Issue 56

China, blockchain innovator

From the SCMP:

"China’s  cryptocurrency miners are cautiously celebrating a government decision  not to ban the energy-intensive industry even as authorities launch a  fresh crackdown on trading virtual currencies, though operators remain  wary of more robust regulation in the future.

In a surprising  policy shift in late October, China’s economic planning agency, the  National Development and Reform Commission (NDRC), removed  cryptocurrency mining from a list of activities set for elimination by  the end of 2020.

Although trading cryptocurrency is banned in  China, mining is not, and the country dominates 70 per cent of global  mining operations thanks primarily to cheap electricity supply.

Its  nearest competition, India and the United States, accounted for 4 per  cent and 1 per cent of total mining share respectively."

Let  me quickly clarify something: cryptocurrency mining is not innovating.  China has excelled at mining because it has access to relatively cheap  real estate, skilled labour, broadband and electricity. The one  exception might be on the hardware side, where some innovation has  occurred in terms of maximising efficiency, with China's Bitmain (75%)  and Canaan (15%) dominating the cryptocurrency mining hardware market. But Chinese companies are  still laggards in terms of their development and implementation of  blockchain technology.

However, the decision not to ban cryptocurrency mining is important when taken in the context of President Xi Jinping's recent speech, during which he declared that blockchain would play:

"An  important role in the next round of technological innovation and  industrial transformation. As such it should be made a key part of the  country's innovation programme, and investment in the sector should be  increased.

Major countries are stepping up their efforts to plan  the development of blockchain technology. Greater effort should be made  to strengthen basic research and boost innovation capacity to help China  gain an edge in the theoretical, innovative and industrial aspects of  this emerging field."

By no means should China now be considered 'friendly' to crypto. Remember that it's still illegal to use Chinese yuan to buy crypto, or exchange crypto for yuan, and  rightly or wrongly China is cracking down hard on on crypto exchanges  peddling what it calls "air tokens":

"It's obvious  the Government is nervous about all these unsavory "air token" projects  空气币 (slang for scam project). And it will continue to rout these sorts  of things from China. The bigger question though is the long-term fate  of legitimate cryptocurrencies such as bitcoin and ether. With  investments from the likes of the ShuiMu QingHua BlockChain Fund, it’s  way too early to say that the Government has fully embraced "blockchain  not bitcoin." But it has made it clear that air tokens—and the exchanges  that promote them—will vanish into the air. Or be suffocated."

Any  attempt by the Chinese politburo to centrally plan the direction of  Xi's "innovation capacity" will be doomed to failure (Soviet jet trains  anyone?), but if it takes a hands-off approach and gets the incentives  right then there's no reason why China won't eventually move beyond  mining hardware innovation and lead the charge on the software side as  well. It's just not yet even remotely clear that's the path China is  heading down.

Personally, I still think that the United States is  where the next major blockchain breakthrough will emerge (noting that  could be a new crypto, e.g. what Libra threatened to be, or an at-scale,  real world implementation of an existing crypto), even if its Congress seem intent on playing whack-a-mole on any mainstream attempts to innovate in this space.

Enjoy the rest of this week's issue. Cheers,

— Justin


The bits

SoftBank has the world's biggest Ponzi scheme

I'm sorry but there is nothing visionary about Masayoshi Son's "Vision Fund", just a good old fashioned Ponzi scheme:

"Since  unveiling his $100 billion Vision Fund in 2016, Son has become the most  active tech investor on the planet, pouring money into more than 80  companies. That helped create a bumper crop of unicorns, more than 300  startups priced at $1 billion or greater, according to the research firm  CB Insights.

When SoftBank buys shares in a startup and then  invests again at a higher valuation, Son says he has made a profit. That  is legal under accounting standards, but SoftBank receives no money.  The only change is that SoftBank has boosted the value of its original  stake from, say, $1 billion to $2 billion by raising the value of the  startup. In SoftBank’s income statements and return calculations, at  least some of the additional $1 billion can be counted as profit.

Son’s  bookkeeping has allowed him to claim his average internal rate of  return far outpaces those of other investors. This month, as SoftBank  took a hit from WeWork, Son defended his investment approach. “There are  5,000 venture capitals globally and average IRR is 13%,” he said. “Our  return is about twice as big as this."

Son  spotted an opportunity in outdated accounting standards and the tech  bubble, that's all. His returns are on paper only, achieved by throwing  billion after billion at hundreds of actual and potential 'unicorns', at  increasingly inflated valuations, over several funding rounds. This  will not end well for Son's investors.

Learn more:


HSBC moves to the blockchain

Financial  services are the most obvious low-hanging fruit for blockchain  technology (that and things like land titles). For context, $20 billion  represents about 40% of HSBC's private placement assets under  management, so it's significant but still small in the grand scheme of  things.

Learn more:


Other bits of interest


Image of the week

These  were local elections so more symbolic than anything but it was a strong  anti-Beijing week for Hong Kong. The voter turnout of 71% was double  that of the 2015 elections, with pro-democracy candidates victorious in  347 of the 452 district council seats up for grabs. The map can be a bit  misleading - for example, the Islands District to the south is went  Pro-Beijing mostly because 8 of the 18 seats are held by unelected  ex-officio (Pro-Beijing) representatives.


This week's data breaches

There are the people vying to get their hands on the nuclear launch keys.

The breaches:

That's all for now. If you enjoyed this issue, feel free to share it via email


Issue 56: China, blockchain innovator was compiled by Justin Pyvis and delivered on 03 December 2019. Join the conversation on the fediverse at Detrended.net.