China’s national crypto platform. Fact or fallacy? The tin foil hat may not be required just yet

“Everything the Chinese seem to be looking for in a blockchain seems to already exist in NEO, therefore why is a government platform being suggested? This will be interesting. I am not sure about about crypto at large. The whole thing seems more like a concentrated FUD campaign but in my opinion you can tell that not everyone;s buying into the media propaganda surrounding it.”

Ever since the metaphorical foaming at the mouth began approximately one year ago as many apparently sane individuals succumbed to what can really be likened to an addiction to anything with the prefix ‘crypto’, FinanceFeeds has maintained its absolutely conservative stance for several reasons.

In December last year, it was made very clear to FinanceFeeds via internal discussions with institutional providers across the world that many brokerages offering unrestricted Bitcoin trading had been suffering tremendous losses which in some cases have caused large firms to stop paying their affiliates. On this basis, the sensible line would be to consider that he sooner this ‘crypto mania’ is over, the better for everyone, brokers, providers and traders alike.

Indeed, as with many addictive phenomena that catch the attention of every indivudual in search of something new and disruptive, or every company whose flagging or legacy business model is no longer viable, a massive bandwagon has been jumped on, and in many cases, it is a bandwagon with no substance and tremendous risks with no recourse should something go wrong.

This is why national governments in highly organized regions with extensive business structures have taken a very specific line when addressing how anything cryptocurrency related should be controlled, ranging from the United States SEC regarding Bitcoin (and certain other virtual currencies) as a commodity, yet imposing strict rulings on the use of it as a tradeable asset class by OTC retail brokerages.

China, with its communist government’s overarching interest in ‘social stabilty’, has outlawed all Initial Coin Offerings (ICOs) and quite rightly so. The People’s Bank of China, itself owned and controlled by the Communist Party of China, imposes capital controls on Chinese citizens, and therefore Bitcoin and the use of it as well as other virtual currencies to circumvent the government-controlled internalization of everything from property to liquid capital is frowned upon.

Last month, speculation amassed within the pro-virtual currency fraternity that the Chinese govenrment, namely the Communist Party of China itself, is proposing the creation of a national cryptocurrency exchange along with regulatory systems following government discussions on the subject at one of the two annual sessions of China’s top legislative and advisory bodies.

Recently, Wang Pengjie, а member of the Chinese People’s Political Consultative Conference (CPPCC), suggested that the People’s Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC) should create a Blockchain and digital asset management “approval system,” as well as raised the possibility of establishing a digital asset trading platform at a national level.

The absence of transparency that emanates from the nature of a closed, communist country’s domestic audience-only internet system and legal system means that there is absolutely no means for those outside China to investigate the legitimacy of such discussions, or to check from within China whether this speculation has grounds or not, due to the censorship activities of state-owned media in mainland China.

Thus, it must be considered that China either fears that the use of Bitcoin and various other digital currencies by its populace is inevitable, hence it is therefore better to develop a national exchange that can be supervised by the government and would be subject to surveillance on every activity rather than alienate citizens which would result in their use of overseas platforms for completely anonymous Bitcoin-related activity, empowering them beyond the borders of the People’s Republic and rendering their activities invisible to the all-seeing eye of the communist government.

Alternatively, it could be that no such plans are likely to take place, such is the disdain for digital currency among Chinese officials.

FinanceFeeds looked into the mood of the moment with regard to this from both sides of the Chinese firewall, and has deduced that there is a proportion of interested parties who believe that it may well come to fruition, but it would be a case of paranoia by users, to the extent of the metaphorical tin foil hat being required to deflect the omnipresent supervision of the Orwellian systems used by the government.

On the other hand, there are naysayers, who clearly believe that this is a media related stunt, and no such platform will come to fruition.

Among those who consider it likely, the subject of NEO is a very important point to consider, largely due to its Chinese origins, and its relative success considering how recently it was established.

The NEO project was originally launched in 2014 as AntShares with development resources provided by founder Da Hongfei through his development company Onchain.[6][7] NEO rebranded from Antshares to NEO in June of 2017. In March 2018, parent company Onchain distributed 1 ontology (ONT) token for every 5 NEO held in a user’s wallet which will be used to vote on system upgrades, identity verification, and other governance issues on the NEO platform.

