While crypto assets are not experiencing their best situation given market trends, the ban on cryptocurrencies in all their forms continues in China.
Yet this action by the Chinese government is often misinterpreted and seen as a firm opposition to blockchain technology.
In reality, from this point of view the country seems much more ahead of Western governments. More that a ban on cryptocurrencies, it is a ban that prohibits the marketing of the same to the private sector in the territory, but at the same time a state blockchain and even a digital currency issued by the central bank are launched.
In summary, rather than denying blockchain technology, China fully understands the extent of its value and only authorizes it under the control of the authorities. The minting of NFT in China also takes place through the use of a state blockchain platform, that is a operation wholly managed and controlled by the government.
China coins the digital Yuan (e-CNY). But it is not a cryptocurrency
Before clarifying the political function of the cryptocurrency ban in China, we need to make some clarifications on the digital Yan issued by the country's central bank.
This coin follows the value of the Chinese state currency the Renminbi, on the model of stablecoins which are pegged to the value of a fiat currency with a ratio of 1: 1.
However, if China was the first country to have a state digital currency, that is issued by the Bank People's Chinese (PBOC), this in a technical sense is not a cryptocurrency and not just because is not seriously decentralized, but also because it does not use any blockchain technology.
As regards the use of the digital Yuan (e-CNY) this has found wide application during the 2022 Olympics which took place in Beijing.
The new national blockchain: China controls NFT minting
Clarified that, for now the digital Yan is not still a cryptocurrency. China has however launched in 2020 the BSN or the state blockchain where the minting of NFT takes place on the territory and the development of decentralized finance applications of another type (DApp).
Basically the Chinese ban wraps all cryptocurrencies that somehow replace legal tender currency in functions, but not NFTs. The problem is that for minting it is necessary to resort a blockchain such as Ethereum whose use is forbidden. Although the latest data report that, although outlawed, cryptocurrency mining and NFT minting outside the national blockchain continues illegally.
Why the digital Yuan (e-CNY) is not a cryptocurrency?
The question that arises spontaneously at this point is: why, if China has a national blockchain entirely managed by the government, the digital Yuan is not a cryptocurrency?
It must then be considered that if cryptocurrencies and the wallets that hold them are decentralized finance applications, otherwise the wallets to use and store the digital Yuan require a series of information for identification before the user is enabled for use.
In any case, Chinese central bank spokespersons also confirmed that future plans include the transformation of the state's digital currency into a cryptocurrency, when the blockchain will be implemented.
What cryptocurrencies are banned in China?
We now come to the ban applied to cryptocurrencies and try to understand what lies behind this choice that has political motivations at the base.
The ban on transactions and mining of cryptocurrencies on Chinese territory was a gradual move.
In May of last year we had the first provision that prohibited transactions in cryptocurrencies, but which concerned for only financial institutions, the next month the ban on mining has arrived.
We remind you that the ban on cryptocurrencies in China concerns all types of digital currencies, that is both those using the Proof-to-Work (PoW) consensus protocol, and those using alternatives such as Proof-of-Stake (PoS).
In many countries, however, bans and limitations only concern blockchains that use PoW, including Bitcoin and Ethereum, because this particular transaction validation mechanism is a high intensity process in terms of energy and therefore expensive and unsustainable.
Read also: Will Bitcoin mining be banned in Europe?
Why has China banned Bitcoin?
The Chinese ban on cryptocurrencies was justified in the concern that these could be used illegally especially for the purpose of circumventing restrictions on foreign financial flows.
What China is afraid of is that a scenario similar to that of 2015/206 arises, when the government applied a series of restrictions in order to reduce capital outflows and save the renminbi which had suffered a huge depreciation.
China fears that if a similar situation arises, cryptocurrencies would be a perfect tool to circumvent restrictions.