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It goes without saying at this point, but China is not a fan of cryptocurrency. The country’s government has passed a variety of bans against the industry over the years, from bans on banks servicing crypto companies to bans on the mining of all cryptocurrencies. However, no ban has been quite so expansive as China’s latest. Apparently the previous bans hadn’t worked out according to plan, so the government took the unprecedented step of completely outlawing all cryptocurrency transactions of any kind. Overkill? Definitely. Destined to succeed? Highly unlikely for reasons we’ll discuss later on.
In its latest ban, China has laid the FUD (Fear, Uncertainty, Doubt) on thick, citing the following reasons for why it felt the ban was necessary:
Cryptocurrencies are not fiat currency
Cryptocurrencies can be used for fraud and money laundering
Cryptocurrency mining uses a lot of energy
As we’ve discussed in other Letters, the above FUD is grossly exaggerated. But what China’s government hasn’t shared is the biggest reason of all why it doesn’t want cryptocurrency to stick around: the leaders and their grip on the country’s social and economic ways of life are threatened by it.
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Crypto Gets The Tech Treatment
The truth is that cryptocurrencies like Bitcoin fly in the face of many “ideals” upheld by the Chinese government:
In all honesty, Bitcoin was unlikely to ever receive a hero’s welcome in China. Technologies that the Chinese government finds disruptive are often banned as soon as the government realizes that they can’t be controlled and that citizens want to use them. In the void left by these innovative technologies, a Chinese copycat springs up shortly after China’s ban against the U.S. version is put into place:
China blocked access to YouTube in March 2009, after the Chinese government denounced a video showing Beijing security forces beating Tibetans.
Youku, a Chinese version of YouTube, announced a significant private equity funding round in December 2009.
China blocked access to Twitter in June 2009, two days before the 20th anniversary of the devastating events of Tiananmen Square.
Weibo, a Chinese version of Twitter, was launched in August 2009.
China blocked access to Facebook in July 2009 after the company refused to provide information on rioters who had supposedly used the social network to organize.
WeChat, a Chinese version of Facebook, officially launched in 2011.
China blocked access to the messaging app Snapchat in 2013 because the company did not store its data on Chinese users on servers located within China.
Snow, a South Korean version of Snapchat that is extremely popular in China, launched in September 2015.
As most people will agree, the above companies have all done pretty well for themselves even after being banned:
Bitcoin Can’t Be Banned
Many within the Bitcoin and Cryptocurrency spaces are actually cheering China’s latest ban because they feel it represents the end of China’s attacks impacting crypto prices. After all, it’s hard to imagine what more China could directly do to reduce demand from its citizens above the total ban it just put into place. While the end of market manipulation from China is certainly worth celebrating, it leaves a very important point out of the conversation: Bitcoin can’t be banned.
Let’s get the obvious counter against China’s bans out of the way. Similar moves against Facebook, Google, and the like haven’t been very successful. Each of those sites can easily be accessed within China by both citizens and foreigners through use of a VPN (Virtual Private Network) since that technology hides your location and IP address from internet service providers and anyone else (read: the Chinese government) trying to spy on you. Even so, each of those technologies can still be banned to a certain degree because users have to be routed to specific web domains that can be blacklisted and because data is hosted on centralized servers that can be blocked. Bitcoin, however, is different:
Bitcoin does not have a centralized network to attack. While Snapchat, Twitter, Facebook, and so on all control their own servers, no one person or entity controls all the nodes on the Bitcoin blockchain. The Bitcoin network consists of tens of thousands of nodes and miners spread out in every country on the planet. Even though China has spent eight years trying to ban Bitcoin and Cryptocurrency, I have no doubt that there are still hundreds or even thousands of computers connected to the Bitcoin network from within China to this day.
Largely Independent of the Internet
The fact that Bitcoin can to a limited degree be operated without the internet is a feature that people don’t focus on enough (in my opinion). What do I mean? Well, you certainly need internet access to make a trade on the Binance or Coinbase cryptocurrency exchanges. And you’ll need internet access in order to transmit data to miners so that they'll confirm your transaction. But if your Bitcoin are already in your wallet, you don’t need an internet connection just to hodl them. Remember, your crypto holdings are simply a record on the blockchain. So even if you don’t have internet access in a given moment, your holdings are still recorded across the huge network of computers operating the blockchain.
(Motivated) People Will Find A Way
China’s ban will certainly impact the ability and desire of its citizens to interact with Bitcoin and other cryptocurrencies. After all, threats of jail time, beatings, or social ostracization are powerful deterrents for most people. But any person who is willing to risk it all in order to hold cryptocurrencies will find that there are many ways to do so, whether or not the Chinese government wants it.
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This is not financial advice. This newsletter and related content are for informational purposes only. Cryptocurrencies, stocks, and similar assets can be risky. Always do your own research before making any sort of investment.