Baidu Jiasule (“Baidu Accelerated”), a Cloudflare-like service offering a website firewall, protection against distributed denial of service attacks and other similar features, has started accepting bitcoins as payment. The Bitcoin payment option is currently manual, with the main site telling its users to contact a phone number if they need to pay with Bitcoin, but this is nevertheless the first instance of a major Chinese site accepting payments in Bitcoin. The news is particularly significant because of the connection to Baidu, a site which is often seen as a Chinese equivalent to Google, offering, among dozens of other less prominent services, a search engine, an encyclopedia and a large collection of music and movies. Baidu Jiasule is only one of the services that Baidu offers, and was only acquired by the company in August, so the reality is somewhat less game-changing than if Baidu as a whole has announced that it was integrating Bitcoin into all of its products, but this is nevertheless significant; Jiasule is a formal subsidiary of Baidu, so it is very improbable that the decision to accept Bitcoin had been made completely unilaterally by the Jiasule team without some kind of approval from its parent company.
Over the past few months, the Chinese Bitcoin economy has been growing very rapidly. China made its first sudden appearance on the Bitcoin stage in April, when the country became the first to overtake the United States in the number of Bitcoin-Qt software downloads; the country maintains second place on that particular chart to this day. At the same time, the One Foundation, the largest independent charity in China, started accepting Bitcoin donations, and received $30000 in BTC within two days from a combination of a large single donation by leading Chinese Bitcoin exchange BTCChina and many independent contributions. Soon after that, Bitcoin was featured in a half-hour broadcast on Chinese state television, where it was treated in a surprisingly positive light. The Chinese government itself has made absolutely no comments on the legal status of Bitcoin or its regulatory intentions. Attention on Bitcoin in China dwindled somewhat after this initial hype, but the community remained.
Now, three months after those original events, signs of Bitcoin’s growth in China are evident. There are now no less than ten Chinese Bitcoin exchanges listed on BTCKan.com, a Chinese equivalent of Bitcoincharts, and there are likely even more that are simply too small to be listed. The most prominent one, BTCChina, has almost as much trade volume as MtGox or Bitstamp, with over 20000 BTC sold in the 24 hours before the time of this writing. Of the other Bitcoin exchanges, the leaders include 796 (9300 BTC), OKCoin (7200 BTC) and BTCTrade (5300 BTC). The largest one in volume is BTC100, with over 35000 BTC traded in the past 24 hours – more than MtGox or BitStamp.
However, these figures do need to be understood in context. The five largest exchanges listed above all either have zero fees or some kind of rebate program, where a large portion of trading fees are returned to customers via some kind of reward point mechanism. BTCChina, OKCoin and BTCTrade have zero fees; BTC100, on the other hand, has a 0.3 fee, but also has a system of “bonus points”, where every 16 BTC traded on the exchange entitles the user to receive one “bonus point”, which is functionally similar to a stock except without formal ownership or voting rights. Similar to Bitcoin’s exponentially decreasing currency issuing model, the number of bonus points awarded will go down over time, leveling off at at a maximum of one million. The one million bonus points together entitle their holders to 30 of BTC100’s revenues, and the bonus points themselves can also be traded at no fee on the exchange.
Currently, each bonus point goes for about 0.0244 BTC, giving BTC100 a total market capitalization of 0.0244 * 1000000 / 0.3 = 81300 BTC, or $11.8 million USD. If one sells all of one’s bonus points immediately upon receiving them, this amounts to a rebate of 0.15, bringing BTC100’s de-facto fee to a low 0.15. The third highest-volume exchange, 796, has a similar program. Such low fees are ideal for high volumes of speculation and day-trading, so the actual level of interest in Bitcoin in China is somewhat less than these artificially inflated figures imply – although China is certainly nevertheless a force to be reckoned with.
