Crypto China Expert Insights

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Crypto China Expert Insights PECIAL REPORT ON THE SPOOR OF THE VIRUS P4 INSYNERGIA FOUNDATION IGHTSJUNE 2021 | EDITION IV | WEEKLY CRYPTO CHINA EXPERT INSIGHTS Pindar Wong Chairman of VeriFi (Hong Kong) Ltd MUST READ A LONG COMING TO FACE OFF ON OVERDUE GRIPS WITH THE ‘GOOGLE CHANGE BIG TECH TAX’ 11 6 9 SYNERGIA FOUNDATION EDITION IV JUNE 2021 p1 SYNERGIA FOUNDATION THE CLASH OF CRYPTOS With China introducing its own digital tender (eRMB) and clamping down on other cryptocurrencies, it is evident that it is asserting control over the digital economy market has rebounded and has the policy of China with respect to caused huge financial setbacks to the crypto market has gone from a ordinary citizens. According to the policy of containment to a policy of SYNERGIA FOUNDATION directive, this volatile market has active restriction. RESEARCH TEAM been infringing upon “the safety of people’s property and disrupting FIAT VS BITCOIN n May 19th, 2021, China the normal economic and financial effectively banned all order. The transactions are publicly Odealings in cryptocurrency. This is not the first time China recorded on a blockchain, and The National Internet Finance has cracked down on the cryptocur- the scarcity that provides value Association of China, the China rency market. Ever since 2013, when to currency is assured through Banking Association, and the cryptocurrency was acknowledged the process of mining. Another Payment and Clearing Association as a virtual commodity eligible for important factor with crypto money of China, under the directive of trade and exchange, there have is that it has no borders. Meanwhile, the Public Bank of China (PBOC), been regular attempts at regulating fiat currency derives its connotation issued directives asking financial the market. of sovereignty and legitimacy from and payment institutions to stop all In 2017, China had already banned the respective country’s national services related to crypto trading ICOs (Initial Coin Offerings) and bank. and mining. crypto exchanges. However, it had The Fiat currency is valued They were additionally given allowed individual holdings along against a global standard according orders to closely follow and with the trade of cryptocurrency to which its value can go up or down, monitor the flow of money related and the flow of money that came depending upon the stability and to cryptocurrency. The directive with it, be it the exchange of yuan growth of that currency’s domestic stated that the highly speculative for crypto or vice versa. However, economy. While counterfeiting and nature of the cryptocurrency with the latest all-consuming ban, black money are definite concerns, EDITION IV p2 JUNE 2021 SYNERGIA FOUNDATION cryptocurrency. GLOBAL CRYPTOCURRENCY MINING SITES Pioneers and enthusiasts of SWEDEN ESTONIA cryptocurrency mostly uphold 10 megawatts 2 megawatts CHINA 111 megawatts CANADA Libertine economic principles. They 18 megawatts ardently believe that state-backed fiat economy will ultimately collapse, making private alternative modes of currency the future. ICELAND 5 megawatts CHINESE FEARS POLANDPOLAND US 27 megawatts HONG KONG It is this fundamental decentra- VENEZUELA GEORGIA 60 megawatts lised non-sovereign nature of cryptocurrency that China is att- acking by banning crypto trade and THAILAND introducing a state-backed legal dig- ital tender. CHINA Heilongjiang DIGITAL RENMINBI Inner Mongolia As the crypto fever grips global Xinjiang markets, China has rolled out its Sichuan virtual currency through live pilot Liaoning Tibet programmes across the country. Officially known as the ‘e-CNY’, this Yunnan Jiangsu digital renminbi is part of larger efforts to create a centralised 1,000Km Guizhou Anhui digital payment system that supplements private electronic Low-cost electricity mechanisms like ‘Alipay’ and Fast internet connection Low-cost electricity/ Low-temperature zones Fast internet connection Low-cost electricity/ ‘WeChat’. Low-cost electricity/ Low-temperature zones/ Low-temperature zones/ Currently, this digital tender is Low-temperature zones Fast internet connection Fast internet connection issued by the People’s Bank of REPORTED MINING FACILITIES China (PBOC) to an authorised group of state-owned commercial megawatts estimate 10 megawatts or less 11-50 megawatts >50 megawatts banks and other financial not available institutions, which then allocate it Source: University of Cambridge SYNERGIA FOUNDATION to the end-users. While the trials the regulatory nature of the central by any economy or nation, no were initially carried out through bank gives control to the state matter how strong it might or might randomly chosen participants in Shenzhen, Suzhou, Xiong’an to govern, administer and even not be economically. Anyone with and