Category Archives: China

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New US Trade Tariffs Will Hit China’s Mining Hardware Makers

New US trade tariffs aimed at China will have a significant impact on the profits of crypto mining equipment manufacturers.

Chinese cryptocurrency mining hardware maker Bitmain stands to be the hardest hit by these new tariffs as its Antminer S9 gets reclassified by the office of the United States Trade Representative as “electrical machinery apparatus” which will now incur a 2.6 percent trade tariff.

The reclassification of mining gear from their original status as “data processing machines” also brings crypto mining hardware into another goods category which will add a further tariff of 25 percent, bringing the new tariff total from zero to 27.6 percent overnight.

The new tariffs couldn’t be worse timed for China with mining gear giant Bitmain, along with two of the world largest manufactures of crypto mining equipment, Canaan and Ebang International, all filing to list on the Hong Kong Stock Exchange. Bitmain filed in September and is waiting to hear the outcome which could result in raising $3 billion. An executive at consultancy firm Quinlan & Associates explained:

“The marked decline in the price of bitcoin since the start of the year is likely to weigh on investors’ interest in these companies… [Yet] the fall in the price of bitcoin from its peaks has not been matched by an equivalent fall in the numbers of people mining it.”

Ben Gagnon co-founder of LuTech, a bitcoin mining hardware developer suggested that there had been increased activity in the mining sector over the past 18 months, but feels that the impact of the new tariffs will start to kick in:

“All manufacturers of mining rigs based in China will likely be affected by the tariff code change and, in turn, be captured by the US trade tariff.”

Bitmain’s IPO prospectus claimed that overseas sales made up for 51 percent and 51.8 percent of its revenue in 2016 and 2017 respectively,  but neglected to stipulate exactly where the majority of these sales were concentrated. Canaan’s and Ebang International’s overseas sales represented 8.5 percent and 3.8 percent of their total revenue in 2017 respectively.

Bitmain has had little to say on the possible effect of President Trump’s trade tariffs, but Mark Li, the senior analyst at Sanford C. Bernstein, thinks that the company’s concerns that its technology is falling behind its competitors are likely to be their major focus.

A statement, prepared for Bitmain’s IPO, simply warned that changes in tax rates “due to economic and political conditions” may impact on the company’s financial status.

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People’s Bank of China Looks for Crypto Experts to Join Ranks

China’s central bank is seeking four cryptocurrency specialists that can assist the bank in developing a platform to facilitate crypto transactions.

The Digital Money Institute at the People’s Bank of China (PBoC) appears to be looking to expand its operations further into the field of cryptocurrency with its new recruits, two of whom are required to join as engineers, as well as two experts in economic law and finance.

In an advertisement placed on PBoC’s website, the engineers are said to be needed to develop both a big data platform and a chip processor. Specific responsibilities are listed, including developing the required software systems, encryption technology and security models, as well as research and development of the terminal chip technology that will facilitate the cryptocurrency transactions.

The legal and financial experts are required for legal research aspects, cited as including analysis of risk management and economic mechanisms.

In the wake of recent reports that PBoC is looking to launch its own stable coin, the job advertisement also lists policy research on ”legal digital currency” as a requirement of the successful applicant.

Earlier this week, an op-ed published by PBoC affiliate publication CN Finance called for China to launch its own yuan-backed stablecoin in order to prevent any negative externalities of US-backed stablecoins on other fiats.

The article outlines the benefit of having such a stablecoin: ”[it] uses the advantages of blockchain technology as much as possible, while trying not to challenge the legal currency, basically bypasses the commercial bank, and implements global cross-border payment.”

The PBoc has issued multiple warnings to investors regarding the dangers of cryptocurrency trading and has issued a national ban. The CN Finance op-ed advises that the ban remains firm alongside a yuan stablecoin.

 

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China’s Wealthiest List Boasts 13 Crypto Entrepreneurs, Asia’s Richest Woman

The 20th annual list of China’s wealthiest individuals has been released, showing the rising popularity of cryptocurrency, with 13 crypto entrepreneurs included in this year’s catalogue of riches.

