Cryptocurrencies are a decentralized digital currency grounded on anonymity and security, lacking a regulatory organization. Their role in the rising global, and Chinese, digital economy will almost certainly create problems in the foreseeable future. The spread of this phenomenon has accounted for the creation of over a thousand different cryptocurrencies, the most famous and relevant one of which continues to be Bitcoin.
A digital economy is, in essence, based on computing and digital technologies, centered around the digital tools we use each day, such as smartphones. In just 20 years, the digital economy has managed to be valued at 3 trillion dollars, with an online population of 3.2 billion people, and China has a dominating presence.
China accounts for 731 million Internet users, 42 percent of total worldwide e-commerce, and is home to one third of global technological startups. Therefore, although it is 4.9 times less digitized than the US, its spectacular growth in the digital economy, in addition to its certain future development, makes China an influential power in the world of internet.
Although China is home to the largest number of Bitcoin miners, the Chinese central bank and government have recently started cracking down on Bitcoin through various measures, such as outlawing ICOs (Initial Coin Offerings) and forcing local exchanges to discontinue their trading with cryptocurrencies. These measures have resulted in a shrinkage of the Chinese global influence in cryptocurrencies, and a steady rise in prices for Bitcoin, causing a reshaping of the industry and explaining the recent losses the crypto giant has suffered in the markets.
In just 20 years, the digital economy has managed to be valued at 3 trillion dollars, with an online population of 3.2 billion people, and China has a dominating presence.
However, China is most definitely not against cryptocurrencies. In fact, a leading researcher at China’s central bank, the People’s Bank of China (PBOC), Yao Qian, has stated that it is “crucial” due to “the development of [the] digital economy” to advance research on an electronic currency that is administered and controlled by a central bank. Thus, China has begun efforts for development of its own national cryptocurrency, but its realization will be starkly different than that of Bitcoin and other decentralized cryptocurrencies, as it will not be based on the same libertarian notions.
There has been no formal explanation for this recent tightening. However, the most likely explanation is that it follows a recent but critical government policy of regulation of the digital economy in order to prevent risk, fearing a bust in the market. The reason why the Chinese digital economy has risen to be so important so quickly is the enabling of the private sector by the State. This willing failure to enforce traditional and administrative regulations has directly led to the growth of the Chinese digital markets, both domestically and on a global scale. However, although the unchecked rise of the digital economy initially produces trends of very high productivity and profitability, the failure to impose necessary regulation similarly creates trends of extreme uncertainty and disasters. And it is this fear that has been controlling Chinese decisions regarding the digital economy.
Thus, it is quite logical and clear why the Chinese government is deciding to have a firm control over the latest trend of the digital economy– cryptocurrencies. But simply tightening control is not enough to dispel risk. The Chinese authorities must delve into creating the vital institutions that are crucial to effectively manage the digital economy.
Non-regulation aided China in becoming a leading power within the global digital economy. In fact, the approach it has taken so far has turned it into an authority that is driving innovation forward and shaping the global digital presence. However, if the proper administrative tools are not placed on this constantly growing digital economy, its rise will continue unchecked, and in an uncontrolled direction that may result in a precarious situation with the potential to harm the Chinese State, and by extension the global, digital economy.