China’s Digital Currency Craze : Why Chinese Love Bitcoin

The end of 2013 has been a wild time for Bitcoin. 2013 has already been an explosive year for the crypto-currency, as it has risen some 5000% in US dollar terms. By November, the currency topped 1200 American dollars. What explains the enormous rise of the Bitcoin in China?

The global interest in the ‘Bitcoin phenomenon’ has created a sheer mania and growing market for digital currencies. The FBI’s   seizure of drug website Silk Road, involving a substantial amount of Bitcoin holdings, created a reduced supply that might correlate with plummeting rates (O’Brien 2013). But one factor plays an enormous role in the rise of the Bitcoin: the increasing demand from China.

db79b544jw1eattbfobg2j20fk090gm8

As of November 2013, China-based ‘BTC China’ has become the world’s biggest Bitcoin exchange. China currently accounts for 62% of the global market in the digital currency (Sina 2013; Rabinovitch 2013; Wood 2013). Netizens feverishly speculate about present Bitcoin values and its future. But it is not just the Bitcoin (Chinese: bitebi 比特币) that has become a hot topic, other digital currencies such as Litecoin (laitebi 莱特币), Primecoin (zhishubi 质数币) or Beaocoin (biaobi 比奥币) have also become important players. The value of Bitcoin’s runner-up Litecoin has gone up 400% within one week (Sina 2013). Chinese online retailers have begun to accept Bitcoins as a way to pay, along with some Beijing coffeeshops and a Shanghai real estate developer (Chang 2013).

Although ‘Bitcoin’ has become a trending word everywhere over the Internet, the phenomenon remains a mystery to many. A short introduction: the Bitcoin was invented by the mysterious hacker Satoshi Nakamoto, who was never identified and remains untraceable up to this day. Nakamoto released a manuscript about the Bitcoin in 2008. The Bitcoin basically is a software-created encrypted code of 31 lines. During the course of twenty years, a total of 21 million Bitcoins will be released. As explained by Davis (2011): “(..) every ten minutes or so, coins would be distributed through a process that resembled a lottery. Miners -people seeking the coins- would play the lottery again and again; the fastest computer would win the most money”. Since Bitcoin relies on a peer-to-peer network, where every transaction is verified and authorized, one coin cannot be spend by the same ‘sender’ for a second time (Davis 2011; Babaioff et al 2011). *Want more clarification? Scroll down to the bottom of this article.

China has had a number of investment manias over the last few years, including stocks, real estate, and even tea leaves (Rabinovitch 2013). Why have the Bitcoin and its virtual counterparts become such a craze in China, when, as Alex Hein (2013) points out, there is “no fundamental reason why Bitcoin should have any value at all”?. As Hein says: “The only reason people are willing to pay money for the currency is because other people are willing to as well.” What’s on Weibo gives an overview of possible reasons why the Bitcoin has become such a hit within China.

Chinese netizens know digital currency

Although the Bitcoin was a novelty for many, Chinese netizens were already quite familiar with its concept. Chinese internet company Tencent launched its ‘Q Coin’ (Qbi, Q币) during the mid 2000s. This virtual currency became a huge success; it was soon traded for real money and became accepted in shops. At a certain point it had grown to approximately 13% of Chinese cash economy. Eventually Tencent had to constraint the currency under governmental pressure (Xu 2007; Chang 2013). With a history of virtual currency, one could arguably say that Chinese investors were less hesitant to purchase Bitcoins than, for example, their European counterparts. After all, the concept behind it was not so new to them, and the arrival of Bitcoin filled the gap that was created by the Q Coin.

Bitcoin is beyond government control

The Bitcoin is a decentralized monetary system. There is no government involved, nor any bank, and it can be used anonymously like the cash from your wallet. This is one of the reasons why Bitcoin is especially appealing to Chinese investors, as China’s government has strict control of capital and keeps a tight rein on the yuan. As described by Julia Woods (2013): “(..) the flock of funds into Bitcoin may be less a vote of confidence in digital currencies than a no confidence vote for the yuan.” No matter how unsure the future of Bitcoin might be, many Chinese investors would rather invest in the virtual currency than put their trust in the yuan. But the idea goes beyond financial matters. Bitcoin represents a democratisation of currency; an idea of self-government. As one Weibo commenter says: “The Bitcoin players are not just a group of investors, they are a group of revolutionaries, who believe in decentralization and freedom of currency.”

The Chinese love to gamble

Although gambling is technically illegal in Mainland China, Chinese people have since long been known for their love of gambling. Some even argue that gambling originates from China. After bans on gambling during the Mao era, it became enormously popular in the 1980s until the government officially prohibited it again (Kalenyuk 2013). Nowadays, many Chinese participate in unofficial lotteries or are involved in gambling through card games and mahjong on street corners. Investing in the Bitcoin or its counterparts brings gambling to the next level; netizens on Weibo even refer to Bitcoin-buyers as ‘players’ (wanjia 玩家). How long the ‘game’ will last depends on authorities; China’s government has issued rules in 2009 that prohibit the use of digital currency in the real economy. Although Chinese law thus forbids the use of virtual currency, people are still free to participate in the Bitcoin market (Chang 2013). It is unknown whether the government will eventually impose sanctions on the acquirement or possession of Bitcoins. From this perspective, the investment in Bitcoins and its counterparts is yet another gamble for Chinese ‘players’.

