China's War on Crypto

China sees the value in a digital currency, but only if the CCP has full control of it.

In El Salvador, you can now use crypto-currency to pay for your Big Mac. In Kazakhstan and Russia, crypto mining operations have taken off. In China, however, the Communist Party is bent on destroying every form of cryptocurrency except a still-to-be-developed digital yuan that isn't really a cryptocurrency at all.

The Chinese government has spent years enacting regulations designed to thwart the enthusiastic adoption of cryptocurrency on the mainland. But a new regulatory action announced on September 15 is different, says Karman Lucero, a fellow at Yale Law School's Paul Tsai China Center, because its language is "somewhat scarily broad."

The regulatory notice promised to shut down both cryptocurrency mining—a process through which computers around the world maintain and secure the network—and foreign cryptocurrency exchanges. Domestic exchanges have been illegal in China since 2017, and the Chinese Communist Party (CCP) has long indicated its hostility to crypto. So it's not exactly shocking that the government is getting more aggressive. But the new rule's language is vague and hard to parse.

"One reason this is potentially different," Lucero says, "is the actors that are involved in this most recent crackdown language." The new regulations will be enforced by "the most powerful regulators with the most clout," who "can force people to change their behavior or lock them up for violating certain rules." The Ministry of Public Security is mentioned multiple times, Lucero says, and so is the term public order, "one of those typical clauses you'll see in Chinese law" that "gives the government a good amount of leeway to come in and enforce the law in whatever way suits their interests."

Years ago, China had a thriving mining scene, measured via the global hash rate, which conveys the computing power used to extract cryptocurrency. As crypto's liberatory potential was being realized around the world, an estimated 60 percent to 70 percent of global cryptocurrency was produced in China each year from 2017 to early 2020.

Now China sees the value in a digital currency, but only if the CCP has full control of it: The new regulations allow for a CCP-issued digital yuan, currently in development, that would "give Beijing power to track spending in real time," according to The Wall Street Journal. Instead of the privacy promised by bitcoin and smaller, more radically anonymous cryptocurrencies, a digital yuan would empower China's authoritarian regime to surveil transaction amounts, senders, and recipients.

Some international observers have suggested that the clampdown is due to the high energy cost of crypto undermining China's ambitious clean energy goals. But controlling markets was a CCP priority long before the party cared about China's carbon footprint.

The government is also working to stifle Big Tech companies by targeting them with strict privacy laws ostensibly designed to protect consumer data from private firms (but not from state agents) and piling new regulations on ride-sharing and messaging platforms. Late last year, the Chinese state sabotaged the initial public offering of Ant Group, a finance giant helmed by Jack Ma, China's equivalent of a Silicon Valley billionaire.

China's grand plan remains shrouded in secrecy. But it appears to be driven by the CCP's insatiable appetite for control over the economy and its insistence that government policy should determine private investment. As it has made clear time and again over many decades, the party is hostile to sharing power, even if—perhaps especially if—Chinese consumers find the proposition appealing.

In contrast, America should be a place where these technologies can thrive. Unfortunately, many American politicians are mimicking the CCP on crypto and on tech industry oversight more broadly. President Joe Biden wants to appoint crypto foe Saule Omarova as currency comptroller, and new Securities and Exchange Commission Chair Gary Gensler has promised to increase crypto oversight while simultaneously claiming the technology has little "long-term viability."

Good crypto policy is not quite as simple as "do the opposite of China." But it's also not a whole lot more complicated than that.