The People’s Bank of China (NSC) recently announced the possible launch of its own digital currency. The intentions of the Chinese financial authorities and the technical details of this project are still unknown, however, regardless of the form of implementation of this idea, the consequences for the crypto-currency world are unpredictable. One thing is certain – there will be shocks. How can this event affect Bitcoin?
First of all, let us recall one interesting circumstance. The People’s Bank of China has concluded partnership agreements with the largest Western financial institutions to work out its project. The NBK announced a partnership with Citibank and Deloitte to determine the best way to create and issue a digital currency. Studies began as early as 2014.
The NBK studied “related business processes, key crypto-currency technologies, conditions for their release and circulation.” Now it is likely that the case is made, and the NBK is ready to proceed to the project implementation stage.
Why is China doing this?
From the statement, it is obvious that the People’s Bank of China understands the global financial landscape, and how the emergence of new technologies will shape the future. This step is an attempt to create the first reserve currency in the new digital world.
The statement of the People’s Bank of China reads:
… The study and release of digital currency by the central bank has a positive practical impact and has far-reaching historical significance. The launch of the national digital currency can significantly reduce the cost of issuing and distributing the national currency, improve the convenience and transparency of business transactions, increase control over money laundering and tax evasion and other criminal activities.
The transition to new technologies will strengthen the control of the central bank over the volume of money supply and monetary circulation, improve economic and social development, and create the possibility of providing financial services for under-served groups of the population.
Looking ahead, we can say that the creation of a system for issuing and circulating crypto currency will help China build an entirely new financial infrastructure, improve the functionality of China’s payment systems in the future, and ensure higher quality and efficiency of the economy.
As a result, what China creates is the complete opposite of the ideology of crypto-currencies, and Satoshi’s plan was not that. Now all the Crypto-currencies are aimed at the transition to decentralized non-cash payments or even to a single world currency, reminiscent of John’s prophecy from the book of revelations.
What does this mean for Bitcoin?
The NBK statement will shake the foundations of the crypto community and cause huge interest in the future of the largest crypto-currency network on the ground. While we do not know all the technical details of the Chinese project, the consequences of launching a bit-yuan can be deplorable. Consider below some of the main problems.
China controls the majority of the Bitcoin network
This moment is very important. If the Chinese government accepts the algorithm SHA-256 for its project, the consequences for Bitcoin will be extremely negative. It is believed that the top 4 Chinese mining pools control more than 50% of the Bitcoin network. Average estimates suggest a figure between 40% and 60%. If these miners suddenly stop the production of bitcoins, the network can be paralyzed and the blocks will cease to be created at normal speed. To correct the situation, you may need a hard-core.
The “Big Three” of Chinese exchanges – BTCC, Huobi and OKcoin – literally runs the entire Bitcoin market. Despite the fact that the volumes they show are speculative, they are much larger than all other exchanges combined. It can be assumed that almost three quarters of the volume of deals with bitcoins occur on Chinese exchanges. If these transactions suddenly stop, the market may collapse.
All ASIC chips are made in China
In addition, the Chinese control the release of equipment. If they suddenly stop making chips, switching to production in other countries will take a long time. This means that the increase in complexity will slow or even become negative. Without growth, the network becomes more vulnerable to consolidated operations.
Thus, all the main directions of the Bitcoin ecosystem are concentrated in China and can be influenced by the government if it decides to establish control over the crypto-currency market. Regardless of the results, even at the design stage, the consequences for Bitcoin could become tough and irreversible.
If Americans and Europeans cannot compete with Chinese dominance in the crypto-currency sector, the immediate future may be unpredictable for Bitcoin. Perhaps the only aspect of Bitcoin that is not controlled by the Chinese is the development of the source code.