China Closes Bitcoin Exchanges, But Blockchain Industry Still Thriving

China is purging some bitcoin businesses in a push to streamline its domestic blockchain industry. The move aims to tighten the reins on community-driven cryptocurrencies while simultaneously bolstering centralized and enterprise projects.

According to the BBC, Chinese regulators ordered all the bitcoin exchanges in Beijing and Shanghai to submit plans for winding down local operations.

It started over the weekend. The global cryptocurrency exchange BTCC, formerly based in China, stopped trading in China on Saturday and now recommends Chinese users withdraw their funds from the exchange. CoinDesk reported BTCC will continue cryptocurrency mining operations in China, plus keep the exchange platform live outside of China. Litecoin creator Charlie Lee tweeted that this is the first time any cryptocurrency exchange is returning all its money, both cryptocurrency and fiat currency like yuan, to its users.

This push comes on the heels of another Chinese announcement banning initial coin offerings, a popular fundraising trend for alternative tokens like Tezos. China has long dominated global bitcoin trading and mining activities. Now, traders and cryptocurrency projects are flocking to nearby markets like Hong Kong and Japan. The cryptocurrency ecosystem is shifting, but that doesn’t mean China is bowing out of the blockchain boom. So far it still looks like China could become the first nation to develop its own virtual currency.

“The newbies, they are probably jumping in this industry to make quick money. As soon as the government announced ICOs will be closed, they are selling panically,” Da Hongfei, founder of one of China’s up-and-coming blockchain platforms called NEO, told International Business Times. “The developers who really understand blockchain technology, they are still in the industry and they are moving globally.”

Much like Qtum, the Chinese blockchain platform frequently compared to Ethereum, NEO focuses on white collar business models. Quartz reporter Joon Ian Wong wrote Chinese bitcoin users are widely dismissive of the global community’s libertarian politics. In communist China, sustainability often means prioritizing profits instead of experimental governance. NEO's token now has a global market cap of more than $1.7 billion, according to CoinMarketCap.

“Our vision is to bridge the real economy with blockchain technology, so we are designing to be compliant and to have enterprise-level performance. So anti-censorship is not our first priority,” Hongfei told IBT. ““It [bans] hurts the official blockchain industry, but the [government-sponsored] public media has said repeatedly that we should separate bitcoin from blockchain technology.”

Despite the crackdown on cryptocurrency exchanges, China could still lead the blockchain industry when it comes to business services. The open source NEO network can process around 1,000 transactions per second, compared to around 15 transactions per second on the startup-friendly Ethereum network. Hongfei said NEO is already facilitating 100 to 200 transactions per minute these days, working with companies like the startup Onchain. The plan is to grow international business partnerships.

One major draw of NEO’s platform is its blockchain can easily combine money transfers with smart contracts and verifiable, blockchain-based identification. It’s a pretty convenient combination for businesses that want to sign and execute contracts online.

“On Ethereum, if you want to write a smart contract you need to learn a new language called Solidity,” Hongfei said. “If you are a developer, you don’t have to learn a new language [for NEO], you just use Java or CSharp to write the smart contract. So it’s more compatible with mainstream languages.”

Some regulators in Singapore and the United States are beefing up cooperation with blockchain innovators. China is taking a slightly different approach: Strict regulation while the Bank of China works on its own virtual currency. “Usually regulators do not work with the industry but they will collect information from us,” Hongfei said. He added that he's not concerned about any new bans potentially targeting bitcoin miners, as long as there’s nothing fishy about their electricity sources. China wants lawmakers in the driver's seat, steering the domestic blockchain industry.

“Owning bitcoin and trading it in person is still allowed and blockchain technology will continue to be encouraged to develop in China,” Hongfei said. "I haven’t heard of any intention to license bitcoin exchanges in China.”