Why China’s New Mining Censorship Will Affect More Than Just Crypto
Over the past couple of years, cryptocurrency has garnered increasing attention from businesses and governments alike. While crypto has soared in popularity, many remain skeptical of it, with some regulatory bodies being outright opposed to it. China has generally fallen into the latter category.
The Chinese government isn’t entirely against cryptocurrency and crypto-adjacent tech, but rather seeks to nationalize them. China’s patent office filed more than 2,000 blockchain patents between 2014 and 2019, which is almost 10 times as much as the U.S. These patents are part of China’s move to establish a national digital currency, which has also included widespread restrictions.
In late May, the Chinese government announced it would crack down on crypto mining and trading activities. These actions follow a history of crypto restrictions, and they’re influencing the value of crypto. As they continue, they could start to shape more than just cryptocurrency, too.
China’s crypto crackdown
Despite tight regulations, Chinese markets have traditionally been a hotspot for crypto. China has previously banned crypto exchanges but still allows citizens to hold cryptocurrency. Citizens have latched on to this right, with some estimates saying that the nation accounts for 70% of the global crypto supply.
Recently, though, the country’s government has taken a firmer stance against crypto. This May, it banned banks and payment companies from offering crypto payment services. Three days later, the Financial Stability and Development Committee started cracking down on mining and trading that could pose financial risks.
Since these restrictions went into place, police have arrested thousands of suspects and shut down major crypto services. These arrests are all related to money laundering charges, and the account shutdowns serve to prevent scams and preserve the yuans value. Critics have pointed out how many of these regulations are still vague and could mostly be about establishing China’s digital yuan.
How these changes affect non-crypto businesses
Since China accounts for so much of the world’s crypto activity, it’s easy to understand how these actions affect cryptocurrency. As crypto and blockchain technologies play an increasingly significant role in businesses, the effects could ripple further. The recent ban on crypto payment services, for example, limits banks’ options for keeping up with digital disruption.
Losses from crypto-related crimes fell 57% in 2020 alone, so more companies have been looking into crypto services. Providing crypto support for various payments could help businesses adapt to digital-native consumers’ changing needs. If these companies can’t legally use cryptocurrency, though, they may have trouble offering the speed, security, and variety customers want.
These rising regulations could also have positive effects. Cracking down on risky or illegitimate crypto services could help regulation-compliant businesses offer safe, licensed alternatives. This shift would both protect consumers from fraud and boost legitimate companies’ sales.
Impacts beyond China
These effects could potentially extend far beyond China, too. China is the second-largest global economy and is on track to become the largest by 2030. As a global economic powerhouse, changes in China would affect the near-countless international businesses that have operations there.
Chinese tech policies already deeply affect companies from other nations. For example, every company operating in China is required to give their source code, encryption keys, and backdoor access to the Chinese government. This law sets the precedent that China could force foreign businesses to comply with its cryptocurrency and blockchain regulations.
Companies in various industries outside of China, from automakers to financial services, have started dealing in crypto. As crypto becomes an increasingly central part of these businesses’ operations, these regulations will affect them more. Some may not be able to operate in China anymore or may have to tailor their international offerings.
If all of these actions are to bolster the digital yuan, their impact could reach even further. Such a major market shifting away from the U.S. dollar-dominated global financial system could disrupt the global economy. The dollar could lose much of its international power, and businesses with international dealings would follow.
Chinese regulations could shape the global economy
Since China is such a massive economy, any disruptions there could ripple throughout the world. As cryptocurrency starts to gain traction in international businesses, the country’s crypto crackdown won’t come and go silently. While the specifics remain uncertain, the growing prevalence of crypto and China’s international power mean these regulatory changes could have far-reaching effects.