This is an entry in CoinDesk's Most Influential in Blockchain 2017 series.
"Oh dear God. China is banning bitcoin. Sell! Sell it all, damnit!"
In an industry so often in the midst of erasing its own even recent past, it's all the more amazing a meme from 2014 still holds true today.
Depicting "South Park" characters on some fictitious trading floor, it retains so much relevance because all the huffing and puffing from China, long the big bad wolf of the crypto markets, never seems to cease.
In the industry's collective consciousness, China's influence has only gotten stronger over time. It's a relationship that's one of the more nuanced in the technology's history - informed by fact, but fueled by a kind of fiction with its own, equally relevant, truth.
If the cryptocurrency community has perpetuated one tale, it's that governments secretly fear bitcoin, that deep down, every central banker will stop at nothing to further their fiat money agenda, one they know is dated and bound to be replaced.
But while other central banks and regulators have blustered and issued warnings, none have perhaps played so thoroughly into this narrative as the People's Bank of China (PBOC).
As early as 2013, China's central bank began making moves that some would say display just how nervous it was getting with the cryptocurrency's incessant rise. At the end of that year, the PBOC banned payment companies from working with bitcoin exchanges altogether.
It was the first - but not the last - blow against the industry, and also against the idea that cryptography, and the trust provided by a global computing network on a blockchain, could replace what humans have historically called money.
Earlier this year, the central bank went even further, becoming the first globally to ban initial coin offerings (ICOs), a form of fundraising in which buyers exchange cryptocurrencies (often bitcoin) for tokens on a newer protocol. Yet, this wasn't the most devastating move. In parallel, the PBOC also secretly called for the shutdown of exchanges that allow users to swap between crypto and renminbi, effectively shutting off capital inflows into the market.
Yet, for all that antagonism, China retains a leading role in the cryptocurrency story.
It is still the dominant geography for mining, and the government's attempts to quell the domestic ICO market have seemingly only backfired. Rather, the market has done what cryptocurrency proponents have long argued the "anti-fragile" technology would do - adapt, survive and thrive.
And it's against this backdrop that a new figure has emerged, a man whose writings and public comments hint that China's attempts to shift the narrative on cryptocurrency might only just be beginning.
For an industry with an already established east-west divide, it's perhaps no surprise that little is known about Yao Qian, the director of the PBOC's Digital Currency Research Institute, nor the program for which he's now charged.
Rather, Qian appears to have emerged from the ether as a rare government agent in a position of power not just through appointment, but also through his evidently strong grasp of the technology itself. And in an article penned in May of this year, one that served as his introduction to Western audiences, Qian seemed keen to engage.
While other central banks - from Ukraine to Barbados to Brazil - have spent this year talking about the potential benefits a crypto version of fiat currency could provide, Qian's article is notable in that it's perhaps the most detailed and candid look at how a central bank might go about its design and management.
Far from meandering, it was advanced in its construction.
In the article, Qian sketches out two different futures - one where the central bank itself is the only party that issues digital currency, and one where the central bank might authorize commercial banks to issue such instruments. And not only that, but he also draws up the framework for a new wallet model as well.
As Qian did not respond to requests for comment, it's hard to tell if these ideas are still held by him or the PBOC in general, but it's an impressive and instructive document nonetheless.
In translations provided by PwC, the article also seemingly hinted at the PBOC's main objectives for adopting one type of cryptocurrency (and possibly shunning the other). Qian wrote:
"To offset the shock to the current banking system imposed by an independent digital currency system (and to protect the investment made by commercial banks in infrastructure), it is possible to incorporate digital currency wallet attributes into the existing commercial bank account system so that electronic currency and digital currency are managed under the same account."
Here it was again, two truths seemingly intertwined.
The PBOC's place
But if the document leaves much to interpretation, so do the power dynamics at play among China's many regulatory bodies.
For example, when "China" issued its ICO ban, it wasn't the PBOC acting alone.
Rather, seven regulatory agencies participated, including the Central Network Office, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce and the China Banking Regulatory Commission, all groups that have been less vocal than the PBOC but that nonetheless have different mandates.
Still, there are those who believe the PBOC is in the driver's seat, given it has jurisdiction over money issuance and governance.
"The national agenda as far as the financial industry goes, it has to be driven by the PBOC," says Zennon Kapron, author of an early book on bitcoin in China and founder and director of Kapronasia, a Shanghai-based research and consulting firm.
Kapron tells CoinDesk that as far back as 2013-2014, the PBOC had "a good idea" of what bitcoin was, but he believes the cryptocurrency changed some of the dynamics within the agency.
"If you worked at the PBOC five to 10 years ago, it was probably quite tedious. But the moment there are digital currency initiatives, it's a way to move the country forward," he says.
And the creation of a research group focused on "digital currency" appears to acknowledge that possibility. For one, the division is said to include more than 100 employees, according to Chun Yin Cheung, a representative of PwC's China-based blockchain division.
That said, the origins of the group appear to go back further, to statements made in 2016 by PBOC governor Zhou Xiaochuan, who suggested at the time the central bank was considering blockchain among a number of technologies for deploying a digital currency.
The comments painted digital currency as a broader objective, one that the central bank was pursuing before blockchain, though its inclusion was notable at a time when IT giants like Microsoft and IBM were only just venturing into the sector.
