How Bitcoin is playing a role in Hong Kong politics
You could make the case that cryptocurrency is completely apolitical in its purest form. In a perfect world, that would be the case. Its decentralized nature means Bitcoin cannot be controlled by governments or central banks. That means the world could theoretically trade exclusively with Bitcoin and keep government out of the equation. But that's just theory.
Cryptocurrency is anything but apolitical. By its very nature of excluding national governments and central banks it creates the political position of decentralization. It is a position that is starting to emerge in the midst of ongoing protests in Hong Kong. Bitcoin may eventually influence the outcome of those protests.
Are you intrigued by such a concept? If so, this post is for you. Keep reading to learn more about how Hong Kong protesters are using Bitcoin to protect their own finances. You might be fascinated to discover that Bitcoin is proving itself very valuable in the protest effort.
Weeks of protests
Protesters in Hong Kong have now been at it for more than 12 weeks at the time of this writing. Their protests began when it became clear that the Chinese government was going to see to it that legislation affecting criminal extraditions would be passed. That legislation would virtually eliminate all of the current protections against extradition that exist in Hong Kong. Residents of the world-famous city also believe the legislation would further erode individual rights.
The idea behind the protests is to let the Chinese government know that citizens are unhappy about the extradition law. For the record, the law has not been passed as of yet. Protesters are hoping they can put enough pressure on Beijing to get leaders to change their minds.
Most of the protests have been peaceful thus far. However, there have been some escalations here and there. No one knows how long the protests will continue, but there is consensus that something has to happen soon. Either the two sides will have to come to some sort of agreement, or one will have to completely back off.
An economic upper hand
The greatest fear among protesters is that China will send its military into Hong Kong. However, Hong Kong citizens do have an upper hand: economics. Hong Kong continues to be an economic powerhouse in Asia and one that China cannot afford to allow to fall into economic ruin. Simply put, an economic crash in Hong Kong would impact China.
Protesters know this, which is why they have begun converting their assets into either Bitcoin or U.S. dollars. Converting accomplishes two things. First, it protects assets. Remember that the U.S. dollar is the world's reserve currency. Its value will not be impacted by an economic crisis in China or Hong Kong. By converting Hong Kong dollars to U.S. dollars, local citizens are protecting the value of their wealth.
The same holds true for converting Hong Kong dollars to BTC. However, converting to BTC also sends a political message. To understand this message, it is important to understand how the Chinese government has viewed Bitcoin over the last 10 years.
An unfavorable government
China has traditionally taken a hardline view against cryptocurrency. Lawmakers and courts have generally held that digital assets like Bitcoin do not constitute legal property. As such, doing anything with Bitcoin in China is not protected in any way, shape, or form. Moreover, the Chinese government makes it very difficult for cryptocurrency businesses to operate there.
Things started to change when U.S. President Donald Trump went head-to-head with China over tariffs. The ensuing trade war has caused a lot more trouble for China than the US. China's yuan has lost a significant amount of value against the U.S. dollar, and that's just for starters. Markets for Chinese goods are shrinking, GDP is down, and inflation looks like it's just around the corner.
All of that leads into a decision by Chinese leaders to develop a state-backed cryptocurrency. They announced plans to do so in early August 2019, giving the world a bit of a tease with details of a prototype crypto issued by the People's Bank of China.
The irony of the situation has not been lost on Hong Kong protesters. By converting some of their assets to BTC, they are telling China they have no interest in a state-backed crypto. They are also making it clear they have no confidence in it. China is effectively being told to keep their digital currency on the mainland.
Cannot afford more losses
If that's not enough for China, a fair number of Hong Kong's wealthiest residents have decided to send assets offshore. That's right, millionaires and billionaires are taking their assets out of Hong Kong and placing them in foreign accounts. This translates into a lot of wealth leaving the city in a small amount of time. It is all adding up to significant losses for both China and Hong Kong.
Earlier in this post, you read that Bitcoin could play a role in determining the outcome of the protests. This should explain why. Between wealthy individuals sending their assets offshore and local citizens converting their Hong Kong dollars to BTC, China is losing its ability to benefit from Hong Kong's economy.
There is nothing China can do to seize Bitcoin assets owned by Hong Kong residents. They cannot force wealthier residents to bring their assets back home. All they can do is stand by and watch the economic bleeding. At some point however, government leaders are going to have to make a decision. They are going to have to stop the bleeding.
The importance of decentralization
If you have ever wondered why decentralization is such a key component to cryptocurrency, the Hong Kong protests provide the answer. Bitcoin is completely decentralized. It is therefore outside the control of the Chinese government and the People's Bank of China. The same is not true for China's state-backed crypto.
Should they ever get around to implementing it, the crypto will be a two-tiered asset control by the state bank. It will not be fully decentralized despite claims to the contrary. Moreover, it appears as though the government's eventual goal is to completely replace both its own fiat and other cryptocurrencies with the state coin.
Think about that for just one minute. The prospect of China completely replacing yuan with a digital currency should leave you wondering what that would mean for Chinese citizens. As long as China does not ban access to other fiats and cryptos, consumers wouldn't see much of a difference on a day-to-day basis. But what if regulators actually achieve their goal of replacing every fiat and crypto in China with the state coin?
China's limited economic freedom would be reduced to near zero. By controlling the state-backed coin, regulators would also control nearly every aspect of economic life. They would control the issuance of coins. They would determine how much the coins are worth. They would control everything from transaction processing to storage.
Keeping government away
Decentralization is important because it keeps government away. In Bitcoin's case, it is governed by platform developers, coin miners, and every individual and business entity that owns coins. Its code relies on certain key features to prevent any one entity from completely taking over. As such, everyone involved in Bitcoin is on a level playing field.
A state-backed cryptocurrency that maintains centralized control in the hands of government and central bank officials is no different than a paper fiat. It matters not that the cryptocurrency is a digital asset rather than a tangible one. What is important is that the government controls it.
What we are seeing in Hong Kong really isn't about cryptocurrency at all. It is about local citizens wanting to maintain freedom and independence. It is about not bowing to a Chinese government that seeks to maintain the same kind of control in Hong Kong that it enjoys on the mainland.
Bitcoin is a tool with which protesters are making their voices heard. They are converting fiat to Bitcoin in order to protect their wealth against future confiscation. They are converting it to protect their wealth in case Hong Kong's economy crashes. At the same time, they are telling China they have no confidence in either the yuan or the proposed state-backed coin that now appears to be on the doorstep.
The current protest may not even have been possible without Bitcoin. As some news reports have suggested, some of the funds that have gone to support the protests are linked to Bitcoin donations from around the world. Let that sink in for a minute.
People outside of Hong Kong looking to support the cause have done so by donating BTC. The coins have been used to support protests, all the while maintaining the anonymity of donors. This is yet another important benefit of decentralization.
Time will tell the eventual outcome of the Hong Kong protests. Here's hoping they achieve their intended goals. If not, Bitcoin could become even more important to Hong Kong citizens than it is today. It could become as important to them as Dash is to Venezuelans. Let's hope things don't go that far.