Print Friendly, PDF & Email

What Beijing’s new crackdown means for cryptocurrencies in China?

Topics Covered: Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology and issues relating to intellectual property rights.

What Beijing’s new crackdown means for cryptocurrencies in China?


Context:

Chinese regulators have tightened restrictions on use of Cryptocurrencies.

  • The new rules greatly expanded the scope of prohibited services, and judged that “virtual currencies are not supported by any real value”.

As per the latest changes:

  1. Banks and online payment firms will not offer any crypto-related services, such as account openings, registration, trading, clearing, settlement and insurance. This also covers services that were not previously mentioned.
  2. Institutions are prohibited from providing cryptocurrency saving, trust or pledging services and issuing crypto-related financial products. And virtual currencies must not be used as investment targets by trust and fund products.

Background:

China does not recognise cryptocurrencies as legal tender and the banking system does not accept cryptocurrencies or provide relevant services.

Why has China tightened regulation?

The directive warned speculative bitcoin trading had rebounded, infringing “the safety of people’s property and disrupting the normal economic and financial order.

What’s the impact of the crackdown?

  • The fresh crackdown makes it more difficult for individuals to buy cryptocurrencies using various payment channels.
  • It could impact miners’ business by making it harder for them to exchange cryptocurrencies for yuan.
  • But banks and payment companies also face challenges of identifying money flows related to cryptocurrencies.

What are Cryptocurrencies?

Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

Examples: Bitcoin, Ethereum etc.

InstaLinks:

Prelims Link:

  1. Various cryptocurrencies.
  2. Cryptocurrencies launched by various countries.
  3. What is Blockchain technology?

Mains Link:

What are Cryptocurrencies? Why is there a need for regulation? Discuss.

Sources: Indian Express.