China changes its position on Bitcoin. Now, the Chinese Central Bank, after a strong campaign to delegitimize Bitcoin in China four years ago, defines the cryptocurrency as an “alternative investment”. In this way, the Chinese government makes a 180-degree turnaround concerning cryptocurrency traders.
“We consider Bitcoin and Stablecoin as crypto assets […] These are alternative investments,” said Li Bo, deputy governor of China’s central bank, on Sunday during a panel hosted by CNBC at the Boao Forum for Asia.
While Bo acknowledged Bitcoin as an asset, he clarified that the bank does not consider Bitcoin as a currency: “It’s not a currency per se. So the main role we see in crypto assets is as an alternative investment.”
China changes its position, but the years have shown an antagonistic attitude towards Bitcoin
During the initial boom of cryptocurrencies, China was one of the fastest countries to adopt them. But in 2017, Beijing banned so-called “coin offerings”, a form of raising money by crypto companies through the issuance of digital cryptocurrency tokens.
In 2017, the Chinese government began shutting down cryptocurrency exchanges as it feared that speculation in the crypto market, (especially Bitcoin), would ignite financial instability in the country.
However, the crusade against cryptocurrencies does not end there. China has plans to ban Bitcoin mining and has already shut down major Bitcoin mining hubs. The Chinese administration is shutting down existing Bitcoin mining projects and will not approve new projects in the future. The country currently accounts for 65% of Bitcoin mining in the world.
According to Beijing, the closure of bitcoin mining hubs is due to its commitment to reach its carbon neutrality goals. Bitcoin mining consumes about 130 terawatts per hour, which is equivalent to about 0.6 % of global electricity consumption. Considering that China’s energy matrix still relies 58 % on coal, Bitcoin mining’s electricity consumption represents a considerable environmental impact.
China moves forward in the adoption of digital currency
The change in attitude towards Bitcoin by Chinese central bankers may be motivated by their campaign for the implementation of a digital Yuan or Digital Currency Payment (DCEP). Although not properly a cryptocurrency, the digital Yuan aims to compete in the digital currency market, offering the facilities that digital currencies provide except for one: anonymity.
Unfortunately, the DCEP has privacy problems because of being a State currency. At the moment, the Central Bank of China receives information about the transactions in which its users are incurring with the cryptocurrency.
Due to the Chinese state’s control over the DCEP, the digital currency allows the government to be more capable of deterring tax evasion, money laundering, and the financing of criminal activities. China is also looking for the digital Yuan to be adopted globally, to increase its global influence, and dethrone the dollar as the world’s main reserve currency.
Although the DCEP does not use blockchain technology, it can be transferred directly between users without the need for any intermediary, just like traditional currencies. DCEP can also be transferred directly between users without the need for an Internet connection.