We interviewed somebody in China to find out what is happening in this critical market for Blockchain, Bitcoin & Crypto. 

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China is a critical superpower market  for Blockchain, Bitcoin & Crypto (said Captain Obvious), but the reporting/analysis outside China is weak because few reporters/analysts can read source materials in Chinese or have any first hand knowledge of living and working in China.

In celebration of Chinese New Year (the year of the dog has just started),we decided to improve on our knowledge of this critical market by getting insight from Zarc Gin who works for a Chinese VC Fund called Warp Speed Capital. Daily Fintech subscribers may recognise the name as somebody who has also provided insight to us related to Insurtech in China. On this occasion we sought his insight on 6 major trends related to Blockchain, Bitcoin & Crypto in China:

  • What can we expect from the globalisation of Bitcoin Mining?

  • What can we expect from the regulatory crackdown on Crypto Exchanges?

  • What Crypto platforms will emerge triumphant in China?

  • Which markets in China will be most impacted by Blockchain, Bitcoin & Crypto?

  • Which incumbents and upstarts are making the big moves?

  • What are the chances of a Central Bank Digital Currency (CBDC) in China?

What can we expect in the year of the dog from the globalisation of Bitcoin Mining?

Bitcoin Mining pools will be transferring to the locations with lower electricity cost and cozy regulations. Chinese miners have been a dominating force in the Bitcoin world. I think they will continue to be, and in 2018, they will accelerate their expansion globally.

As a matter of fact, Chinese miners have already set up mining pools around the world. Take Antpool for example, Antpool is one of the biggest mining pools in the world with 25.2% share of the world’s hash power (the data is from an article in July, 2017, the figure won’t be the same now, but Antpool is still dominating), and it has set up mining pools both in China and in United States and Europe.

So, in the year of the dog, individual investors will have a wider choice of mining pools if they want to invest in Bitcoin mining, but as the increasingly growing number of miners, their return on it might not be as good as the year before.

As for small miners, it would be more difficult as the major miners like BitMain (who owns Antpool and a few other big pools) are grabbing market share. With profits as high as $3-$4 billion in 2017, BitMain can set up mining pools where electricity are cheapest and they can also develop better chips to outrun competitors.

What can we expect in the year of the dog from the regulatory crackdown on Crypto Exchanges?

Chinese government is still banning Crypto Exchanges. It all started from the banning order issued by Chinese regulators on September 4th, 2017. According to the banning order, any fiat currency-to-cryptocurrency exchange is forbidden in China.

After the ban, Chinese crypto exchanges have either closed or shifted their base outside China. And those exchanges will help match individual investors who want to buy cryptocurrency with fiat currency, but they no longer accept cash deposits into their exchanges; what they provide is crypto-to-crypto exchanges, along with some derivatives (futures and index).

Therefore, despite of the tight regulation on exchanges, crypto exchanges have managed to find a way to survive and actually are having promising growth now, thanks to the cryptocurrency boom in the end of 2017.

But I don’t see any sign of deregulation so far in 2018. There are a large number of ICO programs trying to put on a scam and make a fortune in China, and they imposed a serious risk to the financial system. So it is possible that Chinese government might tighten regulation in 2018.

What Crypto platforms will emerge triumphant in China during the year of the dog?

Two kinds if we don’t consider miners: one is exchanges and one is infrastructure providers.

Like I said in the previous answer, exchanges have achieved significant growth during the cryptocurrency spike not too long ago. Some exchanges have to shut down registration for a while to process a huge number of new users.

The logic behind exchange growth is simple, like many emerging industries, once major capitals think positive on it, funds will be flowing into the industry crazily. It’s just that in Blockchain, cryptocurrency is created and it provides an easy way for individual investors to catch up with venture capital.

Cryptocurrency exchanges, as a bridge for individual investors to tap into the venture capital world, are destined to boom along with the growing optimism of Blockchain.

The founder of Binance, one of the biggest crypto exchanges in China, has been reported by Forbes. He became a billionaire by operating Binnacle for just 6 months. The trend will last in 2018.

As for infrastructure providers, they are building the underlying protocols of the Blockchain world. It could be the cornerstone of future Blockchain world.

Which markets in China will be most impacted by Blockchain, Bitcoin & Crypto?

Financial sector is the obvious answer for now, including banking, security and insurance, since Bitcoin was designed to disrupt the centralized banking system.

But there are so many possibilities lying in Blockchain, we can’t know for sure until it has happened already. We got distributed ledger technology first, then we have smart contract in Blockchain 2.0, who knows what we will see when Blockchain 3.0 arrives.

Besides, Rome was not built in one day, true impact comes from improvements accumulated every day. I’m in no rush to see any quick impact Blockchain would bring.

Which incumbents and upstarts are making the big moves?

Speaking of Blockchain adoption, everyone is making a move, from government agencies to tech giants, from NGOs to startups.

For example, Ministry of Industry and Information Technology of the PRC has issued a whitepaper on the development of Blockchain technology and application in October, 2016.

Hangzhou – the e-commerce city of China and home for Alibaba – has become the first city to include Blockchain in its government report. Blockchain was listed along with AI, VR, Quantum technology and commercial aerospace technology.

Tech giants like Alibaba and Ant Financials have been implementing Blockchain applications since 2016 including charity platform, mailbox verification, food production trace and medicals.

According to the data from IPRdaily and incoPat, Alibaba has obtained 49 Blockchain patents, which is the highest in the world.

Another big player in China is Wanxiang Holdings, the founder of Wanxiang Blockchain Labs. They have made plans to invest $30 billion over the next seven years to implement Smart Cities Initiative and blockchain will be a major drive in it. They have also held global blockchain summits in China and established accelerators for Blockchain industry. Vitalik is one of the founding members of Wanxiang Blockchain Labs.

Other tech companies like Meitu and Cheetah are also trying to grab their chance in the age of Blockchain and catch up with the tech giants.

What are the chances of a Central Bank Digital Currency (CBDC) in China in the year of the dog? 

What we can be sure of is that executive officers in Chinese central bank are researching digital currency for a long time.

We have seen the establishment of Digital Currency Research Center from Chinese central bank in 2017. And plus the recent rumor that Chinese central bank will be the first central bank to issue digital currency. The chance of seeing a CBDC in 2018 seems valid.

But honestly, I’m not optimistic on CBDC. Because it is still centralized, maybe it will be connected with Blockchain application, but as long as it remains centralized, i.e. endorsed and controlled by the central bank, it will be just traditional money with a digitalization vessel. It might work well for intra-bank operations, but it will be difficult for CBDC to widespread.

Thank you to Zarc for some great insights into this big and misunderstood market.

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Bernard Lunn is a Fintech deal-maker, author, investor and thought-leader.

You can reach out directly to discuss our market development services by sending an email to julia at dailyfintech dot com

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