The Hurun China Rich List catalogs anyone in the country with a net worth of more than CNY 2 billion (USD 209 million) and ranks the top 100 richest in China. This edition claims that Jack Ma of multinational conglomerate Alibaba to be China’s wealthiest man, with a net worth of USD 39 billion.

An encouraging statistic for the blockchain industry is the news that Blockchain is officially the fastest growing industry in China. The list cites 14 new players including Zhan Ketuan and Wu Jihan of crypto mining company Bitmain.

Zhan, co-founder of computer chip manufacturer of and software firm Bitmain Technologies was found to top the crypto list and sat in the top 100 with an estimated wealth of CNY 29.5 billion (USD 2.4 billion). Second in wealth to him was Wu with a personal worth of CNY 16.5 billion (USD 2.3 billion).

Other names from the world of cryptocurrency included Binance founder and CEO, ranking 230 on the list with an estimated wealth of CNY 15 billion (USD 2.1 billion), OKCoin exchange founder Star Xu and Zhang Nangeng, founder of hardware manufacturer Canaan Creative.

Hu Dong, founder of BTC mining machine Ebang International Holdings, and Li Xiaolai also made the list, the latter claiming recently he is moving on from blockchain investment.

One interesting development in the breakdown of wealth in the country is the report that women made up 28.7% of those appearing in it; a figure unsurpassed in over 20 years. Yang Huiyan, at the age of 37, became China’s wealthiest woman. Property developer Yang is also the wealthiest woman in Asia with a worth of an estimated USD 26 billion. She once added USD 6 billion to her portfolio in seven days of trading.

The rate at which some of these entrepreneurs are expanding their portfolios at such a rapid rate means that the status as the “country’s richest” is always being challenged.

 

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Great Firewall of China Slows Down Bitcoin Network

Ben Kaiser from Princeton University and Mireya Jurado and Alex Ledger from Florida International University have written a paper titled The Looming Threat of China: An Analysis of Chinese Influence on Bitcoin. The paper describes all the different ways China could manipulate and attack Bitcoin. One very interesting aspect of this is the Great Firewall of China, which observes and filters all Chinese internet traffic. Even without any sort of attack from China, the latency caused by the Great Firewall impacts the entire Bitcoin network, since 74% of all Bitcoin mining hash power is located in China.

Despite China banning fiat to Bitcoin trading, which caused the market share of Chinese yuan (CNY) trading to decline from well over 90% in 2016 to nearly 0% in 2018, Bitcoin mining hash rate in China has been steadily increasing from about 50% in 2015 to 74% currently. Over 80% of Bitcoin’s hash rate is within six major mining pools and five of these are controlled by organizations based in China.

According to the paper referenced, the Great Firewall of China doesn’t prevent outbound packets from reaching the global internet but it definitely slows them down via inducing packet loss. On the global internet, there is a rate of 0.2% packet loss, while that rate is 6.9% behind the Great Firewall of China. The lost packets must be re-requested and re-sent, increasing latency from 81 milliseconds for the global internet to 218 milliseconds behind the Great Firewall of China.

This significantly impacts Bitcoin block propagation. It takes on average 3.9 seconds for blocks on the same side of the Great Firewall of China to propagate between nodes but 17.4 seconds for blocks to propagate between nodes on different sides, a 450% slowdown.

This puts Chinese miners at a disadvantage since miners outside of the Great Firewall can broadcast a block much faster to the network and get the block reward, even if a miner inside of the Great Firewall technically found a block earlier.

This incentivized Chinese miners to mine empty blocks with SPV mining, increasing empty blocks from the global average of 1-2% to as high as 7% for Chinese miners. This is because empty blocks use less bandwidth and propagate quicker, taking away some of the disadvantage from being behind the Great Firewall. Unfortunately, empty blocks reduce the capacity of the network and can raise Bitcoin transaction fees. Fortunately, in BIP 152 in 2016, Bitcoin was updated so that all blocks, including empty blocks, propagate at nearly the same speed and empty blocks from China returned to the global average near 1%.

