The People's Republic of Cryptocurrency

As a thought experiment, let us assume all the recent rumors about Chinese regulation are true. What could we infer about the possible future of cyptocurrency in the Middle Kingdom?

PBOC Will Ban Private Exchanges

China will ban private exchanges from trading against CNY. It’s inevitable.
PBOC has to maintain control of the value of the Yuan. The Chinese economy is currently almost entirely dependent on their export market. This market is maintained by keeping the Yuan at a fixed value, which increases international dependence on Chinese exports.
Current crypto-exchanges undermine that control and allow money to flow out of the country at an unpredictable rate.

PBOC Will Create A People’s Coin Exchange (PCE)

You can’t just shut things down without offering an alternative. Shutting down private exchanges will not stop the masses from trading in cyptocurrency, only drives them to operate in the dark, creating unregulated black markets. China already has immense problems with tax evasion. Tax evasion is rampant, and so taxes are kept high to compensate, which punishes legitimate business. Creating a PCE solves these problems. If the only place to trade Yuan for Crypto is through a PCE, then all transactions can be taxed and monitored. The higher amount of taxes being collected means that overall tax rates can be lowered, further strengthening the Chinese economy. A PCE also prevents Yuan from leaving the country, which maintains PBOCs control of value. Furthermore, as China currently has 25% of the crypto market, consolidating that power will strengthen PBOCs influence over the global crypto market.

PBOC Will Create Its Own Cryptocurrency ($CNYT)

In order for a cryptocurrency to truly see widespread adoption, it needs to be stable. This can only be accomplished through strict regulation. PBOC has strong incentive to create a CNY Tether ($CNYT). A stable cryptocurrency will quickly dominate the market, being the only way to enter/exit trading at a fixed value without relying on fiat. It’s stability also allows it to be used for everyday purchases. Most importantly, having an internal blockchain allows PBOC to monitor the national and international movement of all Yuan, while keeping those records shuttered from the world.

PBOC Will Approve ICOs On The PCE

The current pause on ICO trading is temporary. China’s recent pause on ICOs should be seen as indicative of their commitment to becoming international leaders in blockchain technology. The majority of current ICOs are infeasible, if not outright swindles. By weeding out these bad actors, China can sow the field for useful technologies to bloom. Regulating the space will boost speculator’s confidence, promoting a surge of both private and institutional investment. More investment means faster growth. It’s important to note that, in many cases, the majority stockholder in the largest companies in China is, in fact, the state itself. This allows the state to maintain final say of private industry without stifling innovation. The government will often initially back competing companies, letting the strongest dominate the market with an implied monopoly. The same strategy will be applied to ICOs. This allows a period of rapid innovation, with a guarantee that the ultimate winner is the state.

NEO And The PCE

Noting the above, it seems logical to conclude that NEO will be one of the first ICOs approved on the PCE. NEO is a Shanghai based platform for Smart Contracts and dApps. The project is also currently superior to comparable platforms in scalability (1000tx/s), quantum proofing (NeoQS), interoperability (NeoX), and consensus (dBFT). NEO already has a rapidly expanding international development base (CoZ). NEO is also programmable in C# and Java, and as such has a low barrier-to-entry for development. As such, NEO is intrinsically useful as the framework upon which to build a new wave of real-world blockchain applications.
As these projects will be funded through ICOs, it stands to reason that PBOC would only allow them to be developed using a Chinese platform. As NEO is already a highly visible and developed project, with a fundamental goal of government compliance, the simplest and most effective strategy for PBOC will be to back the established platform.
NEO is highly centralized, with a strong emphasis on Digital Identity (KYC). It’s sister project, OnChain, has already been deployed in the private sector to provide legally verifiable digitally-signed documents. NEO and OnChain have inter-compatible frameworks (DNA). Thus, if these two platforms see widespread adoption (NEO as the public chain, OnChain as the private chain), every transaction on the chain will be linked to real world entity. This is in line with PBOC’s ultimate goal of not only tracking monetary movement, but knowing its point-of-origin.

The Road Ahead

Assuming the above comes to pass, how could other cryptocurrencies be effected? Does PBOC have incentive to include Bitcoin on the PCE? Could China gain too control of the global Bitcoin market? Would China want ERC20 currencies on its national exchange? Or is Ethereum's decentralization be too much a threat to the machinations of government? Though all of this is speculation, it seems a viable strategy for China to dominate the global crypto-space. If they are not planning this course of action, should they be?