A total of 100 million NEO were created in the Genesis Block. 50 million NEO were sold to early investors, with the remaining 50 million NEO locked into a smart contract. Each year, 15 million NEO tokens are unlocked which can be used by the NEO development team to fund long term development goals. NEO tokens generate a slowly deflationary amount of GAS tokens which are used to pay for transactions on the network. The inflation rate of GAS is controlled with a decaying half life algorithm that will release 100 million GAS over approximately 22 years.

As a result of this, proponents think that due to its long half life, it has some degree of potential longevity.

During the meeting in China, Pengjie brought up the rising total market capitalization of digital assets like Ethereum (ETH), Bitcoin (BTC), and Litecoin (LTC), noting the fact that their market caps exceeded that of China’s biggest Internet provider Tencent in January 2018 as a reason for China to pay attention to Blockchain-based technologies. He also mentioned South Korea’s crypto regulations, and the fact that the US Nasdaq is considering trading in Bitcoin futures as other impetuses.

Those on the side of the opinion that the national cryptocurrency platform may well come to fruition have stated “This is not just an extension of NEO to the national government level. It would include any successful project. If there is FUD about your project that means you project is good. Look at all the FUD (Fear Uncertainty and Doubt) regrading BTC/Eth/Bcash/LTC/Cardano/EOS/IOTA and many others. That is just a part of crypto which would be included in the national platform if it goes live.”

From within mainland China, one view expressed was “Everything the Chinese seem to be looking for in a blockchain seems to already exist in NEO, therefore why is a government platform being suggested? This will be interesting. I am not sure about about crypto at large. The whole thing seems more like a concentrated FUD campaign but in my opinion you can tell that not everyone;s buying into the media propaganda surrounding it.”

It could be that if the government is seriously considering such an exchange, ‘leaky’ NEO access may carry some responsibility. FinanceFeeds is aware of a user who can buy unofficial fiat currency and still have direct NEO access – this type of transaction represents a complete conflict of interest between citizens and government in a communist environment. “I have access to some unoficcial means of buying for fiat. In my country (Malaysia – Ed) a private pool is operated by a few people that lets you buy NEO directly. There is of course trust involved as I know these folks well” said one trader.

Hence, anything ‘crypto’ related in terms of marketing, or funding for a banal project that will never come to fruition, is as absurd as Icarus’ attempt to fly toward the sun.

The same can be said of blockchain technology development. Many inexperienced mavericks are now touting blockchain development as a means of raising capital, citing investments from very large institutions such as Goldman Sachs and PriceWaterhouseCoopers as reference points, when the reality is that, if they were to conduct a bit of research within those organizations (I spent 18 years of my 27 year career in electronic trading technology as a system developer within Tier 1 interbank electronic trading desks) they would soon realize that actually the R&D is not for blockchain, but for the development of proprietary distributed ledger technology to create transparency and automate certain administrative procedures relating to financial transactions.

This means that in no way do any banks have it in mind to use blockchain technology as a facilitator of distributed ledger technology, as it is inseparable from Bitcoin, which is why the banks will develop their own, free from any crypto currency element which is superfluous to its functionality.

Those touting the incorrect rationale that blockchain development is the subject of massive venture capital investment have contributed to the artificially high value of Bitcoin. Once the banks launch their own distributed ledger, and the realization sets in that the millions were invested in developing in house distributed ledger, not in furthering Bitcoin technology, it will be a case of watching Bitcoin’s value plummet at the rate of an iron girder from a precipice.

The government is well aware of this and in mainland China, the development of any distributed ledger technology will be done extraneous to virtual currency, just as it is being done in the West by companies such as Goldman Sachs and PriceWaterhouseCoopers, the difference being that the government will develop it and implement it for automating procedures, rather than banks and management consultants which in China have no autonomy and are part of the government.

Indeed, it is difficult to decipher whether a government-developed cryptocurrency exchange or platform will every come to fruition or whether it is simply propaganda. However, it could be considered very unlikely indeed.

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