 

List of Virtual Currencies

比特币 (bitebi) – Bitcoin

莱特币 (laitebi) – Litecoin

质数币 (zhishubi) – Primecoin

比奥币 (biaobi) – Beaocoin

安全币 (anquanbi) – Securecoin

阿侬币 (anongbi) – ANC

点点币 (diandianbi) – PeerCoin

美卡币 (meikabi)- MegaCoin

新星币 (xinxingbi) – Novacoin

大地币 (dadibi) – Terracoin

羽毛币 (yumaobi)- Feathercoin

手工币 (shougongbi) – Craftcoin

雅币 (yabi) – Yacoin

名币 (mingbi) – Namecoin

时代币 (shidaibi) – Timescoin/TMC

 

References

Babaioff, Moshe, Shahar Dobzinski, Sigal Oren and Aviv Zohar. 2011. “On Bitcoins and Red Balloons.” Microsoft Research Silicon Valley (Nov 14): 1-16.

Chang. Gordon. 2013. “A China Triangle: Bitcoin, Baidu And Beijing.” Forbes (Nov 24). http://www.forbes.com/sites/gordonchang/2013/11/24/a-china-triangle-bitcoin-baidu-and-beijing/

Davis, Joshua. 2011. “The Crypto-Currency.” New Yorker 87(31): 62-70.

Hern, Alex. 2013. “Is Bitcoin about to change the world?” The Guardian (Nov 25). http://www.theguardian.com/technology/2013/nov/25/is-bitcoin-about-to-change-the-world-peer-to-peer-cryptocurrency-virtual-wallet

Kalenyuk, Mary. 2013. “The Bets are on for Gambling in China.” The World of Chinese (Nov 7). http://www.theworldofchinese.com/2013/11/the-bets-are-on-for-gambling-in-china/

O’Brien, Matthew. 2013. “Bitcoin Is the Segway of Currency.” The Atlantic (Nov 21). http://www.theatlantic.com/business/archive/2013/11/bitcoin-is-the-segway-of-currency/281625/

Rabinovitch, Simon. 2013. “China rides rollercoaster love affair with Bitcoin.” Financial Times (Nov 22). http://www.ft.com/intl/cms/s/0/0a5fae82-5341-11e3-9250-00144feabdc0.html#axzz2lxYhyCf8

Sina 2013. “山寨比特币扎堆 莱特币异军突起 [Parody Bitcoins Join in  –  The Litecoin Emerges as New Force]” (In Chinese). Sina (Nov 28). http://bit.ly/Im7N6G

Shuai Mengxia. 2013. “虚拟货币大揭秘 [Exposing the secrets of virtual currency]” (In Chinese).  学习是最好的投资: Sina Blog (Oct 14). http://blog.sina.com.cn/s/blog_4ae221c50102e4cd.html.

Wood, Julia. 2013. “Buyer beware: Bitcoin’s fate could rest with China.” CNBC (Nov 29). http://www.cnbc.com/id/101233864

Xu, Jiaping. 2007. “The Q Coin secondary market in practice.” Virtual Economy Research (April 27). http://bit.ly/1hoDV8v

Featured Image:

Bitcoin. 2013. 36KR. http://www.36kr.com/p/207989.html

 

* Still unsure of how Bitcoin works? The following quote from the article by Babaioff et al (2011) might help you grasp the concept: “Bitcoin relies on a peer-to-peer network to verify and authorize all transactions that are performed with the currency. Suppose that Alice wants to reserve a hotelroom for 30 bitcoins. Alice cryptographically signs a transaction to transfer 30 bitcoins from her to the hotel, and sends the signed transaction to its neighbors. A node that receives the transaction verifies that Alice has signed it and that she does indeed own the bitcoins she is attempting to transfer. Th node then tries to “authorize” the transaction (…). Once a node successfully authorizes a transaction, it sends the “proof” (..) to all of its neighbors. They in turn, send the information to all of their neighbors and so on. Finally, all nodes in the network “agree” that Alice’s bitcoins have been transferred to the hotel” (1,2).

 

Appreciate this article and want to help us pay for the upkeep costs of What’s on Weibo or donate a cup of (green) tea? You can do so here!

 

koetse.148x200About the Author: Manya Koetse is the editor-in-chief of What’s on Weibo. She’s a Sinologist who splits her time between the Netherlands and China. She earned her bachelor’s degrees in Literary Studies, Japanese & China Studies and completed her MPhil in Asian Studies (China track, Leiden University). Her interest in modern Chinese society and social media have resulted in the launch of What’s on Weibo. Contact: manya@whatsonweibo.com, or follow on Twitter.