The Chinese Communist Party (CCP) is losing its war on crypto with positive news continuing to come out of the country years on after a continuous crackdown on bitcoin and other cryptos.
The latest is news that one of China’s smartphone manufacturers, Meizu, has minted and is selling an NFT.
The NFT has received a bid of 0.1 eth, while a copy of it by an unknown minter went for 5 eth with it unclear whether there was some confusion.
They’re far from the only company to make gestures towards crypto. Global Times itself, long considered to be CCP’s mouthpiece, tells the world: “First official NFT issued in China for 2022 Asian Games.”
Tencent has minted an NFT. Alibaba has created an NFT marketplace on the “New Copyright Blockchain,” operated by the Sichuan Blockchain Association Copyright Committee, which presumably tells us this is not a blockchain at all but a committee.
Yet all this feeds into actual NFTs, with the Securities Times, supervised by the People’s Daily, ‘warning’ of a bubble in the “value of these many strange NFTs.”
NFTs which generally need eth to mint or buy and sell, and so need a way to get into eth, and thus tells us very clearly that eth is booming in China.
This might appear surprising especially after China banned crypto miners, but that ‘ban’ has a lot of qualifications as it was only about 20 big industrial mining farms that were closed as far as we know.
Plenty of small to medium hydro miners are probably like ants, kick one out and you get ten more coming. Hobby miners are impossible to shut. CCP is sending out propaganda to make people think they can, hiring some super investigators that are all mighty and all powerful in their quest to steal kids’ asics, but the numbers are just completely out of whack.
Then there’s actual trading. Over the years, this has developed into a mighty machine that can withstand even the nazis themselves, with systems and pipelines that are impossible to shut unless the internet itself is closed down, in which case new ways would probably be found.
That involves chat groups – open and private – ranking systems, ‘OTC’ market places, peer to peer and one to many, and a reality in the ground where common deference is common defiance.
The different system of China means Chinese people can’t quite speak out, they defer, but any system is ultimately dependent on the consent of the people and thus the people have ways and means to put pressure.
That’s by effectively mass ignoring CCP – increasing the cost of enforcement both politically and in resources – their words and actions being more just something that happens on TV and often is seen as just propaganda.
So the rarara has always translated to back to normal, and this time it is clearly no different with an academic paper making this ‘official’ in finding all these bans are having no effect.
The ban experiment thus is now over as far as we are concerned, with the end result being that it is true you can’t ban bitcoin as proven by China’s experience.
How Bitcoin Won
What exactly happened is for history to tell. Our narration is as follows.
China’s central bank (PBOC) decided in 2014 to act on what they saw as a threat to their monetary monopoly after a quick takeup of bitcoin acceptance in a country that lacked a banking system as we know it.
The leapfrog narrative was too appealing, with giants like Alibaba somewhat mirroring their counterparts in the west – although of a lesser ‘ranking’ at the time – to accept bitcoin payments.
This lightspeed adoption led to PBOC’s opening of a small study group on cryptos as well as to a diktat that cryptos can’t be used for payments, a sparsely enforced diktat except where it concerns public facing giants.
The bear 2015 they thought had done their job, but then a former JP Morgan executive went around in 2015-16 telling everyone there’s something groundbreaking in bitcoin, the blockchain.
PBOC said at the time digital currencies are the future. Now with hindsight what they meant was govcoins, but at the time it looked like an endorsement of sorts. Crypto ‘kids’ in the US, Europe and China were thus kind of ‘merging’ with the world becoming one playing field and one crypto narrative or plan towards which all were working.
The boom in 2017 led to PBOC fearing they were losing control over the CNY peg on the dollar as bitcoin could be used to bypass capital controls. That’s at least the excuse they used and Bloomberg gave them, with PBOC announcing without prior notice or indication they were to close crypto exchanges.
This was the first time something fundamental was revealed to this generation. The claimed central bank ‘independence’ extends to an ‘independent’ power and right to make laws on matters of money and finance.
The CCP itself, where their actual legitimate law making powers are concerned in the People’s Assembly, has not passed any law that limits or curtails bitcoin.
Due to China’s system however, no one could challenge PBOC, or at least no one tried. It is unknown what Xi Jinping thinks of this matter, but it happened on his watch.
This was seen by some as an experiment on whether the state, or more precisely the central bank using/claiming state powers, can prevail over bitcoin.
All countries in this globe, without exception, have a central bank which claims independence, with central bankers across the world meeting in private at the Bank for International Settlements (BIS) where they coordinate such things as something like bitcoin should be called a ‘crypto-asset.’
Thus if PBOC had been more successful, their model may have been adopted perhaps under directions at BIS with India’s central bank trying to do as much, but the Supreme Court there overruled them. Nigeria’s central bank has taken the same approach with it yet to be seen whether they have a functioning rule of law. Turkey has copied their 2014 approach where cryptos are prohibited for payments but not otherwise.
