April 11, 2019
THE Chinese government’s tolerance of the cryptocurrency economy has been diminishing for some time, and now seems to have reached its end: On Monday, China’s National Development and Reform Commission (NDRC) revealed plans to ban cryptocurrency “mining,” probably within a month’s time.
The fallout from this decision may spell trouble for the Philippines if our regulators do not monitor this country’s own nascent cryptocurrency sector much more carefully than they have so far.
The decision by China’s NDRC came in the form of a list of 450 activities the state planning body is recommending to be phased out, “as they did not adhere to relevant laws and regulations, were unsafe, wasted resources or polluted the environment.” Cryptocurrency mining, in particular the mining of Bitcoin, was included in the list, on which the Chinese public has until May 7 to comment.
Cryptocurrency mining, or cryptomining, is the process by which cryptocurrency transactions are recorded and verified by the computers connected to the cryptocurrency’s distributed ledger, called a blockchain. In order to confirm a transaction, the computer must perform a complex mathematical operation; successfully doing so rewards the operator of that computer with a number of bitcoins, hence the term “mining.”
Reuters reported that the NDRC clarified that since there was no target date given for when the ban would take effect, it should be understood as “immediately,” or when the May 7 deadline for public response expires.
The move follows others that have taken by the Chinese government since 2017 to restrict cryptocurrency, including the banning of “initial coin offerings,” or ICOs, and the closure of a number of cryptocurrency exchanges.
Mining requires an enormous amount of computing power, and while there are large-scale mining operations all over the world, lax regulations and access to relatively cheap electricity have led to China being home to about 45 percent of the world’s Bitcoin mining, and a considerable proportion of the mining for other forms of cryptocurrency. Ending Bitcoin mining in China could conceivably cause the digital currency to collapse completely, although a more likely result would be a scramble by miners and their financial backers to find friendlier locations.
Incidentally, on the same day China’s NDRC was serving notice of the ban on cryptocurrency mining, our Bangko Sentral ng Pilipinas (BSP) announced the approval of three new virtual currency exchanges, adding to the seven that have already been approved.
So perhaps unwittingly, we may have advertised the Philippines as a less restrictive environment for such transactions.
Except for the BSP’s supervision or oversight of digital currency trading exchanges, the Philippines has no established policy regarding cryptocurrencies. Draft rules for the regulation of ICOs by our own Securities and Exchange Commission (SEC) were put on hold in January, apparently indefinitely; the SEC has given no indication of when those might be presented for public comment.
Although the Philippines should not necessarily take its regulatory cues from China, the aggressive action against what has been a very lucrative business — sales of dedicated computer hardware for mining alone in China topped 8.7 billion yuan ($1.3 billion) in 2017 — should give our policymakers pause, particularly in light of the recent controversies brought by the sudden, surprise influx of online gambling operators.
A reputation as a haven for dodgy business is something the Philippines does not need, but is certainly risking if it does not develop firm policies to address the cryptocurrency business. That does not necessarily mean the Philippines should follow China’s lead in imposing a ban, but rather, that it should determine how best to regulate cryptocurrency activities to avoid having to take that drastic, reactive step later on.
Right now, that isn’t being done; the latest Chinese move makes it imperative that oversight is addressed at once.
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