Why do so many Chinese people care about Bitcoin? First of all, in some metaphorical sense, virtual currency is in Chinese internet users’ blood. Tencent QQ, a Chinese company which can perhaps be most closely identified with the American Yahoo (or at least as Yahoo was in its heyday in the early 2000s), released a virtual currency called Q Coin in 2007; Q Coin became extremely popular in all sort of online applications including social media and e-commerce, but was eventually neutered by the Chinese government. As far as its user experience goes, Bitcoin, being a digital currency, is very similar to Q Coin, so Bitcoin comes naturally to Chinese users in a way that it simply does not to many people in Europe or North America.
But as far as actual uses are concerned, the culture in China is rather different from that in Europe or the United States. The most obvious proof of this is the difference in the two countries’ reactions to Silk Road. When the Silk Road went down at the beginning of this month, the Bitcoin price on nearly all English-language exchanges went down fast. MtGox sank from $140 to a low of $110, Bitstamp from $127 to $85 and BTC-E from $123 to $75. BTCChina, on the other hand, hardly budged, sinking from $770 to $680. “Most Chinese Bitcoiners believe that Silk Road going down is a good sign in the long run,” Chinese Bitcoin user Red Li explains. Drugs are unpopular in Asia in general; cannabis, cocaine and ecstasy show universally low usage in east and southeast Asia compared to the Americas and Europe, although amphetamines and opiates are more ambiguous, and all drugs with the obvious exception of alcohol are much more frowned upon by both governments, with many countries having a death penalty for serious or even moderate cases of drug trafficking on the books, and society in general. That is not to say that Bitcoin is all about drugs in Europe and the United States; in fact, it actually shows that Bitcoin has strong merits without any connection to illegal substances, or the idealistic motivations behind anonymous crypto-markets, whatsoever, and it is precisely the other applications of Bitcoin that the Chinese Bitcoin community is focused on.
Rather than ideological motivations, the main driver for Bitcoin use in China is much more mundane: the search for profit. A large portion of Bitcoin mining hardware development takes place in China, and a number of major ASIC companies, including ASICMiner, Avalon reseller Asicme, TMR and BTCGarden are located there. Additionally, Red writes, “Chinese people may treat [Bitcoin] as an speculation tool.” Red himself originally got into Bitcoin for this reason, although his role in the Bitcoin community has now grown beyond just that. “But when I dug into the whole cryptocurrency thing,” Red writes, “[I saw it was] a brilliant idea and probably the most innovative invention. Then I realized that to protect and preserve the value of BTC applications must be developed. Right now, what I am doing is spreading the knowledge about BTC so that peoplecan accept it. Merchants will not take the risk unless their customers ask for it. That’s basically how I changed my mind; speculator into promoter?”
The path that Red has followed in many ways mirrors that of the Chinese Bitcoin community as a whole; over the past few months, a disparate group of internet users interested in profiting from the speculative potential that Bitcoin and mining have to offer have started to put together the trappings of a genuine Bitcoin community, with regular meetups in a particular coffee shop in Beijing (as well as events in other cities), community news websites and forums. The first merchant accepting Bitcoin was the online store IWannaBuy, which accepted Bitcoin since April, and getting more and especially more mainstream Chinese merchants to start accepting Bitcoin is a major community priority. With that in mind, Baidu Jiasule may be the Chinese community’s first major success.
What can Bitcoin do in China aside from serving as a medium of speculation? The possibilities are plentiful; “e-commerce, crowdfunding, getting rid of bankers,” Red Li writes, to name a few. Charity is currently not particularly popular in China, but this may change in the future; environmentalism, for a long timea luxury of the west, is making massive inroads on all levels of society as people get wealthier, so the same thing may happen to charity as well. If that happens, Bitcoin may be an excellent tool for charities to get funding, if the success of Sean’s Outpost is any indication. And even if Bitcoin’s main role will be as an object of speculation, there is nothing wrong with that; the Chinese government currently has the sixth largest gold reserves in the world, so if Bitcoin becomes a replacement to gold for this function the potential upside for Bitcoin is massive. The Asian Bitcoin community as a whole, including China, Singapore and perhaps one can even include Australia, is expected to make its first major public appearance at the Bitcoinvention, a conference in the Philippines in February 2014. Until then, the Chinese Bitcoin story may yet have a long way to unfold in the coming months.