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China Gives Digital Currencies a Reprieve as Beijing Warms to Blockchain
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China Gives Digital Currencies a Reprieve as Beijing Warms to Blockchain

Blockchain is back in Beijing’s good graces.

Chinese officials have quietly removed the business of making Bitcoin and other cryptocurrencies from a list of hundreds of industries that Beijing plans to outlaw. In April, the practice appeared on a list of industries that would be denied benefits and subsidies from local governments, leading to worries in China that a popular and lucrative business would dry up.

But making digital currency — a practice known as mining — was not on a final list released on Wednesday. It was not clear why the National Development and Reform Commission, China’s top economic planning agency, removed cryptocurrency mining from the list, and officials there could not be reached for comment on Wednesday.

But the change comes amid what appears to be a dramatic shift in how China regards the unproven world of digital currencies. Even President Xi Jinping appears to have warmed to the technology, though Beijing may accept cryptocurrencies only in ways that it can tightly control.

Last month, Mr. Xi endorsed studies in blockchain, the underlying technology that allows a cryptocurrency like Bitcoin be tracked across a wide network of computers. Electronic payments are typically tracked by a centralized system like those run by PayPal or similar companies, giving those firms great control over the digital flow of money around the world.

According to state media, Mr. Xi told top Communist Party leaders that the technology was at the heart of China’s innovation and “key to increasing China’s influence and rule-making power in the global arena.”

Cryptocurrency makers and watchers said the comments were most likely meant to pave the way for China to create its own digital currency, both to tighten controls as well as to make China’s currency more readily available outside the country.

The comments led to a surge in interest in China. Investors sent shares of local digital currency-related companies soaring, while cryptocurrency stalwarts rejoiced.

“I will open more mines,” said Yu Wei, who owns four cryptocurrency mines in China.

China has not always held the technology in high regard. Two years ago, fearful of investment bubbles, it ordered local exchanges that trade cryptocurrencies to close. It has also banned initial coin offerings, a method by which start-ups or online projects can raise funds by issuing cryptocurrency.

Some Chinese officials had also began to express concerns about electricity usage. Mining cryptocurrencies requires a host of computers crunching numbers, a power-hungry process. The industry fell under a further cloud when appeared on the April list of industries officially frowned upon by the government. Some miners began to hide or move to places with friendlier laws or abundant electricity, including the United States.

Many officials have since come to believe that cryptocurrency mining brings jobs and revenue at a time of slowing growth, said Ziwen Xu, head of research at Dotscommunity, a consulting firm. Slackening activity at factories means cheaper and more abundant electricity.

Still, China’s vision of cryptocurrencies may not match that of the rest of the world.

Blockchain technology appeals to many people in part because its decentralized nature makes it difficult for governments to control. The Chinese government, by contrast, is exploring issuing an e-currency fully controlled by Beijing.

Officials are discussing creating a cryptocurrency that would be tied to China’s real currency, the renminbi, and would be easier to track. That could allow China to loosen the limits on how its currency is used outside its borders while firmly maintaining ultimate control. China uses its currency controls to take a stronger hand in running its financial system, but it has long envied the power and influence the United States enjoys from the dollar’s wide use around the world.

China also wants to track money flowing across its borders, both to tamp down on corruption and to protect the economy from violent swings in currency value.

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