Chinese cryptocurrencies: overview, outlook and market impact

Many states are actively involved in the field of cryptocurrencies and one of them is China. It is here that mining became widespread, fundamental projects were developed that are not only still alive today, but also have no analogues.

China's role in the global crypto industry

China has long played a key role in the global cryptocurrency industry, being the largest mining center and home to a number of innovative blockchain projects. However, the country's government has taken a tough stance on cryptocurrencies, which has led to a ban on mining and crypto trading. Nevertheless, Chinese developers continue to make significant contributions to blockchain development, and the government is actively implementing the digital yuan (CBDC).

Major Chinese cryptocurrency projects

Many projects are in the arsenal of Asian crypto enthusiasts, but the most recognized to this day are four of them.

NEO - “China's Ethereum”

NEO, formerly known as AntShares, is one of the most well-known Chinese cryptocurrency platforms. Often referred to as the “Chinese Ethereum”, NEO offers support for smart contracts and aims to create a digital economy. Unlike Ethereum, NEO utilizes a consensus-based Delegated Byzantine Fault Tolerance (dBFT) algorithm, which provides faster transaction speeds and energy efficiency.

VeChain is a blockchain for logistics

VeChain is a blockchain platform focused on supply chain optimization and logistics. Utilizing blockchain technology, VeChain allows you to track the authenticity of goods, prevent counterfeiting and increase business transparency. Partnerships with giants such as BMW, Walmart China and PwC make VeChain an important player in the logistics and supply chain management industry.

Conflux is the only blockchain platform approved by the authorities

Conflux is the first and only public blockchain platform to receive official approval from the Chinese authorities. The project offers a high level of scalability and security thanks to a unique architecture that combines elements of PoW (Proof-of-Work) and DAG (Directed Acyclic Graph). Government support gives Conflux a significant advantage in integrating with Chinese fintech startups and government initiatives.

Chia - Proof-of-Space based cryptocurrency

Chia is an innovative Chinese cryptocurrency that utilizes the Proof-of-Space and Time (PoST) algorithm, which replaces traditional energy-intensive mining with a greener way of storing data. Chia allows users to mine coins using free disk space, making the process more affordable and energy efficient.

Chia features

1. Proof of Space and Time (PoST)

Proof of Space (PoS) uses users' free disk space to validate transactions.

Proof of Time (PoT) guarantees the integrity of the blockchain using sequential computing algorithms.

2. Farming instead of mining

There is no traditional mining in chia network, instead farming is used.

Farming is the process of finding blocks based on pre-prepared “rafts” (plot).

• Plots are files created on disk that contain cryptographic data.

• The more rafts you have, the higher the probability of successfully finding a block.

3. Architecture and smart contracts

The chia network uses the Chialisp language, which is a powerful and secure programming language for creating smart contracts.

• It allows the development of smart transactions (atomic swaps, multi-signatures, conditioned wallets, etc.).

• Flexibility and high security.

Impact of digital RMB (CBDC) on the market

Digital RMB (e-CNY) is a central bank digital currency (CBDC) developed by the People's Bank of China. It is intended to be used as an official means of payment and is the digital equivalent of the traditional RMB. The introduction of e-CNY has a significant impact on the domestic and international financial market.

1. Strengthening regulation of cryptocurrencies domestically

- The fight against cryptocurrencies in China

China has long been tightening measures against cryptocurrencies, and the introduction of e-CNY has been a key factor in the increased controls:

• In 2021, China completely banned the mining and trading of cryptocurrencies.

• The main reason is the government's desire to maintain a monopoly on digital payments and prevent capital flight through bitcoin and stablecoins.

• The introduction of the digital yuan has made decentralized assets even more undesirable to the Chinese government.

- Competing with Stablecoins (USDT, USDC)

Previously, Chinese investors have actively used steiblecoins (especially USDT) to circumvent financial restrictions. Now e-CNY may replace them in legal transactions, and the Chinese government will crack down harder on the illegal use of USDT.

- Capital controls

• Cryptocurrencies have often been used in China to move funds abroad.

• With e-CNY, authorities will be able to better monitor money flows and prevent illegal transfers.

• This reduces the demand for cryptocurrencies as a means of capital withdrawal.

2. Impact on the global cryptocurrency market

- Weakening influence of China

China has historically played a key role in the cryptocurrency market, especially in bitcoin mining. After the ban in 2021:

• The center of mining shifted to the U.S., Kazakhstan and Russia.

• Cryptocurrency exchanges left China, and local users began to utilize P2P trading and offshore platforms.

• The development of the digital yuan reinforces this trend: Chinese players are increasingly less involved in the crypto market.

- Impact on trust in decentralized assets

The launch of e-CNY shows that the government can control digital assets, but it also increases interest in cryptocurrencies among decentralization advocates.

• Some investors see the CBDC as a threat to the freedom of financial transactions.

• This could increase demand for bitcoin, Monero, and other private cryptocurrencies.

3. Impact on DeFi

• The digital yuan is centralized and controlled by the government, which goes against the philosophy of DeFi.

• Increased regulation could limit Chinese users' access to decentralized exchanges and credit protocols.

• However, it could also increase the popularity of anonymous DeFi platforms and decentralized stablecoins.

Conclusion

Despite stringent regulatory policies, Chinese cryptocurrency continues to have a significant impact on the blockchain industry. The digital yuan is a convenient alternative for the government but not for the majority of citizens, so reducing regulatory pressure on cryptocurrencies in China will continue to be an issue.

FAQ

1. Why did China ban mining and cryptocurrency transactions?

China has banned cryptocurrency mining and trading, citing financial risks, high energy consumption, and the need to protect state control of the economy.

2. Is NEO a competitor to Ethereum?

Yes, NEO offers similar functionality to smart contracts, but uses a different consensus algorithm and is focused on regulatory compatibility.

3. Is it safe to invest in VeChain?

VeChain has strong partnerships and a solid technology base, but like any cryptocurrency investment, investing in VeChain comes with risks.

4. How is Chia impacting the storage market?

Chia has led to an increase in demand for hard disk drives and SSDs, causing shortages and price increases in some regions.

5. Will the digital yuan be a replacement for bitcoin?

No, the digital yuan is a centralized currency controlled by the government, while bitcoin remains a decentralized cryptocurrency.