Web3 Over Crypto: Chinese Government Backs NFTs, DID, But Bitcoin Still Illegal

Key Takeaways

• China has restricted cryptocurrency trading and mining since 2019.
• However, the government is eager to promote other blockchain-based technologies.
• With cryptocurrencies effectively banned, Chinese Web3 businesses have turned to alternative blockchain platforms.

When the Chinese government banned cryptocurrencies in June 2019, it sent shockwaves around the global crypto ecosystem, instigating a market crash and killing China’s massive Bitcoin mining industry overnight.

Four-and-a-half years later, crypto is still illegal, but the government is increasingly throwing its weight behind other applications of blockchain technology.

China Supports Web3, but Not as We Know It

On Monday, December 19, China’s Ministry of Industry and Information Technology disclosed internal communications  outlining the government’s Web3 strategy. 

Noting that the department “attaches great importance to the development of the Web3 industry,” the document highlighted areas where the government has been promoting the use of blockchains and the adoption of associated platforms and technologies.

Citing applications such as NFTs and Decentralized Identity (DID) management systems, the Ministry said it sees great potential for such technologies in fields such as medical care, education and tourism. 

However, it made no mention of Ethereum (ETH) or other public blockchains that are most commonly associated with Web3 elsewhere. Instead, it pointed to the development of alternative Chinese platforms. For example, it highlighted initiatives like Changan Chain, AntChain, Huawei Cloud Blockchain and Baidu Super Chain. 

With the exception of AntChain, these blockchains are at least nominally public and decentralized. However, they present an entirely different vision of Web3 than the one cultivated in the West. 

Focusing more on improving administrative efficiency than empowering individual users, they have been increasingly embraced by Chinese businesses. Nevertheless, members of the public rarely encounter them. 

What About Cryptocurrency?

Although the Chinese government has made no indication it intends to legalize cryptocurrency trading, the Ministry of Industry and Information Technology made a cryptic reference to “digital asset management systems.”

What’s more, the developers behind China’s blockchains certainly haven’t shied away from financial applications. 

The same company that owns the Alipay online payment platform is responsible for operating AntChain. Alipay’s massive user base could present a major commercial opportunity for the firm, should it ever integrate the two. 

Meanwhile, companies like Baidu and Huawei have promoted blockchain technology as a supply chain management solution for industries ranging from agriculture to real estate. 

https://www.youtube.com/watch?v=UavVwzH1I3g

If blockchains increasingly keep track of payments, it raises an important question: at what point does the on-chain record of a payment eclipse the underlying financial transaction?

If Chinese blockchains existed in isolation, the question might be moot. But they don’t.

As Ant Group President of Digital Technologies Geoff Jiang noted  upon the debut of AntChain Bridge earlier this year: “Cross-chain technology [will] help us move from an information network to a value network.”

Still, China’s businesses are currently restricted from engaging with the value that circulates on most mainstream blockchains. 

In the end, if it wants to fully support Web3 innovation, the government may have to adjust its hard line on cryptocurrencies. 

That doesn’t mean the Chinese economy will open up to retail crypto investing. But for businesses, more freedom to engage with digital assets could go a long way.