PBOC’s closure of exchanges however did not quite have an effect as OTC markets sprang up that smoothly facilitated entrance into defi and both centralized as well as decentralized crypto exchanges.
Now and then PBOC moved to close such markets, and sometime even bank-blocked traders, but just like a drop in the ocean it made some small waves without much of an effect.
Angered perhaps, CCP moved to kick out some miners, yet it generally looks like no one quite cares in China now just three months on.
What their plan may have been is unknown, but one plan that may have made sense from their point of view was to delay crypto adoption to buy them more time to become more competitive.
Competitive here means govcoin, from their point of view, but their problem is that such govcoin can be no more than calling a scanned paper a website. That’s because any such govcoin will have two features. The central bank will issue and control it initially and will open access only to commercial banks, commercial banks then facilitate and control the public’s access to the govcoin.
Any other design is difficult if at all possible to implement considering their constrains and their desired benefits.
Just as a scanned paper on a website does have some features that a scanned paper at hand does not, like it being globally viewable, so too a govoin has some features, like offline payments through NFC.
Such website however will never be Facebook, or Twitter, or indeed a bitcoin-style new breakthrough invention, because ultimately it is paper and it is limited by the qualities of that paper, it is not code.
A govcoin is code, as is bitcoin, but bitcoin is a code network or blockchain. A govcoin is not quite a network, it is structurally a database. PBOC’s e-CNY does not use an actual blockchain.
That means one potential plan to govcoin and then criminalize bitcoin can not quite be implemented because you can’t sell a scanned paper as Facebook back when it was new and innovative, or even as the internet itself.
The public maybe would have bought a bitcoin, but bank manipulatable coin, that otherwise is identical, but that’s impossible within all considerations, or at least very difficult anytime within at least a decade or two.
So realistically now they have no end plan, and that means bitcoin won. Their best plan is instead what the market has provided, USDt or USDc or sEUR or now even sCHF.
Thus in a twist of sorts of the sweetest kind, you can believe it or not but FED is now our ally because it is this very space that is now expanding the dollar’s dominance.
Someone like Nigeria’s central bank therefore is engaging in something very dangerous by trying to bank blockade cryptos in a China style diktat.
That’s because such blockade is ineffective. What that translates to thus is Nigeria’s people and businesses will be able and effectively free to buy USDt or sEUR, while those people or businesses will be unable or less incentivized to give it some competition by using something like sNGN on their crypto exchanges and trading pairs.
As we told America some time ago when they started complaining about countries potentially using cryptos to evade sanctions, the only thing you can do about it is compete, anything else would be a waste of time and resources and ineffective.
So the strength of central bank money is its stable value, generally speaking and generally a more stableingly falling value by design.
Bitcoin on the other hand or any other crypto with a fixed limit or fixed changing limit, will probably never be stable.
It will be more stable, but even if the entire world was transacting solely in bitcoin, its value will increase or decrease based on the increase or decrease in productivity or value production while the dollar in some ways cancels that increase by increasing monetary supply or by decreasing it, sometime mistakenly in them booms and busts, but generally still keeps on working.
In addition gold is not quite stable, and no one quite knows when bitcoin will reach that gold stability. So something like the dollar does not have to replace or erase bitcoin, it can instead use its capabilities to increase its own because the two are fundamentally different things with different qualities that can even potentially complement each other in perhaps cancelling weaknesses in bitcoin being a hedge, so retaining the economy’s value.
When China will realize this, is not clear as its dollar peg makes the country very different and in many ways quite fragile monetarily speaking because pegs usually don’t quite hold.
If they had been more permissive however, there probably would have been a real eCNY in the style of USDt, which may have made their international trade smoother.
This new forex on global blockchains is the new competing ground by the free market with countries that stand on its way wise to think deeply what that may mean structurally and strategically.
Because if in many ways state power is not recognized over actual crypto fundamentally, just as it isn’t recognized over electricity in as far as it is a force of nature, then the only option is to compete by harnessing fully the new features and capabilities.
China therefore should move to formally end the experiment, as practically it has ended. Other nations should move to invest so that they can compete, by funding crypto research and development, by funding crypto coding centers, by introducing cryptos to school curriculums, certainly at university level but maybe even high school, and by basically betting that tomorrow will be dominated by our digital finance.
Anyone that wants to bet otherwise at a state level needs to think very carefully about what it may mean if they are wrong, what it would mean to miss the internet wave or worse, to ban the internet in 1995.
It certainly won’t go away and as China is showing it won’t prevent people from using it. Instead your country will just miss on the opportunities to be there at the ground level when network effects begin, like with USDc, or defi and NFT platforms or whatever else.