Again, here there was a notable dialogue that positioned a central bank digital currency as not just a new technology, but an alternative to bitcoin.
"For a digital currency controlled by the central bank, a combination of technological measures, institutional design as well as laws and regulations will be applied to ensure the security of its operation system. This differs from the bitcoin at the very start," the governor was quoted as saying.
Game of thrones
Indeed, one of the outstanding questions relates to the power dynamics within China itself, and the lack of clarity about how decisions related to cryptocurrencies are being made.
For instance, there's an inherent imbalance between the knee-jerk enforcements that have taken place, often in back rooms with little notice, and the more measured approach to digital currency, a conversation that has taken place in public over years.
Exchange representatives told CoinDesk earlier this year, speaking on condition of anonymity, that they weren't always sure that those doing the enforcement understood the technology, or that there was much of a plan in regard to the meetings other than to suppress unwanted market activity.
But, it's notable that, like any large organization, the PBOC seems to have discrepancies between its many divisions. On-the-ground enforcement meetings, for example, were held by the regulator's Beijing and Shanghai offices, and don't appear to have involved the Digital Currency Research Institute in any capacity.
That said, at least one prominent local lawyer, Roland Sun, legal lead for blockchain consortium effort ChinaLedger, said that anecdotally he had heard Qian was involved in the talks.
Interestingly, his comments paint Qian as someone who stands in contrast to his peers.
"Yao thought it made no sense to harshly regulate the exchanges, which just spurs OTC trading," Sun told CoinDesk at the time.
Far from being keen on shutting the door to open-source cryptocurrencies, Sun described Qian as "open minded" and "receptive to innovation."
And there's plenty of evidence to suggest this more realistic market guidance, real or simply perceived, should have been heeded.
Case in point, China's ICO ban appears to have done little to stop market activity.
"We're seeing companies get very creative in terms of ICOs," Kapron says. "Most have started overseas foundations, typically in Singapore. They're also bringing on foreign advisory teams, though how much they are actually advising is up in the air."
The idea that China's crypto-economy, now underground, is not only still active, but thriving, was also put forward by Jack Liu, the former chief strategy officer of Chinese crypto trading platform OKCoin and now a trader for Circle Internet Financial.
In comments, Liu framed 2017 as not a year dominated by regulators at all, but rather one wherein entrepreneurs out-innovated those authorities at every turn.
When ICOs were banned, for instance, China's startups started creating their own protocols, or forking existing ones, thereby giving free cryptocurrency to users of the old currency.
"The ban is you can't put RMB into [cryptocurrency]. With airdrops, you didn't raise any money, you just dropped it onto the people or gave it to employees for free," he explains.
And while public market data suggests there's been a massive drop-off in cryptocurrency trading, Liu said this is simply an accounting error, one that's due to the fact that APIs can't measure the high volumes of OTC trading.
"RMB trading is down because that's been made inconvenient," he says. "But, people have this impression that China went away. In terms of total capital deployed, I'm sure it is the same ratio it was a year ago."
But whereas Liu sees a thriving free market, others believe the PBOC made the right call to intervene in a market where consumers were at risk.
Michael Yeung, founder of International Blockchain Company and the former employee of a research effort backed by the Chinese province of Jiangsu, believes that the market had turned "very shady" and "very gray in color" even before the central bank actions.
"People were getting scammed left and right by digital tokens that didn't exist. There were people who were younger than me, their family had money, they lost 90 percent of their net worth. People were investing in every ICO, not in ether or bitcoin, they lost their fortune," he says.
In this way, Yeung says he believes the curbs on exchanges had more to do with the furor around ICOs, which he said attracted unsavory multi-level marketing elements.
"Some of these 'coins,' there was no blockchain, there was no software," he recalls.
Matter of time?
But given that all this market activity persists, it remains to be seen if the PBOC and other Chinese regulators will take further action, and if that action will include essentially legitimizing cryptocurrency through a government-approved alternative.
Those with close ties to the country tend to be optimistic about the future of cryptocurrency there.
PwC's Cheung, who has worked with Qian, believes his recent silence in the media is effectively a signal that a central bank digital currency could be on its way.
"I forecast China will surprise the world again and be the game changer in the crypto world. I personally believe, in 2018, China will be the first major country to launch a central bank digital currency," he says.
Yet, others aren't so sure.
"There was a lot of hype around [the idea]," says Kapron. "The feedback we've been getting anecdotally is the enthusiasm for a Chinese digital currency has waned slightly, so it might not be going as quickly as people thought or expected."
According to him, that's because - like many people say about crypto for payments in the U.S. - the current system works quite well. Plus, when it comes to maintaining control over monetary and fiscal policy with a cryptocurrency, there are substantial challenges, he added.
Yet even Liu, who doesn't necessarily see central bank involvement as the right expression of a form of money designed to cut out such institutions, is bullish on the idea.
"I do think [the PBoC] will launch a coin earlier than other central banks," he says. "In some sense, it will be better for the crypto ecosystem. It's not that they will launch a coin and no one will want [other coins]."
But if nothing else, with China's pursuits into cryptocurrency really just getting started, the country and its regulators are likely to keep surprising traders and causing bouts of panic.
Although, at some point, the market might decide they're just crying wolf.