A guide to China’s most recent and toughest ban on virtual currencies

0


China has had a grip on cryptocurrencies since 2013, when it banned its banks from processing Bitcoin-related transactions. Now a a new crackdown has been launched by China on cryptocurrency-related activities that include an explicit ban on crypto trading, according to a Press release by the People’s Bank of China. The country has also stepped up its crackdown on crypto mining after banning mining projects in June this year, according to a CoinDesk report.

Many crypto analysts believe the latest move is the most comprehensive of any rule in the history of crypto regulation in China. The crypto ecosystem is under pressure across the world as governments are wary of volatile and private digital currencies.

Here, we answer frequently asked questions about China’s crypto ban, the measures announced, and their impact.

What has the Chinese government said about crypto trading?

What is prohibited under the new regulations? Here are the business activities prohibited by the new law:

  • Virtual currency transactions such as converting fiat currency to virtual currency
  • Buy and sell virtual currency
  • Provision of intermediary information and pricing services for virtual currency transactions
  • Funding of token issuance
  • Virtual currency derivatives and forward transactions
  • Unauthorized public issue of securities

Do the rules apply to foreign crypto exchanges? It is now illegal for virtual foreign currency exchange bureaus to engage in financial activities with national residents of China via the Internet. The parties such as the domestic staff of these exchanges as well as the people using their services will be the subject of an investigation if they engage with them. Huobi and Binance, two of the world’s largest stock exchanges, have announced their intention to stop providing services to the Chinese market as a result of this development. China had previously ordered crypto exchanges to cease trading in 2017, but they continued to serve the market from offshore bases.

How will the government implement these rules? The PBOC has defined a set of measures it will build on to strengthen oversight of the virtual currency space and deter people from engaging with virtual currencies.

Advertising. Scroll down to continue reading.
  • Constant surveillance and early warning systems: He called on local governments to be proactive in monitoring and developing early warning mechanisms to improve the accuracy and efficiency of identifying speculative activity in virtual currency trading.
  • Information sharing and rapid response mechanism: Provincial governments should establish a mechanism for information sharing and cross-checking of virtual currency trading speculation and warning signs.

Why is the government banning virtual currencies? “Business speculation has increased, disrupting the economic and financial order, giving rise to illegal and criminal activities such as gambling, illegal fundraising, fraud, pyramid schemes, money laundering, etc. the bank said in its statement.

Why is China refusing to recognize crypto as legal tender? The central bank said: “Virtual currency does not have the same legal status as legal tender. Bitcoin, Ethereum and other virtual currencies have the main characteristics of issuance by non-monetary authorities, the use of cryptographic technology and distributed accounts or similar technologies, and existence in digital form. They do not constitute legal compensation and must not and cannot be used in the market like cash, ”the statement continued.

Which departments or ministries have a monitoring mechanism in place?

  • People’s Bank of China,
  • Central administration of cyberspace,
  • Supreme People’s Court,
  • Supreme People’s Procuratorate,
  • Ministry of Industry and Information Technologies,
  • Ministry of Public Security,
  • State Administration of Market Surveillance,
  • China Banking and Insurance Regulatory Commission,
  • China Securities Regulatory Commission,
  • State Administration of Foreign Exchange.

What is the status of crypto mining in China?

The National Development and Reform Commission (NDRC), the top planning body of the Chinese state, has reiterated China’s intention to completely eliminate mining from its territory.

What is crypto mining? The term crypto mining means earning cryptocurrency by solving crypto equations through the use of computers. This process involves validating blocks of data and adding transaction records to a public record (general ledger) known as a blockchain. China had become the hub of mining because it offers low cost electricity and cheap computer hardware.

Why is he discouraged by China? It has not been banned completely, but it consumes a lot of electricity, which has forced China to wash its hands to meet its carbon neutrality goals.

What did the NDRC order? He ordered local authorities to crack down on illegal mining activities. Mining should be seen as an “obsolete” industry and no new projects will be sanctioned, while existing projects will have time to step down, according to a CoinDesk report. The NDRC has transferred full control of the mining crackdown to central authorities in provincial and municipal governments, the report added. The advisory prevents crypto mining activities under the guise of a data center.

