Within 2008 following the financial crisis, a papers titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published, detailing the concepts of a payment program. Bitcoin was born. Bitcoin gained the interest of the world for its use of blockchain technology and as an alternative to fiat currencies and commodities. Dubbed the following best technology after the internet, blockchain offered solutions to issues we have did not address, or ignored over the past several decades. I will not delve into the particular technical aspect of it but here are a few articles and videos that I suggest:
How Bitcoin Works Under the Hood
A gentle introduction to blockchain technology
Ever wonder how Bitcoin (and other cryptocurrencies) actually work?
Quick forward to today, 5th Feb to be exact, authorities in China and taiwan have just unveiled a new group of regulations to ban cryptocurrency.
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The Chinese government have already done so this past year, but many have circumvented through international exchanges. It has now enlisted the particular almighty ‘Great Firewall of China’ to block access to foreign deals in a bid to stop its people from carrying out any cryptocurrency transactions.
To know more about the Chinese government position, let’s backtrack a couple years to 2013 when Bitcoin was gaining interest among the Chinese citizens and costs were soaring. Concerned with the price volatility and speculations, the People’s Loan provider of China and five additional government ministries published an official see on December 2013 titled “Notice on Preventing Financial Risk of Bitcoin” (Link is in Mandarin). Several points were highlighted:
1 . Due to various factors such as limited supply, anonymity and lack of a centralized issuer, Bitcoin is not an official currency but a virtual commodity that cannot be used in the open market.
2 . All banks plus financial organizations are not allowed to offer Bitcoin-related financial services or engage in trading activity related to Bitcoin.
3. Most companies and websites that offer Bitcoin-related services are to register with the necessary government ministries.
4. Due to the invisiblity and cross-border features of Bitcoin, agencies providing Bitcoin-related services ought to apply preventive measures such as KYC to prevent cash laundering. Any suspicious activity which includes fraud, gambling and money washing should to be reported to the authorities.
5. Organizations providing Bitcoin-related services ought to educate the public about Bitcoin and the technology behind it instead of mislead the public with misinformation.
Within layman’s term, Bitcoin is classified as a virtual commodity (e. h in-game credits, ) that can be bought or sold in its original form and not to be exchanged with fiat foreign currency. It cannot be defined as money- something which serves as a medium of swap, an unit of accounting, plus a store of value.
Despite the see being dated in 2013, it really is still relevant with regards to the Chinese federal government stance on Bitcoin and as described, there is no indication of the banning Bitcoin and cryptocurrency. Rather, regulation plus education about Bitcoin and blockchain will play a role in the Chinese crypto-market.
A similar notice was issued on Jan 2017, again emphasizing that Bitcoin is a virtual commodity but not a currency. In September 2017, the boom of initial coin offerings (ICOs) led to the publishing of a separate notice titled “Notice on Preventing Financial Risk associated with Issued Tokens”. Soon after, ICOs were banned and Chinese exchanges were investigated and eventually closed. (Hindsight will be 20/20, they have made the right decision to ban ICOs and stop mindless gambling). Another blow was worked to China’s cryptocurrency community in January 2018 when mining operations faced serious crackdowns, citing too much electricity consumption.
While there is no official explanation on the crackdown of cryptocurrencies, capital controls, illegal activities and protection of its citizens from financial risk are some of the main reasons cited by experts. Indeed, Chinese government bodies have implemented stricter controls for example overseas withdrawal cap and controlling foreign direct investment to limit capital outflow and ensure domestic purchases. The anonymity and ease of cross-border transactions have also made cryptocurrency a popular means for money laundering and fraudulent activities.