Chinese miners are still at a mining disadvantage to this day, and since 74% of hash rate is in China, this means the Great Firewall of China slows down confirmations on the entire Bitcoin network. There are additional threats posed by the Great Firewall that are speculated about in the paper, such as Bitcoin transaction censoring, but there is no evidence that China has been actively censoring the Bitcoin network.

 

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China Claims Proposed Blockchain Standards Will Guide Industry

The China Electronics Standardization Institute (CESI) working for the Chinese Ministry of Industry and Information Technology (MIIT) has announced a blockchain standards project to standardize the industry in the country.

The CESI project involves the release of three blockchain standards, which are not based on a national approach to standardizing the industry, but outline requirements for smart contracts, privacy and deposits which could be used as a foundation for changes within the overall industry in the future.

The Blockchain Technology and Industry Development Forum (CBD Forum) of CESI wants to draft up the three blockchain standards by the end of 2018, with a possible release in 2019. CBD Forum has been largely responsible for drawing up guidelines for blockchain development in China, having so far published “China Blockchain Technology and Application Development White Paper (2016)” and “Reference Architecture of Blockchain” standards under instruction from MIIT.

Li Ming, a director of blockchain research lab of the (CESI) confirmed, “The association-based standards will serve as a foundation on which national and international standards can make reference to or be based on.” However, it is not clear what situation would warrant other nations feeling the need to refer to Chinese standards as many are working on guidelines of their guidelines of their own. At a recent Shanghai blockchain conference, chairman of the International Standardization Technical Committee for Distributed Ledger Technology, Craig Dunn said:

“The blockchain is gradually being accepted, and more and more people are beginning to recognize, invest in or use blockchain. But at the same time, many people are skeptical and international standards are needed… At present, more than 50 countries are participating in the development of blockchain standards, including China.”

Li Ming emphasized that China’s blockchain requirements are simply recommended standards so consequently not mandatory; there as a reference point for the developing blockchain industry.

The Communist Party of China (CPC) has recently published its own blockchain guidebook that observes the technology’s key features. The book, Blockchain – A Guide for Officials, covers many facets of the nascent technology which will offer counsel to government officials.

 

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Stablecoin Race Is On: This Time It’s the UK’s Cryptopound

It’s a frenetic month for stablecoins, and the trend is further accentuated by another development as a London-based startup announces its own plans to develop a cryptopound.

In the US, a stablecoin is a cryptocurrency pegged against the USD, giving it stable-price characteristics, seen by some as a safe hedge against the volatility of conventional cryptocurrencies such as Bitcoin or Ethereum. Currently, they are underutilized apart from when traders use them to guard their positions during bear markets.

Last month, announcements of stablecoin launches appeared to have been coming from east to west, beginning with news of Gemini and Paxos being given the go-ahead to launch their own stablecoins by the New York State regulator. This was followed by Hong Kong-based Grandshores Technology Group announcing a funding round for a Japanese Yen-based stablecoin.

With the proposed launch of an Australian stablecoin last week by crypto exchange Bit Trade and the Emparta infrastructure, followed by the Goldman Sachs/Circle announcement of a US Dollar coin to end the week, this latest move from the UK was almost unsurprising.

After yesterday’s development in the UK, there seems to be no stopping the charge as the London Block Exchange (LBX) announced its plans to launch the LBXPeg, a stablecoin backed by the UK pound. LBX hasn’t named its banking partner yet but has suggested that one-for-one reserves will be held by a third party bank. LBX CEO Benjamin Dives claims this crypto pound is to be the first of its kind to be launched in the UK and is optimistic about the speed of development of the new coin:

“The primary use case will be settlement for OTC trades in the London market, then commonwealth exchanges where they don’t have fiat banking, and then securities tokens who want to pay dividends in a cryptopound… We would be ready for the first cryptopound to be minted in the next 10 days.”

