China’s War on Cryptocurrency: Understanding the Reasons behind the Largest Virtual Currency Crash in History
May 2021 was a dark day for cryptocurrency investors as they experienced the largest virtual currency crash in history, following the unimaginable rise in digital assets. A significant cause of this decline was China, where about 70 percent of all mining farms are concentrated. In this article, we will delve into the why’s and how’s of China’s war on cryptocurrency.
History of Cryptocurrency in China
The history of cryptocurrency is closely related to China. Bitcoin gained wide popularity in 2011 after Andy Greenberg’s article was published in the authoritative edition of Forbes. While Bitcoin was gaining popularity and capturing the hearts of many around the planet, the leadership of the People’s Republic of China (PRC) was eyeing a new payment system. It was well understood that cryptocurrency possesses enormous advantages and can completely reformat the global financial structure. In China, they also realized the risks associated with the total anonymity of Bitcoin.
In 2014, rumors circulated that the PRC was working on creating its own digital currency based on cryptographic data processing methods. The project was officially named DCEP (Digital Currency Electronic Payment). According to experts, the leadership of the Asian state expects DCEP to strike a blow against the dollar, displacing it from the electronics payments market.
China’s Emergence as a World Center for Mining Farms
Despite the existence of rather strict restrictions on working with blockchain technologies, China very quickly became a world center for mining farms. This was facilitated by several factors at once, including cheap electricity, the concentration of production related to video cards, and even the customary closeness of the celestial empire to international society.
China’s Attack on Cryptocurrency
In May 2021, China dealt a powerful blow to the positions of crypto. In a moment, the state regulator banned financial structures such as banks and various network payment systems from conducting transactions that involve virtual currency. At the same time, mining itself is not prohibited, and individuals have the full right to own digital assets.
In tandem with Elon Musk’s statement criticizing the miners and announcing Tesla’s refusal to work with crypto, the effect was devastating. In just a few weeks, the cost of Bitcoin fell to a four-month low from 64,000 to 32,000. In fact, the celestial empire, together with the American entrepreneur, cut off the multi-month growth of Bitcoin and other currencies using blockchain technologies. According to the Bloomberg experts, one of the main reasons was the rapid increase in electricity consumption in the northern regions of the country, which in turn provoked an increased demand for coal.
Digital Yuan Project
In addition to the attack on popular types of crypto, China, in test mode, launched the digital yuan project. Currency transactions with DCEP became available to financial institutions in several large cities, including Chengdu, Xiao, and Xinjiang. This currency is supported by major Chinese banks, as well as popular payment systems like WeChat Pay. This whole process started a month before the introduction of tough sanctions against other representatives of the crypto.
It is clear that the leadership of the PRC looks at the situation with Bitcoin and other currencies in a comprehensive manner. Digital currency will not stop growing in the near future, and there is a high probability of an almost complete transition of international payments to virtual payment, and when that moment comes, China will offer the world a crypto yuan, which is used by several billion people, as well as the entire economic sector of this country. The reins of government will be in the hands of the celestial empire. All of this is a continuation of soft power Chinese expansion into the world financial, industrial, and cultural spheres. Although the Chinese sanctions on cryptocurrency will not lead to the death of Bitcoin, Ether, as well as other virtual systems, this industry is too attractive for investors to start giving up making money. As the market transforms, it is necessary to introduce state regulation of crypto and create centralized payment systems based on blockchain technologies.