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Why the Chinese Government Loves Blockchain but Hates Crypto

Updated: Nov 29, 2022


China is still a relevant force in the crypto markets, despite a seemingly never-ending string of bans on anything crypto-related. The good old China FUD. We are becoming painfully aware of it when our portfolios are suddenly down 20% because of some statement issued by one of those cryptic-sounding Chinese government agencies. “China bans Bitcoin” has even become one of the most famous memes in the crypto sphere. It happens with a strange regularity, we can only guess why…

However, a much lesser known but even more interesting part of the story is that the Chinese government is actually a big fan of blockchain technology. The Chinese President Xi Jinping has repeatedly named blockchain as one of the key technologies of the 21st century, on par with AI or quantum computing. Blockchain was event mentioned in the 13th 5-year plan from 2016, at a time when only a handful of industry insiders, let alone government officials, grasped the potential of the technology. What does an authoritarian one-party state need blockchain for, a technology that for many is synonymous with decentralization and anonymity?

Decentralization vs. Disintermediation

This is only seemingly a contradiction. Let’s remind ourselves that blockchain is not only about decentralization, but also about disintermediation, means leaving out the middleman. In this sense, one could also view it as a tool to increase centralization. Bill Clinton once famously remarked China’s efforts to control the Internet were like “nailing jelly against a wall”. Fast forward 20 years and it seems like China has indeed “nailed it”. Why not apply the same playbook on blockchain?

Proof of Bureaucracy

China has a long history of centralized rule enforced by a bureaucratic elite. The problems arising from such rule are just as old: corruption, information distortion, and the limited authority of the central government to enforce compliance of its own officials in a vast country bigger than the European continent. What’s new however, is the attempt to solve these problems via means of technology, instead of invoking a Confucian moral codex.

To understand the Chinese government’s vision of blockchain, we therefore must view it through the eyes of a bureaucrat. What a bureaucrat will see is: a tamper-proof database where everything is traceable and auditable (not necessarily for everybody though), thereby greatly enhancing the efficiency of decision-making. When I once tried to explain blockchain to a senior official, his immediate answer was: “Oh wow then I will have a database that cannot be tampered with, so if there is any misconduct by anyone, it will be stored and I can find it there, even 10 years later? Amazing!”. A telling comment.

Satoshi’s Nightmare?

So as it turns out, the Chinese government loves blockchain for the same reason it hates crypto: control. Crypto stands for freedom. Mostly freedom to transact, sometimes also to get rugged (happens to the best). Unfortunately, these are largely two sides of the same coin. Freedom is messy, it can easily drift into chaos, which can be dangerous for both the rulers and the ruled. No wonder many governments conveniently decide that their peoples are not ready for freedom and need stability and tight control.

The underlying logic of the Chinese system is not going to change. This means that the government will continue trying to push crypto to the fringes of the economy, up to outright illegality. They are very close to it already. However, at the same time it is important to note the unique creativity of the Chinese people in circumventing government regulations. In short, if there is a profit to be made, Chinese will do it and likely beat everyone else in doing it. Meanwhile, Chinese big capital keeps investing in the space and Chinese developer teams keep building in the space, often dressed as foreign projects. The show must and will go on.


The Author: Maximilian Mai lives in China (Chengdu, Sichuan) since 2016 and works as a full-time consultant and entrepreneur in the blockchain/crypto industry since 2018. Currently he is working as co-founder and Chief Business Development Officer at BerlinDAO ( BerlinDAO is a crypto marketing agency that is driven by the DAO spirit and applies cutting-edge marketing methods to make a difference for its clients in the crypto space.

Published November 2022

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