China, The Endless Schrödinger

It’s precisely nine years since China announced the first ban of bitcoin in December 2013.

It wasn’t an actual ban, but it was reported as a ban, with bitcoin at the time having spiked 10x in about two weeks mainly because China had just discovered it.

The ban was a restriction in some form, as was pointed out, not a prohibition. But, Gox was about to fall and panic was everywhere in the second ‘death’ of BTC.

On the one hand. On the other hand China was just embarking on a journey that in a matter of months would lead to a complete domination of the asics market.

They were invented in US and there were US/European companies manufacturing them, but there was a great new deal of sorts at the time. We, the west, provides the design, they do the hands on actual manufacturing.

In just two years then, in 2016, one of the key decision making stage – the miners – was Chinese, US and European, with the Chinese having more say.

It was all fine, even better than fine. Our relationships were excellent, our goals were singular, our ambitions were shared.

So much so this space honored China with the very first Devcon by ethereum (besides the launch Devcon in 2015) held in Shanghai in 2016.

The dreams there were somewhat simple, though very focused on what the West needs: self-actualization.

We had build all these technologies over the years, like wifi, sensors and so on. A lot of the hardware was in China. And so we were going to connect all this to the blockchain, to crypto, to give the machines bank accounts that operate in their own ‘native lands.’

The wifi gave them the ability to ‘talk.’ Sensors to ‘feel.’ The code itself to ‘think.’ And crypto was going to give them the ability to ‘act.’

Except the Chinese central bank had different plans. Unilaterally and without consultation they decided to break the unwritten contract by in our view illegitimately ordering the closure of crypto exchanges in 2017, ruining our plans to connect these machines and in the process killing a lot of innovation, forcing us to demand that all this hardware is now returned home.

That was the second big ban, and illegitimately because only parliament can make such laws, or the People’s Assembly, whatever they have in China that is equivalent. Not the ‘independent’ central bank which has no law making authority.

Based on this premise, we have speculated there has been an endless power struggle in China at the top and in society more widely.

We’ve had a dance through it. China announces a ban, then some point out it’s not an actual ban, then people forget there was a ban, then China is suddenly in the crypto headlines again because people realize the atmosphere in China is as if there hasn’t been any ban.

At that latter point, PBoC announces a ban again. That was the case in 2020-21. Huobi had returned to China opening some new HQ. Volumes were increasing in peer to peer crypto exchange. China might detente speculated this paper.

Instead we got some sad visuals of people that had invested a lot towards building fine mining farms, turning off their machines.

Naturally PBoC claimed success. Everything crypto related had gone to zero, they boasted. By this point we had figured out the trick that as long as you don’t point out they are wrong, then they won’t take any action and the crypto world in China will continue as if nothing happened.

So we said yes you are right, it is precisely zero, nothing happening here at all, stop looking and move on.

Some others however did point out that some of the mining had returned and at this point, China is a bit at the crossroads.

Some protests happened recently and a lot of protests have been happening. Their media has whispered that authorities have been taken aback. Some pointed out that the new technologies of mass surveillance and so on have failed. They thought these would make disobedience impossible, but that has been proven to not be the case.

Naturally, of course. It is afterall the people that run these technologies and usually they are the ordinary people.

Arguably therefore China is currently on the brink, or that might be the atmosphere. There have recently been certain subtle but very fundamental changes in communication. They, we suspect, contributed to the sudden outburst in Kazakhstan, and now in Iran, and of course it is not out of the question that something similar can happen in China, a cultural change.

That places us in a difficult position where this paper imagines what we would do if we were in charge in regards to our relationship with China.

The Paths

The killing of so much potential innovation by China is inexcusable to our space, and therefore we’re forced to conclude their system is wrong, and it is not something we can easily work with as we can not risk innovation being destroyed.

Transitioning however towards what is self evidently good: an independent judiciary that could have for example adjudicated on whether PBoC has the authority to do what it did, is not easy.

Kazakhstan may be a model. They’re a bit like Poland in the 90s, or least that’s how we’d like to imagine them. Out of the map and kind of non existent. This communication change puts them on the map. Their people demand… well, the enlightenment. The man in charge actually responds to those demands and promises to deliver them.

Whether this will actually work is for time to say, but in Iran too they’re facing a dilemma. The elite in particular probably understands that the 70s have long gone, that a new generation is taking charge, and they are designing the world as they would like it.

Since plenty of the elite are part of this new generation, including the Supreme Leader’s niece, there is no us and them as such at this point, more a debate on how you transition as the society has clearly changed and the society does ultimately rule.