Chengdu, they have now the right technical knowledge and restrict cash flow and exchange, been extended to bigger cities when and where needed. This key energy resources can mine and like Beijing and Shanghai. Apart factor is missing in cryptocurrency. trade in cryptocurrency across from being used in designated It is a currency that is transnational. borders. There is no sovereign retail stores, the e-CNY can be Cryptocurrency cannot be influenced body or sovereignty attached to employed towards the payment of utilities, transport, and Pindar Wong government services. At present, China has signalled He is the Chairman of VeriFi (Hong Kong) Ltd, that the digital money will be used and also co-founder of the first licensed Internet for domestic retail payments, with Service Provider in HK in 1993. He also leads the ‘Belt and Road Blockchain Consortium’. international applications being prioritised for later. Nevertheless, the PBOC has been working with central banks in Thailand, The money of the future will not only be used by Hong Kong, and the United Arab humans, and that’s important to consider while Emirates to explore the use of e-CNY in cross-border trade. designing CBDCs. In the smart cities of the future Reports also indicate that China that are driven by data, we will see architectures may try to make it possible for that have people’s money, machine’s money and foreign athletes and visitors to use algorithms’ money. the digital renminbi during the Winter Olympics in Beijing. EDITION IV JUNE 2021 p3 SYNERGIA FOUNDATION with respect to the crypto ban and THE DIFFERENCE BETWEEN the new digital tender would evoke a response from India. India’s position on cryptocurrencies has always been ambiguous. In 2018, the RBI $ had banned the buying and trade of cryptocurrencies, a decision which Bitcoin Fiat Money the Supreme Court then overruled. Subsequently, the 2019 gover- nment panel headed by the then Economic Affairs Secretary ... is a currency created by ... is a currency issued Subhash Garg also called for the decentralised, distributed computing by a government ban of private cryptocurrency holdings and exchange but kept the possibility open for an official digital currency backed by the RBI. ... is governed by majority rule It is being speculated that a bill (network consensus) ... is governed by a central bank is to be introduced in Parliament with respect to the status of cryptocurrency and whether it should be allowed with a regulation ... an intermediary such as a bank or outrightly banned. ... transactions only involve two parties or payment provider is needed - no intermediary required for a transaction Assessment Increasingly, cryptocurrencies are emerging as forebearers ... depending on network speed, ... local and international transactions take minutes transactions may take days of financial vulnerability as they pose a detection problem and can facilitate illegal activities, including tax evasion. With countries ... no chargeback is possible ... a chargeback is possible across the globe seeking tax after a transaction has been made after a transaction has been made compliance from those who Source: Bitpanda SYNERGIA FOUNDATION transact more than $10000 worth of cryptocurrencies, Led by Chinese fintech compa- a contender in SWIFT’s interbank they will continue to lose their nies like Alipay and Tencent, financial system. SWIFT facilitates attractiveness and fall in their digital payment services in China most of the global banking transfers. worth. have the highest growth rate of With its own CBDC and through e-transactions. It is the perfect time DCEPs, China hopes to counter Only time will tell whether for China to roll out its own version and challenge the dollar’s global China can truly replace SWIFT. As of now, most inter-country of Central Bank Digital Currency hegemony as the standard of world exchanges, even those happening (CBDC). The conceptualisation of currency. in relation to the BRI projects, digital e-Renminbi and the use of happen through the medium Digital Currency Electronic Payment GLOBAL CRYPTO MARKETS of the dollar. And even though (DCEP) was on the map since 2013 China contributes roughly a fifth as part of China’s BRI project. The Chinese concern for its of global GDP, the renminbi For instance, China expanded public due to the volatility and represents only 2 per cent of bilateral local-currency swap pro- unpredictability of cryptocurrencies international transactions. grammes to over 20 countries and cannot be contested. While having established renminbi settlement had a record increase in value of An upshot of the ban is that it will banks in eight Belt and Road nations, almost 300% in the past months, also shut down cryptocurrency seemingly to promote renminbi use. Bitcoin suddenly nosedived in the last
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