Despite the unhappy breakup between China and cryptocurrencies last year, President Xi Jinping is now calling the founding blockchain technology a ‘breakthrough.’

For the Chinese authorities, Bitcoin and other cryptocurrencies could create financial risk and potentially jeopardise Communist Party authority. Yet the blockchain technology, that cryptocurrencies are built on, could provide the PRC with greater governmental control.

At the surface, this appears contradictory – those who are distrustful of government authority are among those who are typically drawn to blockchain, as a result of the anonymity the technology offers. Yet if the Communist Party restricts those who enter transactions, blockchain can offer the government even greater oversight.

Upon its arrival in China, Chinese exchanges accounted for 95% of official global bitcoin trading, until early 2017 when this figure fell to 20%.

  • In 2013, the People’s Bank of China began to regulate Bitcoin, refusing to recognise the currency as legal tender but acknowledging that individuals were free to trade.
  • In February 2017, the PBC froze withdrawals for four months.
  • August the same year, domestic Chinese exchanges officially exited cryptocurrency markets.

Chinese authorities aimed to prevent capital going undetected, or criminal financial activity. Yet the banning of Bitcoin and other cryptocurrencies was not designed to outlaw blockchain 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 traceable and ethical food.

However there are concerns Chinese authorities could use blockchain technology to monitor and control Chinese citizens’ financial movements. The PBC is already working on a ‘Central Bank Digital Currency’ that would allow the PBC to track transactions. In defence of this development, Martin Chorzempa, of the Peterson Institute of International Economics, argued only certain groups would have access to the data yet these parties would undeniably be related to the government.

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