China's blockchain tokens face a cold winter, and the central bank may be planning a digital currency game

(Original title: "Digital assets in China: dead or reborn?")

In September 2017, blockchain digital tokens, represented by Bitcoin, seemed to have reached the end of their life in the Chinese market. On September 4, the blockchain ICO publishing website was suspended by the central bank and seven ministries. On September 15, all blockchain token exchanges in China were once again suspended. Not even a trace of currency-to-currency trading was left.

Bitcoin is dead in China, digital encrypted tokens are dead in China. For a time, it has become a consensus in the currency circle. People are frantically selling Bitcoin, Ethereum and other tokens, fearing that they will be hit by a lot if they run too slow and lose all their money. As a result, a considerable number of digital encrypted tokens fell by more than 90% on the evening of September 15. The Internet and the circle are full of enthusiastic guidance posts on how to participate in overseas ICOs and how to enter foreign token trading markets. It is really wailing everywhere, desolate and unbearable to watch.

Everything seems to be certain and set in stone. However, I would like to ask everyone to think about this: Isn’t all this just an appearance? What is the essence behind this? Why do regulatory agencies such as the central bank and the China Securities Regulatory Commission do this? Have we seriously thought about this question?

1. Is the announcement by the seven ministries going around in circles?

The only regulatory document underlying the September deadline for digital cryptocurrency tokens is the seven-department announcement. So, let’s see how this announcement defines everything.

First, let’s look at blockchain ICO. The title is: Accurately understand the essential nature of token issuance and financing activities. “(ICO) is essentially an act of illegal public financing without approval, suspected of illegal sale of token tickets, illegal issuance of securities, illegal fundraising, financial fraud, pyramid schemes and other illegal and criminal activities.” It is clear that ICO is essentially financing, which is an illegal financing behavior and must be banned.

Let’s look at the token trading market. The title is: Strengthen the management of token financing trading platforms. “From the date of this announcement, any so-called token financing trading platform shall not engage in the exchange of legal currency and tokens, “virtual currency”, shall not buy or sell tokens or “virtual currency” or act as a central counterparty, and shall not provide pricing, information intermediary and other services for tokens or “virtual currency”.” It is also clear that trading platforms cannot engage in token and legal currency transactions, currency-to-currency transactions are not allowed, and even currency-to-currency trading intermediaries are not allowed. But the title says that the management of trading platforms should be strengthened, and it does not say that trading platforms are illegal.

This is interesting. Why not directly define the token trading platform as an illegal financing trading platform? Why not directly announce the ban? Why do we need to strengthen the management of the token financing trading platform? If the trading platform is to be banned, who should be strengthened? You must know that this is a joint announcement by seven ministries and commissions, and every word and every punctuation will be carefully considered. Such a low-level mistake will never happen.

2. Is the trading platform’s announcement just to save face?

There are three major Bitcoin trading platforms in China, OKcoin, Huobi and BTC China. BTC China announced on September 14 that it had received a verbal notice to stop all trading activities before September 30. The other two announced on September 15 that they had "officially received a formal notice and guidance from the regulatory authorities this afternoon" and would stop registration from that day and stop all trading before October 31. There is also an interesting episode that most people don't notice.

On September 15, the two companies announced that they would only stop trading virtual currencies against RMB, and other transactions would not be affected. On the 16th, the text was changed to "stop all virtual currency transactions." However, the previous paragraph "will gradually stop all digital asset transactions against RMB before October 31st" shows that the announcement on the 15th was the original intention. Why did it change on the 16th?

This change is undoubtedly the intention of the regulators. What is more interesting is the part marked in blue: "Since the regulators have not declared Bitcoin and digital assets illegal, OKCoin will actively explore and strive to continue to provide compliant digital asset services to Chinese users." The statements of the two companies are almost identical. Considering the identical changes made by the two companies, it is not difficult to imagine that the blue-marked paragraph is definitely not a way for the two trading platforms to save face, but a unified statement from the regulatory authorities. "Hope to continue to provide compliant digital asset services to Chinese users", the real fun is probably here!

3. The best part is always yet to come

The current blockchain ICO is illegal. Is there any legal blockchain ICO?

The current token trading market is not compliant. Is there a compliant token trading market?

Where are the legal ICOs and compliant trading markets? How can we continue to provide compliant digital asset services to Chinese users? Following this line of thought, you will find that all of this is not as simple as it seems. The central bank is very likely to be playing a bigger game and preparing a more exciting show.

The research on the central bank's digital currency has been carried out for more than four years. At the beginning of this year, the blockchain-based digital trading platform has been successfully tested, and the legal digital currency issued by the central bank has also been successfully run on it.

After the Spring Festival, people saw that the Digital Currency Research Institute under the central bank had been opened at some point. Yao Qian, head of the preparatory group of the Digital Currency Research Institute of the central bank and deputy director of the Science and Technology Department, said at the beginning of this year that "the purpose of the central bank issuing digital currency is to replace physical cash, reduce the cost of issuing and circulating traditional paper currency, and improve the convenience and transparency of economic transaction activities. As for when China's legal digital currency can be launched, there is no timetable at present." Now that the illegal issuance of ICO tokens has been banned and the non-compliant token trading market has begun to strengthen management, is this timetable approaching?

