoming the global face of crypto owing to Facebookʼs fame. Now, as private enterprise in China appears on the brink of using blockchain, it is very unlikely that state-sanctioned entities will be using public blockchains like Ethereum to do so.
Consumers Will Reap the Benefits Anyway
The foregoing may paint a gloomy picture for retail-level investors hoping to cash in on cryptoʼs next big wave. However, the network effects of friendly blockchain policies spreading around the world will trickle down to both consumers and retail investors.
Samsung, HTC, Google, Apple, Microsoft, Amazon, and Tencent are just a few global giants building products with blockchain components. Projects within the crypto space, such as Chainlink, have partnered with Oracle and Google to provide oracle services into and out of
blockchains. These are but a small selection amongst the seemingly
endless blockchain implementations afoot.
As such, consumers will continue to reap the benefits of blockchain, especially via indirect channels such as improved costs and efficiencies in products and networks they know and love.
ComplyChain Team with Cosimopiu