The recent news from China on blockchain adoption is not positive for Bitcoin

No comments

On Oct.25, 2019, Chinese President Xi Jinping released a statement that outlined a positive attitude towards blockchain adoption and development. Some analysts credited this statement with the recent spike in the price of BTC. Others believe there was a different primary cause.

Positive sentiment from China wouldn’t hurt the price, but whether it is the primary cause of the spike is a difficult thing to state with certainty. I would tend to agree with the Forbes article that it had a divergent cause, except the statement by President XI was widely misinterpreted by publications and the public at large as positive news for Bitcoin and other independent blockchain projects. This leads me to believe that XI’s statement likely had a positive impact on the price.

As to why I think President Xi’s statement is negative towards independent blockchain projects, it starts with a series of draft legislations coming out of China relating to encryption. It’s also important to note that Xi’s statement never explicitly mentions bitcoin and refers only to “blockchain” technologies, which leads me to believe he is referring more to China’s planned national cryptocurrency than any other independent blockchain project.

A Coindesk article describes China’s draft legislation on cryptography:

“Clear guidelines and regulations are needed to evaluate commercial cryptography technologies used in the major fields related to the national interest as the current ‘loose’ system is not suitable for the industry anymore.”

This cointelegraph article paints an even more alarming picture:

“The draft of the law was published on May 7 by a Chinese news outlet. The text is largely focused on government centralized password management and does not explicitly mention cryptocurrency, though it does focus on cryptography, a key component underpinning cryptocurrencies such as Bitcoin.

Wan explained:

The key take away is — the developing of new cryptography, hashing algo, even the usage of the tech, will be in the official legal realm. This means you need to follow the CCP standard for all ‘encrypted’ behaviors, which can be VERY broad, from mining to block propagation.”

These statements sound rather Orwellian, with “government centralized password management” and regulations dealing with the current “loose” state of encryption. It’s not clear specifically what they mean by “loose state,” but I assume they dislike encryption’s ability to prevent state agents from peering into a citizen’s data so this likely refers to some kind of encryption backdoor. It’s possible the password management scheme refers to password management by government agents, but this statement from the cointelegrpah article leads me to believe that they want access to citizen passwords stored in password management services:

“Per the report, the new regulatory framework aims to set standards for the application of cryptography and the management of passwords.”

If we take these statements at face value, China’s desire to reign in the “loose” state of encryption, and the explicit desire that CCP standards must be followed, the blockchain adoption they’re talking about is clearly not Bitcoin. Given their stance on encryption and Bitcoin’s inherent censorship resistance, it can’t be Bitcoin. The push towards blockchain adoption will likely be their state-sponsored cryptocurrency and any other blockchain initiative that complies with CCP guidelines. While this is draft legislation and subject to amendment, if you hold a significant amount of BTC this news should make you very uneasy.

Header photo by Dmitry Demidko.

Leave a Reply