Cryptocurrency advocates remain massed and ready to rush the barricades of traditional finance. Who will rise to lead this charge?
The Chinese government, if you can believe that.
It will soon launch a digital yuan on its nascent Blockchain Service Network (BSN), dubbed “the blockchain of blockchains.” It’s already testing this digital yuan in several large cities.
Is China doing this to encourage innovation and competition among new money systems? Does it want its citizens to have financial self-sovereignty?
I don’t know anybody who believes that.
China didn’t spend six years working on a blockchain to liberate its people. It wants to control the movement of money and enforce the social credit system.
So you can imagine my surprise when I read that BSN will connect with public blockchains like Ethereum and bitcoin. If that’s true, every person in China will soon have only one degree of separation between the yuan and bitcoin, as well as a framework for using cryptocurrency as part of their normal, daily lives.
Does this mean Chinese citizens will suddenly all buy bitcoin?
I doubt it. The Chinese government will control every aspect of BSN, undoubtedly blocking unapproved swaps of yuan with any currency, national or digital.
But you never know, right?
If the Communist Party thinks pumping bitcoin’s price will undermine the U.S. dollar, they just might loosen the reigns. Or perhaps their developers will create exclusive linkages with Party-favored public blockchains?
Maybe once they make the yuan more accessible and useful for people in other countries, foreign interests will start to use BSN?
Many analysts believe China will force its trading partners to use the digital yuan in exchange for access to its markets or in return for Chinese investments. If that’s true, China will essentially force mandatory adoption on a global scale.
(Granted, it will be the adoption of a closed, restricted, localized, controlled, censorable cryptocurrency issued by the People’s Bank of China…but adoption is adoption, right?)
Venmo for government
Even if China confines its cryptocurrency to its borders, its blockchain will give cryptocurrency a greater sense of inevitability.
“Bitcoin sucks but did you hear about what China’s doing?”People all over the world
China’s central bank will use the technology to distribute financial stimulus and government benefits. Businesses and households will use personal wallets to send instant, direct payments to each other. Everything will work as easily as AliPay or WeChat Pay, popular payment apps in the country.
If BSN delivers more nimble payments, better capital controls, and stronger anti-money laundering tools, how long do you think other governments will wait before they feel compelled to follow? Central banks have talked about digital currencies for years. Perhaps China will force them to act.
Pressure may even come from voters and special interests. In a post-bailout world, they may like the idea of a national currency that their governments can send directly to their wallets rather than to the banks and financiers.
Could the digital yuan could be crypto’s killer app?
About that U.S. digital dollar . . .
You may have heard that U.S. Congress tried to pass a bill to create a digital dollar. Does that mean the U.S. government wants cryptocurrency?
At no point did anybody propose a cryptocurrency. The idea was for banks to create free accounts for every American. Those accounts would be linked to the Fed’s database. As a result, the government could send money directly to individuals digitally.
While the U.S. Federal Reserve has quite openly solicited input on a digital dollar, its plans call for revamping traditional technology, not introducing a blockchain. A true U.S. cryptocurrency remains a long way off.
As I wrote last year, U.S. Congress Will Pass Blockchain Bills as Soon as Somebody Tells it What ‘Blockchain’ Means. It will take a lot of lobbying to get Congress to understand how this stuff works, let alone why it’s useful.
Yes, members of Congress have introduced 32 crypto bills since last year—but motion is not progress.
Half of those bills tell the government to investigate terrorism, money laundering, and trafficking of humans and drugs using cryptocurrency.
Does that mean Congress thinks cryptocurrency is for terrorists, sex traffickers, drug dealers, and money launderers?
No, but it does mean those are Congress’s biggest concerns right now.
Most of the other bills establish legal and legislative standards for regulating cryptocurrency. Very inside-the-beltway stuff that’s hard to explain.
That might seem like cause to celebrate, but those bills haven’t gone anywhere.
With time and money . . .
Right now, the cryptocurrency industry doesn’t have enough money and votes to make a difference.
As I wrote in Bitcoin or Bust: Wall Street’s Entry Into Cryptocurrency, that will change as traditional finance expands its role in the cryptocurrency industry.
We have already seen money from traditional finance flow into cryptocurrency, first by endowments and pension funds, now by prominent investors and large funds. Lobbyists and campaign contributions will help them rig the rules in their favor.
Wyoming’s government has already started passing pro-crypto laws to get financial companies and blockchain businesses to relocate there. As the industry grows, you can expect more states and countries to woo big-moneyed interests eager to capitalize on this new technology.
All that momentum—that sense of inevitability—will pressure governments to keep up the pace, but that will take time. China is moving much, much faster than they can.
Don’t underestimate the chance that its success will push the U.S. to adopt cryptocurrency. Congress can move quickly when it wants to. Last year, Facebook published a white paper and the U.S. government flipped its wig. We got emergency hearings and a Presidential statement.
What do you think will happen once the digital yuan starts to gain steam?
Mark Helfman is editor of Crypto is Easy and a top writer on Medium for bitcoin and investing topics. His book, Consensusland, explores the social, cultural, and business challenges of a fictional country that runs on cryptocurrency. In a past life, he worked for U.S. House Speaker Nancy Pelosi.