China in Blockchain, Web3, and the Metaverse
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The Diplomat author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Winston Ma – adjunct professor at NYU School of Law; former managing director and head of North America office at China Investment Corporation; and author of newly published “Blockchain and Web3: Building the Cryptocurrency, Privacy, and Security Foundations of the Metaverse” (Wiley 2022) – is the 346th in “The Trans-Pacific View Insight Series.”
Describe China’s role in blockchain, Web3, and the metaverse.
China’s government has actively promoted the digital technology of blockchain and used it for its sovereign digital currency, but it strictly prohibited crypto mining and trading at the same time. According to IPRDaily data, Chinese companies have represented about 70 percent of the world’s global blockchain patent applications. The technology is used widely across a range of industries in China, like banking, financial services, public services, healthcare, logistics and smart manufacturing. If blockchain is mainstream anywhere, it’s China.
Similarly, regarding Web3 and metaverse, on one hand, national and provincial governments across China have unveiled plans to begin intensive development in the metaverse. Major Chinese tech companies like Tencent, Baidu, and Alibaba have also recently announced plans to begin developing the technologies that will potentially make them key players in the metaverse. But because China prohibits crypto trading and transactions, China’s tech companies will create a “token-less” metaverse ecosystem with unique Chinese characteristics.
China’s State Council’s Financial Stability Committee cracked down on cryptocurrency mining and trading in May 2021. Explain the impact of this action on China’s regulatory influence on the global cryptocurrency industry.
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Before China’s State Council’s Financial Stability Committee vowed to crack down on the cryptocurrency’s mining and trading activities in May 2021, few people – even among global financial professionals – realized that China accounts for more than 70 percent of the world’s supply of bitcoin and other cryptocurrencies.
The Chinese government has suggested that investor protection, carbon neutrality, and financial stability are the three key factors for the new regulations. The crackdown has made significant impact on the global cryptocurrency markets. First, China’s mining crackdown has forced a seismic shift in bitcoin mining patterns, with some mining capacity in China moving overseas and some shutting down. Second, from a cryptocurrency trading perspective, China’s tightened regulations and enforcement have contributed to bitcoin’s price dropping more than 50 percent from its all-time high price within a few months. Finally, China’s new regulatory framework may influence many countries’ cryptocurrency-related regulations going forward.
Analyze the development of “central bank digital currencies” (CBDCs), such as e-CNY, digital ruble, digital rupee, and Britcoin and their countries’ cryptocurrency regulation oversight mechanisms.
Regarding the development of sovereign digital currencies (or CBDCs), China is many years ahead of the U.S. and Europe. China is the first global major economy to test its CBDC (e-CNY) usage on a mass scale, with the 2022 Winter Olympics as a major milestone for China to test e-CNY with international users. Recently, China reportedly has completed a 40-day trial using central bank digital currencies to settle trades with Hong Kong, Thailand, and the United Arab Emirates via a special “bridge” arrangement.
