- China is planning to release its first RMB-based digital currency later in 2020.
- China had suddenly seemed to employ a strategy of shutting down on companies before problems could occur.
- The main reason for this crackdown could be better understood by understanding China’s need to guard its financial systems against “Air Coins.”
China has been banning unofficial cryptocurrencies recently despite its push for digital currencies and blockchain technology. China is also planning to release its first RMB-based digital currency later in 2020. Its crackdown on cryptocurrencies might seem ironic and paradoxical.
The Political Bureau Of The Communist Party of China’s Central Committee has been looking into blockchain technology and cryptocurrencies since October 2019, and this resulted in some boosts to bitcoin prices during the time.
But soon after, in November 2019, strict policies and supervision on virtual currencies and the businesses dealing with them were enforced. China had suddenly seemed to employ a strategy of shutting down on companies before problems could occur.
The main reason for this crackdown could be better understood by understanding China’s need to guard its financial systems against “Air Coins.” Air Coins are the type of cryptocurrencies built off blockchain technology without any credit backing and with no physical support from the market, therefore resulting in it having little to no value.
It would have no practical application in the real world and is a pointless form of cryptocurrency. The risks are also massive, due to its nearly non-existent market, a large amount of power would rest in the hands of the issuing party.
The developers of these Air Coins use unethical practices and gimmicks to lure consumers into investing in their cryptocurrency. After attaining some value and entering the trading platform, a large number of sales will realize, and the investors and miners will lose large sums of money.
This can compare to altcoins that have more practical applications and solve actual financial problems such as low efficiency and high transaction fees during cross-border payments.
Regardless of the presence of valuable altcoins like Ethereum, Ripple, etc. there are still other altcoins whose market value fluctuates tremendously and provides a large amount of risk to its investors resulting in excellent returns at times and devastating losses otherwise.
Such altcoins carry commercial endorsement to a certain degree and can be traded for other cryptocurrencies and also for fiat currencies and might sometimes provide a platform for money laundering and illegal funding. Such risks will prove damaging to national fiscal policies, prevent proper market regulation, and degrade the economic stability of the country.
Therefore to ensure the security of investors and their rights to the stable and efficient operation of the country’s economy, the shutdown of unofficial cryptocurrencies has proven a necessity. Superior and successful digital currency technology holds a lot to be learned from, whereas false coins need to be shut down and banned.
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