LBX has stated the current stablecoin market needs disruption due to many firms’ lack of transparency, commenting that “many available stablecoin offerings are inadequate for the needs of businesses, traders and consumers” citing  “opaque management structures, distribution schedules, and auditing processes.”

Professor of Economics at UC Berkeley, Barry Eichengreen, suggests that stablecoins, seen by some as highly attractive for investment due to them being pegged to one fiat currency aren’t as stable as the name suggests. He argues that stablecoins contain certain “weaknesses”, and are not only expensive but require a reserve that is equal to or more than the coins in circulation to ensure market stability, making government regulation complex.

 

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JD.com Establishes Blockchain & AI ‘Smart City’ Research Institute

Chinese e-commerce company JD.com’s finance division has launched a blockchain and artificial intelligence (AI) focused research institute to concentrate on building so-called ‘smart cities and societies.’

The Nanjing-based Smart City Research Institute will attempt to find the most cost-effective and efficient ways of building tech-savvy cities through the utilization of blockchain, AI and big data solutions. It will collaborate with industrial construction operations; focused on China’s eastern region for the foreseeable future.

The Institute will research advanced intelligent solutions in the areas of urban environment, transportation, planning, energy consumption, commerce, security, healthcare, and e-government.

Jingdong Group, known more widely as JD.com, has been keen to make its mark in the blockchain sphere. Currently, it’s investing significant amounts of capital into a range of solutions, including logistics and supply chain, as well as launching its own blockchain-as-a-service platform. The company has focused its efforts roundly on e-commerce, finance, and logistics.

Smart Cities

Last month China-based insurance company Ping An Insurance released its own whitepaper dedicated to the infrastructure of smart cities, endorsing the use of blockchain alongside big data, AI, and cloud computing. The authors of “White Paper on Smart Cities” have said that it is dedicated to helping the Chinese government realize a new model where cities act as a service to the residents.

It boasts of proposing a plan which is both comprehensive and systematic, serving the needs of the country, society and people’s livelihood. Local news outlet People’s Daily reported on the paper describing it as a ”milestone significance” since the first smart city was officially proposed in 2008.

Ping An Insurance is one of the largest of its kind, in May this year being ranked as the third most valuable global financial services company in the world.

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Token Grab Still on in China Despite Ban

China has a ban on crypto and ICOs but the Chinese crypto enthusiasts keep on coming, with tokens available for those that want to flout state rules.

ICOs banned in China are increasingly coming under pressure and most of the big names have set up overseas to avoid becoming entangled in complicated prohibitive regulations. Thus, any advertising relating to ICOs is quickly jumped on by the authorities in an attempt to eradicate them from mainland China.

Clearly, the way to survive the ban is to do your business quietly, which is what many investors have learned to do, ensuring that their crypto life goes on as normal. The latest method to circumvent rules and buy tokens is for buyers is to log in on a platform for over-the-counter (OTC) transactions, where WeChat, Alipay or bank transfer mainstream currencies are readily available. Even setting up an ICO is possible if you know how, according to local media, as many Chinese companies are setting up overseas.

Despite the obvious continuation of trading and increase in peer-to-peer activity, the Chinese government recently called its a ban a “success”. Zhang Yifeng, a blockchain analyst at the Zhongchao Credit Card Industry Development Company, commented on recent government data which suggested that Chinese yuan (CNY) was currently being used in less than 1% of crypto-trades:

“The timely moves by regulators have effectively fended off the impact of sharp ups and downs in virtual currency prices and led the global regulatory trend.”

However, the word “success” may be purely subjective on this occasion, seeing that the ban drove out Binance, one of the world’s largest cryptocurrency exchanges, along with other hugely “successful” platforms, taking along with them an enormous investment pool.

