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What is conflux? The crypto linked to China's blockchain ambitions

Representation of cryptocurrencies and Chinese flag are seen in this illustration photo taken in Krakow, Poland on September 27, 2021. (Photo by Jakub Porzycki/NurPhoto via Getty Images)
China is softening its stance on crypto. Photo: Jakub Porzycki/NurPhoto/ Getty (NurPhoto via Getty Images)

Conflux has emerged as one of the best performing crypto assets of 2023 riding on a wave of new-found enthusiasm for crypto within China, as Beijing shows signs of softening its stance towards the emerging sector.

The Conflux blockchain claims to be the only crypto company with approval to operate in China after the government banned all crypto products in 2021.

Since the beginning of 2023, Conflux's associated cryptocurrency CFX (CFX-USD) has seen an almost parabolic price rally, skyrocketing 1,300% throughout January and February.

Read more: Crypto live prices

On Wednesday, conflux gained 10% in the day after news of a $10m investment from DWF Labs, a digital asset market maker and investment firm.

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Being the only approved blockchain within China, Conflux has also recently benefited from a partnership with China Telecom to release blockchain enabled sim cards in Hong Kong.

"Conflux's recent partnership with China Telecom is a major milestone for the blockchain industry, and we believe that it demonstrates the potential for Conflux's technology to revolutionise how we think about blockchain-enabled products and services,” DWF Labs managing partner Andrei Grachev said in a statement.

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Healthy PMI data coming out of China and stimulus injections by the nation's central bank has encouraged an appetite for higher risk investments, and the crypto-market has lapped up some of the increased liquidity, sparking a recent crypto rally. Conflux has led the charge with the recent inflow of capital coming from China.

Other cryptocurrencies with strong links to China, such as NEO (NEO-USD), VeChain (VET-USD) and Phoenix Chain (PHB-USD) are also rising in lockstep with Chinese equities.

The rally in the East has been noted by Gemini co-founder Cameron Winklevoss, who on February 19 took to Twitter to declare "the next bull run is going to start in the East, and it will be a humbling reminder that crypto is a global asset class and that the West, really the US, always only ever had two options: embrace it or be left behind".

Another thing that has encouraged Conflux's recent green shoots is the network's partnership with Little Red Book, a China-based social media platform, to provide NFTs (nonfungible token services) for Chinese users.

Conflux has also been the recipient of Chinese government endorsements. One of which was by the Hunan regional government for developing blockchain infrastructure to enhance the region’s GovTech initiatives.

These government endorsements allow firms to gain access to lucrative public sector contracts.

Within China there is still significant interest in all things crypto. However, with the Beijing politburo's strict ban on most crypto-entities, Conflux has become the recipient of a large share of this interest.

Internet search metrics also show an increasing awareness and interest in Conflux, with the worldwide Google Trend score for the keyword “Conflux Network” ranked 100th most search phrase in mid February.

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The increase in interest in the Conflux Network has coincided with the sighting of representatives from China’s Liaison Office at recent Hong Kong crypto gatherings, which has been interpreted as a signal that Beijing might be subtly endorsing the idea of Hong Kong becoming a crypto hub.

According to last week's Bloomberg report, Hong Kong’s Securities and Futures Commission (SFC) plans to allow retail crypto trading within the financial hub.

The SFC said it would commence a consultation process for Virtual Asset Service Providers (VASPs) that are seeking a license to provide trading services for retail customers within Hong Kong.

The move would see a process of registering tokens prior to listing them on exchanges so that only pre-approved tokens would be available to retail customers.

Analysts see the opening of Hong Kong to cryptocurrency firms as allowing China the ability to study Hong Kong’s approach towards digital assets, in much the same way as it learned from Hong Kong about open markets.

What is Conflux?

Conflux is a public blockchain platform that was developed in China by a team of researchers from Tsinghua University.

It claims to be China's only government-approved blockchain, and that it is used in conjunction with the country’s Blockchain Service Network (BSN), China's blockchain-tech platform for enterprise use.

With the ability to deploy 'smart contracts', decentralised applications, Conflux is similar in design to Cardano (ADA-GBP), Solana (SOL-USD) or Ethereum networks (ETH-USD).

Similarly to Ethereum and other blockchains, it also runs on 'gas fees' that allow transactions, denominated in the conflux cryptocurrency.

One of the notable features of Conflux is its ability to support interoperability between different blockchain networks. This means that Conflux can connect and communicate with other blockchain platforms, allowing for seamless data and asset transfers across different networks.

China's blockchain ambitions

The Chinese government has identified blockchain as a strategic technology and has launched several initiatives to promote its development and adoption.

China has launched several blockchain-based projects, including the development of a digital currency and a national blockchain network called the Blockchain-Based Service Network (BSN).

The BSN is designed to provide a standardised and secure infrastructure for blockchain applications in China.

Beijing has also recently established a blockchain research division, called the National Blockchain Technology Innovation Centre.

The centre will reportedly focus on developing software and hardware for blockchain-based use cases that benefit the nation's economy.

Read more: Crypto: Stablecoins won't meet global standards, warns Financial Stability Board

Chinese tech-firms such as Huawei and Tencent have made significant inroads into the web3 space.

Huawei Cloud has entered into partnerships with multiple blockchain companies with the launch of Huwei's metaverse and Web3 Alliance project.

The project aims to encourage mass adoption of web3-based innovations in the region of East Asia and beyond. Polygon (MATIC-USD) is one of the web3 firms that will partner with Huawei Cloud.

Volatility of the crypto market

The value of conflux is still dependent on the volatile conditions of the macro crypto market, and it is also vulnerable to the whims of the politburo in Beijing that could suddenly decide that the blockchain has become too decentralised, and beyond its grasping hand.

Crypto in general still has significant issues of its own with critics pointing out that despite claims of being decentralised it is highly concentrated in the hands of a few big crypto exchanges, often with opaque transaction rules and inherently speculative with millions of people losing money when crypto firms go burst with FTX the most spectacular among recent collapses.

Watch: Web3 sectors to watch in 2023 | The Crypto Mile

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