China has opposing attitudes towards cryptocurrency and blockchain
Strong yes to blockchain everywhere, grudging acceptance of cryptocurrencies, hard no to ICOs.
In an interview with Finance Magnates, Desmond Marshall, managing director of Hong Kong fintech development company The Floor, explained that China's attitudes towards blockchain technology and cryptocurrency are at polar opposite ends of the spectrum.
"In terms of blockchain technology, China is quite open and welcomes this kind of discussion as well. But, of course, if we’re talking about cryptocurrencies or ICOs, that’s a definite no-no," he said.
"From the government itself to local provinces, down to new startup companies – pretty much anything you can think of, they have already thought about or are already in the process of developing blockchain technology to be applied in those areas."
Cryptocurrency, on the other hand, is still largely frowned upon and ICOs remain barred, Marshall says. This might be to avoid competition with the People's Bank of China's (PBOC) own digital currency initiatives.
This highlights a relatively long-running debate and one of the trickier sticking points of China and Korea's efforts to find common ground on future cryptocurrency regulation. The debate centres around the question of whether blockchain technology really needs cryptocurrencies.
Does blockchain need cryptocurrency?
As South Korea's finance minister has noted, "for open-source blockchain networks, cryptocurrencies are necessary as incentives for individuals to participate in the network."
Closed semi-centralised blockchain systems don't necessarily need cryptocurrencies to function as intended, but economic theory-based security measures are likely to be vital for the future development of increasingly more efficient decentralised systems.
The other element might be whether banning cryptocurrencies while embracing blockchain technology is really practical or feasible. China's ongoing efforts to clamp down on cryptocurrency through the exchanges has already had the unintended side effect of making them grow even faster. After taking root in China, news of a local crackdown saw many of them accelerate plans to spread overseas and beyond the reach of a single authority.
Hong Kong-based (at the time) Binance was another beneficiary, springing up just in time to collect a wave of cryptocurrency traders looking for a new trading spot outside China's borders, and later penning blogs criticising certain unnamed countries for their backwards-looking approach to cryptocurrencies.
It highlights the challenges of effectively enforcing strict regulations on a global borderless technology like cryptocurrency. It might be especially problematic for China, which is bordered on all sides by some very enthusiastic crypto adopters.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, NANO