Few would dispute that China’s recent crackdown on cryptocurrency trading and mining has contributed to the recent plunge in the value of bitcoin and other cryptos.
But while the argument rages about whether the volatility of cryptos is a sign of fundamental weakness or merely a bump along the road, the initiatives coming out of Beijing are being seen by experts as a sign of China’s attempts to incubate its own fledgling e-currency and reboot the international financial system.
The People’s Bank of China aims to become the first major central bank to issue a central bank digital currency. While the PBOC’s counterparts in the west have taken a more cautious approach, it has held trials in several major cities including Shenzhen, Chengdu, Shanghai and Hangzhou.
The benefits of an e-currency are immense. As more and more transactions are made using a digital currency controlled centrally, the government gains more and more ability to monitor the economy and its people.
The rollout is also seen as part of Beijing’s push to weaken the power of the US dollar, and in turn that of the government in Washington. China believes that by internationalising the yuan it can reduce its dependence on the dollar-dominated global banking system, just as its Belt and Road Initiative is building an alternative network of international trade.
Alarm in western governments is such that the threat posed by the digital yuan, which could put China out of reach from international financial sanctions, for example, was discussed at last month’s G7 meeting.
But another crucial motivation is the increasing alarm in Beijing at the size of the crypto industry in China, where a huge amount of cryptocurrency was being “mined” until the recent crackdown.
The threat of an unregulated alternative monetary system emerging from blockchain technology is a clear and present danger to the Communist party, according to observers.
Jim Cramer, a former hedge fund manager and CNN business expert, said the government in Beijing “believe it’s a direct threat to the regime because … it is outside their control”.
Seen from the perspective of central banks, cryptocurrencies are a threat to financial stability, argues Carsten Murawski, professor of finance at the University of Melbourne in Australia, and if digital currencies are to be developed then authorities want control.
“All central banks want to control them – the PBOC, the US Federal Reserve, the European Central Bank,” he says. “They have no interest in parallel currencies floating around. Some countries may not be too worried but in China it could be more of a concern.”
On Thursday, Fan Yifei, a deputy governor of the PBOC, said China was concerned about the threat posed by these digital currencies developed outside the regulated financial system. “We are still quite worried about this issue, so we have taken some measures,” Fan said.
The value of bitcoin shot up to a record high earlier this year of almost $65,000, having been worth less than $10,000 in the middle of last year, sparking a frenzy of interest in the cryptos as an investment to hedge against more traditional assets such as stocks and bonds. Comments by Elon Musk, the boss of Tesla, that he would not allow bitcoin to be used to buy his cars added to the volatility and it is now trading in the low $30,000s.
But that has also attracted the attention of authorities such as those in China concerned about the largely unregulated market.
“In many countries it is completely unregulated – it is the absolute wild west,” says Prof Murawski, who also pointed out that there might not be the usual legal avenues to pursue if people thought they had been defrauded.
“So that’s another reason to control cryptos: to protect the consumer. Uninformed investors could lose a huge amount of money.”
In China, the rollout of the digital yuan has speeded up this year in tandem with the outlawing of crypto trading. In May, the PBOC banned banks from doing business or providing accounts for anyone trading in cryptocurrencies. It was followed by the outlawing of bitcoin mining in several provinces, including Sichuan. On Tuesday, China’s central bank warned companies against assisting cryptocurrency-related businesses as it shut down a software firm over suspected involvement in digital currency transactions.
Fan said on Thursday that cryptocurrencies such as bitcoin had become “tools for speculation” and were bringing potential risks to financial security and social stability.
Online businesses have been allowed to prosper in China, but the government in Beijing has been ruthless in cutting them down to size if they appear to be getting too big to control. Jack Ma, the high-profile billionaire founder of the Alibaba empire, disappeared abruptly from public view for months last year, and his company was fined and ordered to downsize. Regulators have also targeted tech giants Tencent and Bytedance, the respective parents companies of WeChat and TikTok, and this week ordered ridesharing app Didi be pulled from app stores and launched an inquiry.
Dong Shaopeng, a senior research fellow at Renmin University of China in Beijing, said some online industries such as cryptocurrencies had reached an “alarming” size.
“It’s time for the government to block such transactions from capital sources, so that money will stop flowing from real industries to those transactions,” Dong told the Global Times.
Prof Murawski says yet another reason why China wants to clean up the cryptocurrency business on its own patch is the possible threat to the electricity system.
The process uses a huge amount of electricity and has tended to be set up in areas where cheap power is available. In China that has included Sichuan, which benefits from abundant and cheap hydro-electric power. But as profits rise thanks to the popularity of cryptos, governments may becoming less willing to allow miners to accrue huge benefits from a system that uses so much electricity it can threaten the stability of the power grid.
The crackdown on cryptos is not limited to China. Britain’s financial regulator said last month that Binance, one of the world’s largest cryptocurrency exchanges, cannot conduct any regulated activity and issued a warning to consumers about the platform.
Michael Saylor, co-founder of the business intelligence company MicroStrategy and one of cryptos’ biggest cheerleaders, recently bought an additional 13,005 bitcoins for roughly $489m at an average price of $37,617 per coin. And the Silicon Valley venture capital firm Andreessen Horowitz just launched a $2bn crypto fund and announced it was “radically optimistic about crypto’s potential to restore trust and enable new kinds of governance”.