With the latest revelation that the Industrial and Commercial Bank of China (ICBC) intends to focus on developing blockchain technology, China’s blockchain growth goes from strength to strength regardless, and this is clearly where China sees its future regardless of any later decision they may take on lifting the current crypto ban. Financing events this year have involved far in excess of CNY 6 billion, with over 10% of blockchain businesses being able to obtain more than CNY 100 million yuan of financing to further develop their enterprises.

 

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Hong Kong Stock Exchange Looks to Blockchain and Fintech Acquisitions

Hong Kong Stock Exchange (HKEX) has announced that it is considering investments in blockchain and other fintech companies through acquisitions next year.

If this materializes, it will represent a change in direction for the exchange which has close relationships with China. Hong Kong, being an autonomous territory of China, has a political system independent from the rest of the country, affecting both the economy and its commercial system. Many Chinese businesses have moved their operations to Hong Kong after China’s crackdown on ICOs and cryptocurrency in general. These included the world’s largest exchange, Binance, which moved from Beijing to Hong Kong and other locations around the globe to escape punitive legislation.

The territory is now laying claim to becoming a major hub for cryptocurrency and blockchain in the region, even creating a recent “talent list” to employ more industry professionals to support its DLT focus in the years to come through a new employment program. A fintech lead at InvestHK reflected on Hong Kong’s push towards blockchain:

“Blockchain is a very high priority for us. There is hype, and there is the fast grab of money with ICOs in some cases. But what we are looking at building here in Hong Kong is an infrastructure for new businesses and existing businesses, to make sure the technology and innovations remain a key enabler for financial sector growth.”

Unconfirmed sources suggest that Charles Li, CEO of HKEX, is now looking at blockchain and has had meetings with both potential start-ups and established companies. Concern remains about the current poor relationship between China and the US, and how this might affect businesses in Hong Kong. This is a possible reason why the exchange is considering adopting its own venture capital model similar to that of Nasdaq.

Earlier this month, HKEX senior managers had discussed possible acquisitions and more, the results of which will be revealed next year. Banny Lam, head of research at CEB International Investment, told Bloomberg, “The strategy is in the right direction but it is not easy to achieve the targets. HKEX needs to maintain a momentum of growth by exploring new businesses.”

In March, Financial Times reported that HKEX was collaborating with the Australian Securities Exchange (ASX) to implement blockchain. Perhaps, this is an indication of the direction the exchange is willing to take when it reveals its plans next year. Blockchain company acquisitions may be on the table.

 

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South Korea Pledges State Support to Build on Blockchain Successes

South Korea’s Ministry of Science and Information Communications Technology (ICT) has vowed to support the country’s already burgeoning blockchain industry.

At a meeting this week between Second Vice Minister of Science and ICT Min Won-ki and blockchain startups at the blockchain technology firm Blocko in Bundang, the minister pledged his government’s support for new startups.

Part of the purpose of the meeting was to listen to reps from domestic blockchain companies and hear out some of the challenges that they faced in the industry. South Korea has long viewed itself capable of being a leader in the blockchain space in East Asia and is keen to cement this situation moving forward.

Min said, “Considering the fact that there is no significant blockchain technology gap between South Korea and the other countries, it is a good opportunity for South Korea to lead the industry. The government will actively back domestic companies to help them lead the global blockchain market.”

Earlier this year, the South Korean government invested KRW 4.2 million (USD 3.75 million) into improving public services using blockchain applications for customs clearance, history of cattle, and simple property transaction. One purpose of the meeting was to review the successes of these projects. A statement was released after the meeting:

“We decided to hold the meeting in camera in order to hear out what challenges and difficulties the industry faces without making any kind of adjustments. This was to collect a candid opinion from the industry and help the government speak frankly with the industry.”

Some interesting developments came from the discussions, such as ensuring that the government creates fair conditions for both domestic and foreign blockchain developers in order that they would be able to place separate orders for bidding on projects by developing a cloud-based blockchain development environment.

Other nations including South Korea are still fine-tuning the regulatory side of the industry. Canada has postponed its release of regulations until 2020, and China is presently struggling to manage legal cases related to cryptocurrency due to unclear regulations.

 

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