Even after saying this, some people may still be confused. What does the central bank's issuance of digital currency have to do with illegal ICOs and non-compliant token exchanges? Simply put, the current RMB cannot deal with digital cryptocurrencies because it cannot execute smart contracts. Only the legal digital cryptocurrency issued by the national central bank can deal with all other digital cryptocurrencies in the world through smart contracts.

Legal digital cryptocurrency + smart contract, perhaps this is Ethereum's greatest contribution and the core element of blockchain version 2.0. It can decentralize transactions of all digital cryptocurrencies in the world.

Centralized central banks issue decentralized digital cryptocurrencies, which disintegrate all centralized currency trading platforms in the world. It's hard to say, let alone understand. Let me put it this way. After the central bank's digital cryptocurrency comes out, compliant trading platforms are all over the world. Internet payment platforms such as Alipay, WeChat Pay, PayPal, and Apple Pay can all go to bed. Still don't understand? Still don't understand? Then please read the following paragraph carefully.

In the future, all decentralized digital cryptocurrencies can be automatically traded through a specific smart contract. For example, I use 1,000 Ripple coins to exchange for your 0.01 bitcoin. When both parties agree, the specific smart contract will lock my 1,000 Ripple coins and your 0.01 bitcoin. As long as either party remits their own coins, the smart contract will transfer the other party's coins to its own account.

The same is true for the purchase of blockchain digital assets. I use 100 bitcoins to purchase the digital intellectual property rights of your novel. After my 100 bitcoins are remitted, the code of your novel's digital intellectual property rights is also in my account. At this time, do trading platforms and trading methods such as Alipay and Paypal still have meaning?

Once the People's Bank of China issues a legal digital cryptocurrency, this digital currency, which is backed by national credit and has traceable issuance, will become the central settlement currency for all current digital tokens once it is bound to smart contracts. Even centralized exchanges will no longer be necessary (all transactions can be done peer-to-peer). In this way, the central bank only needs to control the buying and selling of its own legal digital currency, which is equivalent to controlling the entire global digital token trading chain that trades with the central bank's legal digital currency. All Bitcoin money laundering, smuggling, and black market transactions will lose their soil for survival.

4. Crisis and Opportunities Coexist

Having said that, all of this is just speculation, and at most, it only reveals one of many possibilities. Now, all kinds of rumors are flying around, and as a grassroots citizen, there is no reliable source to confirm their authenticity. Therefore, the only thing we can trust is our own judgment of basic value logic and our understanding of the basic laws of things.

The global digital token market has already exceeded 100 billion U.S. dollars. According to the popularity of ICO token issuance in the Chinese market in the past few months, it is only a matter of time before the global token economy market exceeds 500 billion or even 1 trillion U.S. dollars.

Such a large market is allowed to develop freely without regulation? At least in China, it is impossible. China does not want to have a piece of such a big pie. At least in China, I am afraid that there is no such fool.

The People's Bank of China and regulatory authorities have spared no effort to crack down on illegal ICOs and non-compliant token trading platforms. They do not want to put the blockchain token economy to death, but hope to use it for themselves and for the development of China's future new economy under the premise of legality and compliance. The ambition of the People's Bank of China may be far beyond our imagination. It not only wants to get a share of this new token economy, but also hopes to further grasp its dominance.

Since the central bank has already taken such actions, we should pay more attention to our own development. If all this is really planned by the central bank, it will inevitably lead to a change of era and bring the development of digital assets into a new stage of development, so we must seize this opportunity.

To create a legal ICO and a compliant trading market, it is necessary to build a complete ecosystem to control the registration of digital assets from the source and record the whereabouts of digital assets.

The above-mentioned issues are just one of many possibilities. If so, all digital cryptocurrencies in the hands of investors will rise sharply. When people around the world trade on compliant token trading platforms at home and abroad that meet China's regulatory requirements, first of all, they must use the central bank's digital currency to purchase tokens. Therefore, the central bank welcomes the appreciation of tokens. The higher the token price rises, the greater the demand for digital currencies issued by the central bank.

Secondly, to cash out tokens, they also need to be exchanged back into the central bank's digital currency (at least this is the only way in China). In this way, the central bank's digital currency, which is bound to Bitcoin and backed by national credit, is likely to become the first international legal digital currency, and we can also go out and take advantage of other people's money.

Finally, although the central bank’s digital currency is the national legal tender, it is not bound to the RMB on a one-to-one basis, but is also related to the exchange rate. This can prevent international financial giants from suppressing the RMB by suppressing the central bank’s digital currency, and can effectively establish a virtual world firewall for the RMB.

I repeat, everything is just a possibility. Maybe Bitcoin is dead and there is no future for it; maybe it is reborn from the ashes and the big show is yet to come. As for whether to hold on to the tokens in your hands or sell them quickly, please make your own judgment.