A non-fungible token (NFT) marketplace has introduced policies to ban insider trading, after an executive at the company was discovered to be buying artworks shortly before they were promoted on the site’s front page.
OpenSea, one of the leading sites for trading the digital assets, will now prevent team members buying or selling from featured collections and from using confidential information to trade NFTs. Neither practice was previously banned.
“Yesterday we learned that one of our employees purchased items that they knew were set to display on our front page before they appeared there publicly,” said Devin Finzer, the co-founder and chief executive of the site.
“This is incredibly disappointing. We want to be clear that this behaviour does not represent our values as a team. We are taking this very seriously and are conducting an immediate and thorough third-party review of this incident so that we have a full understanding of the facts and additional steps we need to take.”
NFTs are digital assets whose ownership is recorded and traced using a bitcoin-style blockchain. The NFT market boomed earlier this year as celebrities including Grimes, Andy Murray and Sir Tim Berners-Lee sold collectibles and artworks using the format. But the underlying technology has questionable utility, with some dismissing the field as a purely speculative bubble.
The insider trading came to light thanks to the public nature of the Ethereum blockchain, on which most NFT trades occur. Crypto traders noticed that an anonymous user was regularly buying items from the public marketplace shortly before they were promoted on the site’s front page, a prestigious slot that often brings significant interest from would-be buyers. The anonymous user would then sell the assets on, making vast sums in a matter of hours.
One trade, for instance, saw an artwork called Spectrum of a Ramenification Theory bought for about £600. It was then advertised on the front page and sold on for $4,000 a few hours later.
One Twitter user, ZuwuTV, linked the transactions to the public wallet of Nate Chastain, OpenSea’s head of product, demonstrating, using public records, that the profits from the trades were sent back to a wallet owned by Chastain.
While some, including ZuwuTV, described the process as “insider trading”, the loosely regulated market for NFTs has few restrictions on what participants can do. Some critics argue that even that terminology demonstrates that the sector is more about speculation than creativity.
“The fact that people are responding to this as insider trading shows that this is securities trading (or just gambling), not something designed to support artists,” said Anil Dash, the chief executive of the software company Glitch. “There are no similar public statements when artists get ripped off on the platform.
“If Etsy employees bought featured products from creators on their platform (or Patreon or Kickstarter workers backed new creators etc) that’d be great! Nobody would balk. Because they’d be supporting their goal,” Dash added.
Sir Clive Sinclair died on Thursday at home in London after a long illness, his family said today. He was 81.
The British entrepreneur is perhaps best known for launching the ZX range of 8-bit microcomputers, which helped bring computing, games, and programming into UK homes in the 1980s, at least. This included the ZX80, said to be the UK’s first mass-market home computer for under £100, the ZX81, and the trusty ZX Spectrum. A whole generation grew up in Britain mastering coding on these kinds of systems in their bedrooms.
And before all that, Sir Clive founded Sinclair Radionics, which produced amplifiers, calculators, and watches, and was a forerunner to his Spectrum-making Sinclair Research. The tech pioneer, who eventually sold his computing biz to Amstrad, was knighted during his computing heyday, in 1983.
“He was a rather amazing person,” his daughter, Belinda Sinclair, 57, told The Guardian this evening. “Of course, he was so clever and he was always interested in everything. My daughter and her husband are engineers so he’d be chatting engineering with them.”
Sir Clive is survived by Belinda, his sons, Crispin and Bartholomew, aged 55 and 52 respectively, five grandchildren, and two great-grandchildren. ®
‘AI tech can have negative, even catastrophic, effects if they are used without sufficient regard to how they affect people’s human rights.’
The UN’s human rights chief Michelle Bachelet called for a moratorium on the sale and use of artificial intelligence technology until safeguards are put in place to prevent potential human rights violations.
Bachelet made the appeal on Wednesday (15 September) to accompany a report released by the UN’s Human Rights Office, which analysed how AI systems affect people’s right to privacy. The violation of their privacy rights had knock-on impacts on other rights such as rights to health, education and freedom of movement, the report found.
“Artificial intelligence can be a force for good, helping societies overcome some of the great challenges of our times. But AI technologies can have negative, even catastrophic, effects if they are used without sufficient regard to how they affect people’s human rights,” Bachelet said.
“Artificial intelligence now reaches into almost every corner of our physical and mental lives and even emotional states,” Bachelet added.
The report was critical of justice systems which had made wrongful arrests because of flawed facial recognition tools. It appealed to countries to ban any AI tools which did not meet international human rights standards. A 2019 study from the UK found that 81pc of suspects flagged by the facial recognition technology used by London’s Metropolitan Police force were innocent.
Bachelet also highlighted the report’s concerns on the future use of data once it has been collected and stored, calling it “one of the most urgent human rights questions we face.”
The UN’s report echoes previous appeals made by European data protection regulators.
The European Data Protection Board (EDPB) and the European Data Protection Supervisor (EDPS) called for a ban on facial recognition in public places in June. They urged EU lawmakers to consider banning the use of such technology in public spaces, after the European Commission released its proposed regulations on the matter.
The EU’s proposed regulations did not recommend an outright ban. The commission instead emphasised the importance of creating “trustworthy AI.”