China was once the Bitcoin trading and mining capital of the world. However, the country's leadership struggled for several years to find ways to control cryptocurrency's spreading popularity and keep it from devaluing and replacing its fiat currency. As a result, China's government finally banned non-government-approved cryptocurrencies in September 2021.
Here's a quick rundown of the events that led to China's eventual lockdown on cryptocurrencies and the government's actions to keep up with the emerging global digital economy.
- China was one of the first countries whose people quickly embraced cryptocurrency.
- The first cryptocurrency exchange, BTC China, opened in 2011.
- Cryptocurrency was accepted as payment for services as early as 2013.
- China continuously banned specific cryptocurrency actions until all transactions were prohibited.
- The Chinese government is developing a digital currency that will be pegged to its currency, the Renminbi.
China and Cryptocurrency 2009-2018
First publicized in 2009, Bitcoin didn't take off until trading started in 2010. However, once it was realized that Bitcoin had an equivalent fiat currency value, it caught on over the next few years as the cryptocurrency gathered attention and value. Early cryptocurrency investors began to see digital returns, and popularity began to spread.
China was among the earliest countries to enthusiastically embrace cryptocurrencies. In 2011, its first cryptocurrency exchange, BTC China, began trading. In addition, Baidu, China’s search engine giant, began accepting Bitcoin as payment for website security services in 2013. Large-scale cryptocurrency mining operations began setting up shortly thereafter.
Large-scale mining operations were centralized in China because of the relatively cheap electricity, attractive to miners due to the large amounts of energy required.
By 2014, the emerging industry in China welcomed Bitmain, one of the first cryptocurrency mining equipment manufacturers and mining pool operators. At one time, it was responsible for most of the Bitcoin mining operations globally and ran the largest mining pool. Bitmain also became a leading manufacturer of application-specific integrated circuit (ASIC) mining equipment.
Cryptocurrency mining, as an industry, continued to grow throughout 2016 and 2017. Digital currency grew in popularity as people's interest in anonymity and value growth increased. The Chinese government began addressing growing concerns about cryptocurrencies replacing its fiat currency by banning initial coin offerings (ICOs) in 2017.
Cryptocurrency and China 2019-2021
Throughout most of 2020, China held the majority of bitcoin mining with an average monthly hash rate of around 67%. In May 2021, the State Council announced further crackdowns on bitcoin mining in China. As a result, cryptocurrency mining began to dwindle in October, falling to 55% of global mining. It continued a steady decline until June 2021, when all mining stopped in China.
In July 2021, Bishijie, an online community for Chinese cryptocurrency investors, terminated its website and app in mainland China, and BCTChina, which once ran the country’s largest cryptocurrency exchange, announced that it had exited entirely from cryptocurrency-related businesses.
China's ban on initial coin offerings stems from the government's belief that they are generally an illegal method of raising public funds for criminal activities.
Following the complete ban on cryptocurrency, the operators of cryptocurrency exchange Huobi Global closed its doors to new users in mainland China in September 2021. It also began retiring all existing accounts through December 2021.
China's Cryptocurrency Future
In November 2021, the U.S. Library of Congress officially recognized an absolute cryptocurrency ban in China in its November cryptocurrency update. However, China's complete ban of cryptocurrency hasn't spelled its end in the country—instead, the ban has opened the door for an official digital currency backed and recognized by the government. In its fourteenth 5-year plan, the government discussed financial sector reforms, which included developing a digital currency.
Following the continued government interest in developing an official stable coin for use, the People's Bank of China issued a working paper outlining its approach to continued development into e-CNY (China's digital yuan).
While there is no timeline for the release of e-CNY, the government and central bank are attempting to ensure that the country's digital currency addresses the demand for digital cash and the anonymity that it brings. In the working paper, the central bank states that it considers anonymity necessary for small transactions; however, it will retain the ability to conduct anti-money laundering operations and counter the financing of terrorism through monitoring, reporting, and investigating.