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The Chinese Bitcoin Economy: Are the Hundred Flowers Here to Stay?

Over the past few months, Bitcoin has taken the Chinese community by storm. In early April, Iwannabuy, an online discount store selling air purifiers, humidifiers and anti-pollution masks to people living in China started accepting Bitcoin for its products. On April 23, the One Foundation, China’s largest private charitable foundation, followed suit, accepting Bitcoin donations for a disaster relief effort after a recent earthquake, receiving $30,000 worth of BTC in a single day. On the same day, for the first time another country registered more downloads of the Bitcoin-Qt client than the United States. The country in question: China. At the beginning of May, millions of Chinese were introduced to Bitcoin for the first time with a half-hour special on the state TV network. Altogether, the effect was massive. Two months later, TechInAsia reports that “the bitcoin industry is also all over Taobao [China's equivalent of Ebay], where you can buy everything from computer chips to custom mining rigs to bitcoins themselves.”

However, there still remains a huge sword of Damocles hanging over the fledgling Chinese Bitcoin community. The problem: same as in so many other countries in the world, government regulation. China already went through the digital currency experiment once with Q Coin. Q coin is a form of electronic money issued by Tencent QQ, one of the largest internet companies in China. Tencent QQ offers services including online social games, music, blogging and chat, and Q Coin was introduced as a sort of gift card for QQ’s paid virtual addons. Originally, the coins were even transferable between users, creating a booming secondary market. However, eventually the Chinese government cracked down, among other restrictions banning companies from issuing digital currencies that can be traded between users. Bitcoin bypasses this particular regulation, as it has no “issuers”, but it is quite possible that the Chinese government will crack down on local Bitcoin exchanges at the very least.

The main argument against this is the state TV broadcast in May. The broadcast, transcribed and translated here, featured a broad overview of Bitcoin, describing Bitcoin mining, Bitcoin business and speculation and the technical properties of the Bitcoin currency itself. The tone was surprisingly positive, at no point even mentioning the possibility of criminal use and only briefly discussing government regulation. The channel the broadcast was on was China Central Television, the “predominant state television broadcaster in mainland China”. If the state TV is so approving of Bitcoin, the argument goes, why would the government change course and turn against it?

There are two possible explanations. First, governments are far from monolithic entities, and the sheer size of the Chinese Communist Party makes that even more true in this case. Some lower-level officials in the TV network may well be strongly in favor of Bitcoin, having been fans of QQ coin back in its day themselves, and at the same time it may be quite possible that everyone at the top is already thinking of how best to destroy it. Second, however, the Chinese government is known for being fickle. The best example of this is the Hundred Flowers Campaign, an initiative launched by Mao Zedong in 1956 which permitted Chinese residents to engage in a wide range of criticism against the party. However, the criticism went much further than Mao, believing that the people were almost fully in favor of his version of Communism by then, had expected, and in 1957 the government suddenly changed course. An “anti-rightist campaign” started, sentencing hundreds of thousands of people deemed to be excessively critical of the government to labor camps or even death. In the late 1970s, the Chinese government established a “Democracy Wall” in an attempt to experiment with freedom of speech one again and, well, we all know how that turned out. On the other hand, China’s efforts at business liberalization through special economic zones have all largely remained. The question is, do some people in the Chinese Communist Party see Bitcoin as a chance to make another experiment by granting a measure of economic freedom to the masses, and, if so, will they change their minds?

It’s hard to tell. The Chinese government is not known for being open, and we can only guess at what their motivations are. On the one hand, the government has an established track record of cracking down on freedom if it even slightly infringes on state security, and Bitcoin could be seen as a competitor to the central bank. On the other hand, one of the unique benefits of Bitcoin is that it is an ownerless protocol, not intrinsically tied to any foreign entity. Now, if China wants to integrate into the global financial system, doing so may well involve major US and European banks, Paypal and Mastercard moving in and domintaing the local market. Bitcoin, on the other hand, offers a solution that the Chinese, just like anyone else in the world, can call their own. Finally, the question is, just how effective will regulation actually be? Chinese internet users are already willing to navigate through a complex web of proxies and Tor in order to browse foreign sites on the internet, so even if all Bitcoin infrastructure in China is outlawed they may well start heading over to the Bitcoin job boards to earn some BTC to cash out at some online games, or even just save it until the day they can make their way over to Canada, the US or Europe. Hopefully, though, China will be one of the places where Bitcoin does not need to hide in the shadows in order to bloom.

BTC: 1FxkfJQLJTXpW6QmxGT6oF43ZH959ns8Cq

LTC: LaBhvWiAP7msku6w8QSQ5G7omVWMF3uxJC

By

Vitalik Buterin is a co-founder of Bitcoin Magazine who has been involved in the Bitcoin community since 2011, and has contributed to Bitcoin both as a writer and the developer of a fork of bitcoinjs-lib, pybitcointools and multisig.info, as well as one of the developers behind Egora. Now, Vitalik's primary job is as the main developer of Ethereum, a project which intends to create a next-generation smart contract and decentralized application platform that allows people to create any kind of decentralized application on top of a blockchain that can be imagined.

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