What are the planned measures? The NDRC instructed local authorities to compile a list of current and developing mining projects and their characteristics. The regulator is also keen to monitor power grids to detect abnormal use of electricity linked to illegal mining and strengthen on-site inspections of large data centers. He urged local governments to stop tax support for mining projects.

Advertising. Scroll down to continue reading.

How does the notice target the electricity supply to miners? No electricity supplier will provide electricity to miners, CoinDesk reported. The notice increases the cost of electricity supplied to miners.

China’s past actions to stem the crypto industry

December 2013: The PBOC has called bitcoin a “virtual good” that has no legal status and should not be used as currency. It was, in fact, the first crypto ban applied to major financial institutions in the country, according to a BBC report.

September 2017: The country has ordered the closure of local cryptocurrency exchanges and banned initial coin offerings (ICOs). It allowed over-the-counter transactions while limiting the conversion of fiat into virtual currencies, Business intern reported.

May 2021: China then banned financial institutions and payment companies from providing services related to cryptocurrency transactions and warned investors against speculative crypto trading in May this year, Reuters said in his report. Banks and online payment channels will not be able to offer customers any services involving cryptocurrencies, such as registration, trading, clearing and settlement, Reuters added.

June 2021: China, citing environmental concerns and excessive energy consumption, has clamped down on mining operations in the country. This led to bitcoin mining move abroad to countries more crypto-friendly, including the United States and Kazakhstan.

Reading list

China’s blanket ban is its most emphatic response to the nascent industry. Here are some articles to help understand China’s actions:

Advertising. Scroll down to continue reading.

Explanation: What’s new in the crackdown on crypto in China? by Reuters (Read here)

  • “Ten Chinese agencies, including the central bank and banking, securities and foreign exchange regulators, have pledged to work together to eliminate ‘illegal’ cryptocurrency activity.
  • “While China has implemented increasingly stringent rules on virtual currencies, it has now made all activities related to it illegal and has sent a signal of intent that it plans to toughen even more to enforce the rules. “
  • “The huge increase in the price of bitcoin and other coins over the past year has revived cryptocurrency trading in China, with investors finding ways to get around existing regulations. is trying to develop its own official digital currency, becoming the first major economy to do so. ”

China’s latest crypto ban is toughest, insiders say by Muyao Shen (Read here)

  • “But this most recent ban makes it clear that the activity of crypto trading involves ‘legal risks’ and that ‘any legal person, unincorporated organization or natural person’ that invests in virtual currency and related derivatives is violating” public order and good customs “.
  • “It’s certainly much bigger and bigger than the destruction of the mining industry,” Bishop said. “This could easily be interpreted as making any crypto-related item possibly illegal under the menu of laws cited in the notice.”
  • “Don’t be too pessimistic about this,” he told CoinDesk via WeChat audio messages. “… I think the greatest possibility in the future is that once the major countries of Europe, North America as well as Japan, South Korea have adopted clearer regulatory policies on crypto, China will slowly introduce crypto laws and regulations as well. “

Why China finally decided to ban Bitcoin by Aaron Mak (Read here)

  • “The Chinese government’s decision to master cryptocurrency is also tied to its willingness to exercise more control over the country’s economic activity. Bitcoin and its brethren were designed as a tool to facilitate transactions without institutional authorities like banks or governments, so allowing them to flourish in any country takes some power away from state actors.
  • “US regulators are also looking at Bitcoin. Securities and Exchange Commission Chairman Gary Gensler spoke at length about cryptocurrencies at an event hosted by the Washington Post Tuesday, and he didn’t seem overly optimistic about their future.
  • “What is of particular concern for cryptocurrency is that Gensler has left the door open for regulation stable coins, or a cryptocurrency linked to fiat money, as securities. “

If you have a question you would like us to review about China and Cryptocurrency, leave a comment.


Share.

Leave A Reply