Originally published w/
in December 2018
One of the biggest players in the bitcoin space has been and continues to be China. Considering the Chinese governments “love-hate relationship” with the cryptocurrency and its underlying technology PANews takes a brief look at its evolution in the country.
Three major themes embody the history of bitcoin in China — speculation into a new type of asset, familiarity with a virtual currency, and cautionary optimism towards its regulation.
“Gold 2.0? Sign me up!”
Bitcoin was developed in 2008 by an anonymous person(s) named Satoshi Nakamoto. The first transaction or genesis block was created in January 2009. By 2011 bitcoin began to show up on mainstream media, though it was still in its infancy and not many people owned it, understood it or paid much attention to it. The digital currency was held by a few hobbyists and early adopters all over the world, including China.
China at that time came out of 2010 as the second largest economy in the world and released its 12th Five Year Plan in early 2011. The plan focused on sustaining economic growth by investing in clean energy, high-value manufacturing, next-generation information technology and increasing domestic consumption while reducing rising inequality. The next few years saw rural poverty significantly reduced while an emerging middle class burst into the spotlight greatly increasing domestic consumption. Purchasing power for those in middle-income families rose from 4% in 2000 to 68% in 2012. While saving at least half if not more of one’s income is common in China so is the drive for speculative investments.
Bobby Lee co-founder of BTCC, China’s first cryptocurrency exchange explains that “China is actually crazy about bitcoin. China is crazy about anything that can make money — investment, speculation, it’s in the Chinese blood”. Lee, who is the brother of Litecoin creator Charlie Lee, after understanding bitcoin’s value as a challenger to the fiat monetary system, decided along with colleagues who were crypto hobbyists at the time to create a crypto exchange for China because the only exchange that existed at the time was Mt. Gox which was in Japan where it was difficult for Chinese people to transfer money.
8btc founder and award winning Sci Fi writer Changjia echoed similar statements in an interview with Vitalik Buterin for Bitcoin Magazine back in 2013. Compared to the west, he argues, Chinese people are less interested in bitcoin for privacy purposes but more for investment purposes, “If you call Bitcoin as some P2P digital currency, 95% of the people in China will feel confused. If you call it Gold 2.0, however, most of them are suddenly enlightened”. This motivation is even clearer when the Silk Road website, the online black market, was shut down. Bitcoin prices on western exchanges dropped dramatically but, not in China. “Both marijuana and guns are too far away from the daily life in China, making the effect of the closure of Silk Road trivial” says Changjia.
The surge in investment interest is not solely because Chinese citizens are interested in speculative investments but also because the Chinese government began actively loosing its regulatory grip and developed its financial markets for its new rich to begin trading. In 2010 Chinese citizens began investing in China’s derivatives market. By 2014 regulations for Chinese citizens to trade overseas were also relaxed. This created substantially new opportunities for banks, brokerages and retail investors to learn more about financial markets. A strong economy with new money and relaxed government regulations was the perfect recipe for investment fever.
2013 also saw the creation of hardware specifically for bitcoin mining called application-specific integrated circuits (ASICs), first developed in China. After ASICs were developed, participation in bitcoin as both an investor and miner soared. Today, China is the leader of ASICs manufacturing and bitcoin mining .
“It’s a virtual currency? Oh, like Q coin, I get it”
Unlike the west, Chinese citizens are familiar with the idea of digital assets and virtual currencies. In 2007 Tencent’s QQ services which include email, chat, blogging, online games, and chat created Q coin which was like a rewards program for virtual add-ons. By Q3 of 2006 QQ reports that its active users have reached 221.4 million, thats more than the population of Brazil (the 6th most populous country in the world). When users developed a secondary market to trade Q coins the government stepped in and shut it down.
Bitcoin was also briefly accepted by Baidu’s Jiasule, a subsidiary of Baidu that offers cloud services, and by the One Foundation, an independent charity in China in 2013. That same year, China’s state television broadcaster CCTV, spoke about bitcoin publicly for the first time. Between 2013 and 2016, regulations towards bitcoin were quite lenient, leading many to register their crypto businesses in China.
“Ok . . . let’s wait and see what happens”
China took a “wait and see” stance, that many countries also adopted, even though it is a highly centralized country where the government exerts political and socio-economic control over its citizens. It was not until 2016 that major regulations were passed against the crypto community. Some of the major regulations issued so far are as follows;
- 2016 China shuts down cryptocurrency exchanges operating in China (with the exception of Hong Kong).
- 2017 ICOs are declared illegal and the government begins to actively search for and shut down ICO scams.
- 2018 The government releases new media regulations encapsulating ‘cyber space’. Several WeChat (social media app) official groups are shut down. As a result, many groups replaced the term crypto from their groups with the term blockchain, the technology underlying bitcoin.
At first, the uninitiated observer would think cryptocurrencies “are completely illegal” in China, however, those familiar with the current China crypto scene would tell a different story. Today, especially in the bigger cities, there are a countless number of meetups, events and conferences about the crypto market. It seems strange that the crypto community in China is so vibrant yet there are strong government regulations around its use however, China has a history of maintaining a grey area when it makes legal and political declarations. The country also strongly supports and heavily invests in blockchain but strongly opposes the term and use of cryptocurrencies. CCTV, the mouthpiece of the government, has declared that “blockchain is the future”.
Sine 2016, many crypto businesses, particularly exchanges, moved their base of operations to more crypto friendly environments such as Singapore or Malta while still operating business in China. In response to the government shut down of BTCC, which reopened this year, Bobby Lee argues that “shutting down the Chinese exchange hasn’t been a bad thing. The more the regulators try to put the squeeze on bitcoin, the more resilient it becomes” he told a packed audience at his alma mater Stanford University. Lee also believes that regulations are important to protect investors from scams. “It is the primary reason the SEC in the U.S. was created” he tells Tech in Shanghai. Bitcoin, he continues, is not so much an anti-government asset as it is a response to the downsides of our current monetary systems.
Conclusion
The U.S. may have been the first to credit cards and personal computers but China was the first to the mobile economy. With mobile payments, a familiarity with digital assets and a 13th FYP focused on the cyber economy it’s an exciting time to see the future of crypto communities in China.
In a recent report written by Edith Yeung, China’s investment into blockchain is highlighted showing that 41% of startups who received funding in Q1 2017 were blockchain-related. Tech giants Alibaba, Tencent and Baidu have also began offering blockchain solutions for enterprises joining IBM and Amazon.
While the government may say no to crypto, bitcoin discussion continues at the ground level. From selling luxury cars for bitcoin to a 21-Day Digital Survival series released on China’s online video services iQiyi, bitcoin is still very much alive and in the public view.
