- China launches new government-backed blockchain projects. Plans digitization of the Yuan.
- MiCA is set to bring uniform regulation to the European crypto space.
- Why is the East leading the blockchain adoption?
In the last decade, we have witnessed the rise of blockchain and cryptocurrencies from obscurity to something of global interest. The industry’s growth can be best described as lightning-paced.
Being a relatively new industry, countries from around the world are still trying to draft out the best set of guidelines to maximize the potentials of tomorrow’s tech. Let’s take a look at how the East and the West have fared in this race.
The West’s Approach to Cryptocurrency
Following a run of free reign for cryptocurrencies in some parts of the west, the European Union and the United States are beginning to tighten their regulations on cryptocurrencies. In Europe, there was a recently leaked draft of rules for the industry.
The United States: since the emergence of cryptocurrencies the United States has been a fertile ground for the asset class but we are currently seeing a shift in how regulators view cryptocurrencies. In November, Congress saw two new bills to streamline digital assets and crypto exchange regulation. Popular altcoin Ripple is currently facing SEC charges.
This comes after an August announcement by the Federal Reserve Governor, Lael Brainard, that the US Federal Reserve would be working with MIT to determine how America’s Central Bank might one day be deploying a ‘digital dollar’.
Europe: After a long wait, the European crypto space may be finally getting a suitable ecosystem to support its growth. Lately, the European Commission issued new guidelines “Markets in Crypto-Asset Regulations” MiCA.
Although the regulation of cryptos in Europe remains Polymerous, ambiguous, and in some cases hazardous, MiCA is expected to bring uniformity in the regulation and treatment of cryptocurrencies. the commission also detailed its plan to digitize its currency.
Stringent Rules are Scaring Blockchain Projects from the West
The cryptocurrency market is a new one that needs to be regulated; that much is understood. However, many regulatory agencies in the west are setting rules that make it difficult for crypto projects to either start or continue functioning optimally.
For example, in October 2019, the FCA of the U.K considered banning the sale of cryptocurrencies to retail investors. The problem? The majority of crypto investors are small, retail businesses or individuals.
Very recently, France published a new set of guidelines for crypto exchanges in the country that will effectively rid the industry of its anonymity. In October this year, Ripple threatened to leave its home in the united states after its security and exchange commission released a new set of guidelines. Ripple walked back on its threat and is currently facing a lawsuit over its coin sale.
Although one cannot deny the fact that blockchain projects are being scared off by the new regulatory requirements, it would be unfair to deny the fact that many of the guidelines are being put in place to protect the users.
In the United States, a class-action suit was filed against Robinhood. The crypto trade platform has been accused of gamifying investing and trading. As a result, underaged and inexperienced traders have lost tons of money.
The new cryptocurrency KYC protocol in France follows a series of crypto fraud and hack complaints. However, France has pushed it beyond protecting traders by trying to completely rid the industry of anonymity.
The West Remains Decentralized
Regardless of the influx of stringent rules and regulations, the west remains largely decentralized. Many analysts believe that one of the core strengths and reason for the success of cryptocurrencies is decentralization.
Decentralization creates a transparent efficient and reliable system that people can trust. Because of decentralization, people need not fear price manipulation and artificially induced scarcity. While this remains firmly in place in the West, the East is trying to take a different approach.
On the Flipside
- The United States has new proposed regulations from the Financial Crimes Enforcement Network
- While countries are looking for better ways of adopting cryptocurrencies, France publishes a new set of guidelines for crypto exchanges in the country that will effectively rid the industry of its anonymity.
The East’s Approach to Cryptocurrencies
China: Cryptocurrencies have not had the smoothest of regulatory runs in China. In September 2017, the People’s Republic of China banned cryptocurrencies and blockchain platforms from launching Initial Coin Offerings (ICO). Although it remained a hub for innovation, there was a lot of controversy surrounding the asset class in the country.
Things began changing quickly and hard towards the end of 2019 when the president openly backed blockchain technology. President Xi Jinping in his statement confirms China’s push for blockchain:
We must take blockchain as an important breakthrough for independent innovation of core technologies, clarify the main directions, increase investment, focus on a number of key technologies, and accelerate the development of blockchain and industrial innovation.
Since his announcements in October 2019, we have seen government agencies launch blockchain projects. The country now has a blockchain-friendly act that is aimed at helping startups launch blockchain projects. The project is backed by state-owned companies like the China Merchant bank, China Mobile, and China UnionPay.
Singapore: Many cryptocurrency firms are setting up their bases in Singapore because of the country’s acceptance of the innovation. Since 2016, the country has explored ways of repaying debts using distributed ledger technology.
