Over the past few months, the news that has been going viral on why China banned bitcoin has kept people wondering the reason behind this. This has made some investors wonder what could be the future of bitcoin if the massively populated country like China could ban bitcoin.
We have gathered a few information from experts who made some clarifications on the reason behind this.
China has demonstrated a strong determination to dominate the global blockchain market. However, the Chinese government’s concerns about blockchain’s decentralization, anonymity and privacy have triggered new regulatory initiatives aimed at increasing censorship and surveillance of blockchain-based transactions. The Chinese government is against cryptocurrencies and blockchain applications that it cannot control, especially truly decentralized blockchain systems such as Bitcoin.
The head of the country’s central bank, the People’s Bank of China (PBoC) digital currency research institute argued that blockchains need to be centralized. He noted that in a multi-centre system, in which consensus is managed by several main nodes (instead of all nodes such as the case of bitcoin), intervention can be applied in case of emergency, data can be *rolled back and transactions can be reversed.
Under the structure he proposed, the PBoC could shut down the system and reverse transactions and push software upgrades. There is no need for community consensus.
In addition to blockchain’s built-in censorship-resistant feature, this technology has also enabled Chinese firms and individuals to evade capital controls.
In general, China has shown a negative attitude towards anonymity and privacy features of cryptocurrencies such as Bitcoin. These concerns are indeed justified. For instance, China-based drug dealers are a major supplier of controlled substances such as ephedrine and pseudoephedrine which are used to create methamphetamine (meth).
The country is also a major exporter of the synthetic opioid fentanyl. According to the Drug Enforcement Administration (DEA), when these drugs are trafficked into the U.S., Australia, and Europe, the cash earned from drug sales is converted by money brokers associated with Chinese Underground Banking Systems to Bitcoin. This drug cash in Bitcoin is then sold to Chinese nationals. In this way, Chinese nationals can more easily transfer the value of their assets outside of China.
Nir Kshetri, Ph D
Bryan School of Business and Economics
China only allows its citizens to take out something like the US $50,000/year out of the country because it fears its citizens would move all their money overseas if there were no restrictions and they're probably right.
The Chinese communist party has the right to seize the assets of pretty much any one of its citizens with little concern for legal restrictions -it controls the courts as well. Bitcoin is a way for citizens to stash money beyond the eyes of the central government so they fear it. China routinely shuts down Bitcoin, or at least attempts to. VPNs are utilizing throughout China and people can always purchase through those channels.