The View | In its embrace of blockchain, China is making up for lost time

Igor Shoifot and Julian Zegelman say the Chinese government has rightly realised that blockchain has value beyond its use in cryptocurrencies and will play a key role in hi-tech development. Meanwhile, investors and businesses are catching on

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An aerial view of traffic in downtown Shanghai. The Chinese government is adapting quickly and quietly to blockchain, knowing that it can accelerate the next financial revolution. Photo: AFP

Published: 12:15pm, 14 Nov 2018Updated: 10:49pm, 14 Nov 2018

Technology investment is big business in China. The country’s asset management sector is one of the world’s largest, crossing the 100 trillion yuan (US$14.3 trillion) mark last year, with Chinese venture capital firms putting over 1.2 trillion yuan into tech start-ups. According to a 2017 Deloitte and China Venture joint report, almost 40 per cent of the world’s 252 “unicorns” (tech start-ups valued at US$1 billion or more) are based in China.

The hottest hi-tech trend since the advent of the internet is certainly blockchain. And Chinese entrepreneurs have been at the forefront of the “blockchain revolution” since the beginning.

It is no secret that the majority of the world’s cryptocurrency mining activity is based in China, with some estimates stating that it could be as high as 70 per cent. Sichuan is believed to be home to millions of small-time miners, and one report estimated that 70 per cent of all of China’s cryptocurrency mining is based in the province.

Cryptocurrency mining is the process of validating cryptocurrency-based transactions and adding the transactions to the blockchain ledger. Miners get compensated for their services with cryptocurrencies. Typically, miners convert some of their cryptocurrency assets into fiat (government-backed currencies), and invest some in virtual currencies.

A year ago, the Chinese government cracked down on ICOs. Initial coin offerings are the blockchain equivalent of IPOs, in which investors buy tokens in blockchain start-ups in exchange for cryptocurrency and fiat currencies. China effectively branded ICOs a pyramid scheme and banned them to protect its citizens from fraud. In fact, some observers in China believe that only about 1 per cent of ICOs were legitimate fundraising operations working to fund real businesses and not deploying some aspects of a pyramid scheme.

The View | In its embrace of blockchain, China is making up for lost time

Igor Shoifot and Julian Zegelman say the Chinese government has rightly realised that blockchain has value beyond its use in cryptocurrencies and will play a key role in hi-tech development. Meanwhile, investors and businesses are catching on

Watch: Hong Kong bitcoin firm sees rise in trade after mainland ban on cryptocurrencies