In 2019, Singapore passed the Payment Service Act (PSA) to protect consumers against money laundering schemes. Not only are cryptocurrencies legal in Singapore, they are also treated as intangible properties. The country’s friendly approach to cryptocurrency has turned it into a blockchain hub.
Japan: Like Singapore, Japan has its fair share of leniency towards cryptocurrencies. Since 2017, the country has handed out regulatory licenses to 23 digital exchange platforms. In May this year, it launched a new set of cryptocurrency regulations focused on protecting customers, asset custodians, and their assets.
One of the major differences between the easts method of cryptocurrency adoption and that of China is in the proactiveness of governments in understanding, implementing, and in some cases leading blockchain-tech initiatives. There have been rumors that the country is home to over 35,000 blockchain companies. In addition, China now has the most blockchain-related patents in the world.
While Western governments are raising regulatory agencies to check the use and misuse of cryptocurrencies and Blockchain technology. China has taken an entirely different approach. At the end of 2019, China’s President Xi Jinping endorsed blockchain development in China.
In April this year, China announced its intention to digitize the Renminbi (another name for the Yuan) also known as the Digital Currency Electronic Payment (DCEP). The DCEP is currently undergoing tests in Suzhou and the country’s Xiong’an new district.
The DCEP is being tested in McDonald’s, Starbucks, JD supermarkets, and 16 other popular merchants. The People’s Bank of China (PBOC) has hinted that the digital Yuan could be used in the 2022 Beijing Winter Olympic Games.
The Yuan Vs USD
China’s bid to dominate the cryptocurrency market and its digitization of the Yuan is part of a grand plan to offset the long-standing store of value, the USD. With the current growth and adoption rate of cryptocurrencies globally, many analysts believe that if China successfully digitalizes the Yuan, it could dominate the USD.
The extensive government investment in blockchain infrastructure in the east has led to major firms adopting the technology. In South Korea, Samsung and LG have established themselves in Seoul as Blockchain giants.
Crypto friendly guidelines allowed Samsung the opportunity to integrate blockchain technology into its phones. Companies in these regions are leveraging the government’s acceptance of Blockchain to integrate the technology into their existing products and platforms to offer better consumer services.
Using Blockchain Technology to Bolster China’s Economy
The struggle in many western countries remains the best way to regulate and in some cases, control the use of cryptocurrencies and Blockchain technology. On the other hand, China seeks to use Blockchain technology to accelerate the development of a digital economy.
On April 25, the country officially launched the Blockchain-based Service Network (BSN), a nationwide Blockchain network. The BSN was launched to help startups build and run new Blockchain-based applications. This has been one of the underlying factors in the success of cryptocurrencies and Blockchain in China.
What We Should Be Wary of in the East’s Approach to Blockchain
While Western countries police Cryptocurrency Firms the East is building a sustainable farm of them. The East’s Approach towards cryptocurrencies have created;
Hacks and Fraud Schemes
Although at this point, it is almost impossible to separate cryptocurrencies from fraudsters and hackers, a greater percentage of these malpractices occur in the east. For example, four out of five of the biggest cryptocurrency hacks happened in the East; Coincheck, Mt.Gox, BitFinex, and Zaif.
The almost general acceptance of cryptocurrencies in the east in some cases creates loopholes for fraudsters to operate from. Some countries are already taking necessary measures to reduce and possibly stop the occurrence of scams and hacks in the industry.
Monopolism and its Effects
China is not only trying to emerge as the hotspot for cryptocurrencies and blockchain technology, the country is trying to gain a dominant share of the market. Already we have seen large movements of cryptocurrencies, particularly bitcoin, from the region. There are always major price movements before and during the country’s new year celebration.
In November, it was reported that the country seized bitcoins in excess of $3.3 billion. As we have mentioned, they are also preparing to digitize its currency, the yuan. The major problem with this approach is that cryptocurrencies were designed with the opposite (decentralization ) in mind.
If China ever achieves monopoly, cryptocurrencies will cease to be what it is today. A monopolistic system will give China the ability to set a price for Bitcoin, or any digital asset, by restricting output. If the majority of bitcoins share is under single control, one can
- Charge a higher price in the market to make extra gains
- Create scarcity by reducing the amount of bitcoin in circulation. As we all know, inflation comes after a period of scarcity.
The East Vs The West, Which is Leading the Blockchain Race?
Despite some significant and propitious shift in regulatory approach from countries in the West, when it comes to crypto adoption and regulation, most market watchers overwhelmingly agree that Asian countries are poised to hold an upper hand over the West.
However, many investors will back the West’s decentralized approach to cryptocurrencies. If the West must survive, its regulatory agencies need to strike a balance between protecting customers and not stifling the growth of the industry.