An easy transition here would be for the Supreme Leader to resign, the elected President becomes the Head of State, and he promises to provide what the society wants.

Otherwise there’s the risk the state falls, and that can be messy as then you’d have to go through a decade long transition period to rebuild the civil service.

China currently is not at the stage where they have to face these difficult questions, but they might not be too far from it.

Their elite has to decide whether it is inevitable that the enlightenment will also prevail in China, certainly over romanticism which China doesn’t quite have much, but also over effectively the one party state.

Because it is probable the people of China can not tolerate much more any mistakes. The elite can of course play silly games to distract, but as we have seen with Russia, and arguably with US before it too, this generation will no longer tolerate that sort of action.

The only way therefore to prevent the inevitable is to loosen up at least at the edges because the enlightenment path is undoubtedly superior and The Party itself acknowledges it by claiming they are a democracy with one breath, and against an independent judiciary with the other, even in the matters of commerce.

The Crypto Paths

Crypto in many ways as far as we have seen has been a reflection of the wider world, not least because we are part of that wider world.

We have seen the tightening of the grip first hand, and we’ll probably be one of the first to see any material loosening too.

“China never banned crypto. China loves crypto,” says Justin Sun, the owner of Huobi among other crypto projects.

That’s true in the literal sense. No act nor law has been passed to declare crypto illegal. Crypto possession is legal. Under what authority they closed down mining is unclear, but in a dictatorship diktat can be sufficient.

So they didn’t ban it, but they did kind of ban it. They certainly blockaded it where fiat transactions are concerned, or are trying to. Yet crypto projects there continue with Amber, a Singapore based crypto exchange that apparently serves China, now subject to rumors of whether they have been fatally affected by FTX.

They seem to have about $5 billion in assets and claim it is all business as usual. Pointed out here only to show that although they did close exchanges, they’ve kept closing exchanges since then because such exchanges keep popping up.

That makes this system itself Schrödinger because it operates differently than what we’re used to.

As the government fundamentally lacks legitimacy in not having pluralistic representatives, debates and so on, and often operates by diktat, the universal dictum that we are only governed by consent translates to many of the laws being ignored or not enforced.

It also translates to normalized corruption in any and all transactions with the state in the ordinary course of events.

The authorities there of course claim they’ve rooted out corruption, but in a dictatorship corruption is an inbuilt part of the system. It is the only way you can have diktat where it matters to the party, while leaving the masses at large alone.

Not least because the masses are too many and so enforcement is impossible if they decide to ‘rule’ by just ignoring your law or diktat.

And that may be why we never could make sense of China, because there are actually two Chinas of sorts, the official one and the ordinary one.

And that is also why they have banned bitcoin, but they actually haven’t. They’ve blockaded it officially, but the people just ignore them, as they do with many capricious and unjustified restrictions on their liberties.

This sort of system is fundamentally corrosive and corrupting to the soul. It is a most awful system, in our learned age when we know the outcome of the many experiments in governance.

It is a system that fundamentally can not last, but it can keep running for some time. With the change of generations however, and this is the biggest such change in 50 years since the Boomers’ youth, the system may come under significant stress.

Where the crypto space is concerned, we can’t ignore China. They’re the only unfree people in the crypto world, and as the song says, we will wait for a thousand years.

The question is more whether we should basically lie and perhaps corrupt ourself in a small way by playing to PBoC’s tune in saying yes, you’re right, it’s all zero. Or whether we should assert ourself, call them dictators, propagandists that chain their people for no cause, and declare without inhibition that our way is superior, that the enlightenment will prevail.

The latter can have the cost of PBoC or even The Party banning some more some things. But that in turn can provoke a backlash from the people.

It’s not our choice what they do, whether the official or the ordinary China, but it is our choice what we do and ultimately we do think the enlightenment is superior, that the way of governance we have is superior, that the debates on this matter have ended until some genius comes up with some new way which probably will happen at some point, but has not yet happened.

As such, why should we legitimize PBoC’s diktats or their forms of governance by submitting like their people do, instead of calling them lying propagandists and report the truth, whatever the consequences.

They should change, not us. They are wrong, not we. They are the banners. There is no Schrödinger in China. Crypto is flourishing there and has been since 2013. It’s underground, not freely in the open as here, but the Chinese people themself are definitely part of this global crypto party, and that will remain the case because the system is being updated across the entire world.

That’s what the people actually want, and that’s what we are giving them, self-actualization. And the people are the same everywhere, including in China, where they might have a different system, but crypto is a global system in itself.