The bitcoin story in China sounds like a mini-metaphor for the Chinese economy itself: while the rest of the world was looking elsewhere, its citizens worked to acquire vast amounts of new wealth before bursting into the headlines only recently as a superpower.
As of this November, China is home to the world's largest-volume bitcoin exchange (BTC China), some of the largest mining operations, and could well be leading the global rise of bitcoin.
It was in May that China surpassed all other countries with 84,000 bitcoin wallet downloads, a world record few noticed.
Then came a half hour CCTV2 (Chinese state-owned television) documentary on digital currencies which sparked local interest, and even provoked a mining boom.
There was a gold rush as the Chinese tech community constructed mining rigs on a grand scale, paying $12,000-$15,000 for hardware and recouping their setup costs within a few weeks. Although increased difficulty means it's now more a matter of months before breaking even, mining remains a popular pursuit.
China now also has the world's second-highest number of bitcoin nodes according to Bitnodes, with 14,100 online in September 2013 (that's 11.3% of the global total).
BTC China, world #1
China's main exchange, BTC China, beat Mt. Gox and Bitstamp to become the world's highest volume bitcoin exchange at the end of October. Also this week, BTC China secured $5m in funding from Lightspeed Venture Partners' local arm Lightspeed China to expand its operations further.
Some 109,841 bitcoins changed hands in the week preceding 4th November, compared with Bitstamp's 93,372 and Mt Gox's 76,673. Unlike the world's other large-volume exchanges, BTC China does not charge any transaction fees.
CEO Bobby Lee, a long-term resident of the US, returned to China a few years ago and joined BTC China in April 2013 to help bitcoin fulfill its promise in the world's second largest economy.
He notes it was actually China that set the record for bitcoin value that month:
"The all-time high price record was set in mid-April, at CNY 1,944. Very few people know about this — our all-time high price equated to $308, whereas most media sources quote $265 as the all-time price (on MtGox/Bitstamp), back in mid-April.
So for a good 12+ hours back in April this year, people in China were trading bitcoin well above the $265 levels."
BTC China then went on to surpass its own record with a CNY 1,978 value on 8th November 2013. At the time of writing, the value was CNY 2,726.01, or around $447.43.
At present, BTC China trades only Chinese currency* for bitcoins. Though the site has an English interface, limited access to that currency globally limits its user base to China residents.
A local view
One such resident is Zennon Kapron, a Shanghai-based Canadian bitcoin enthusiast who performs research and consulting to the financial technology world through his company Kapronasia.
To what does he attribute bitcoin's popularity in China, and how could others benefit from it?
"There's BTC China's no-fee trading for starters. You can leave your money on the platform, your coins on the platform, and trade in and out for free," he said.
The entry and exit points aren't free, with a 0.5% Tenpay (China's PayPal equivalent) cash in/out fee, and a 1% bank transfer fee.
Capital controls in China are strict. It's easy to bring money into the country, but getting it out (to invest or spend) is more difficult. That means there are are plenty of wealthy Chinese citizens and residents looking to move their money around the world with greater freedom. Kapron explained:
"Some people have the equivalent of tens of millions in dollar-equivalent value in China and they want to get it out.
They want to send their children to school in Canada, the US, Australia. Wealthy families, new and old money — it's not a lack of trust in the local system, it's just a need to diversify their investments."
China's huge population is cash-heavy yet increasingly wired, he said. Domestic investment options are limited to stocks, property, and more property.
Kapronasia itself has separate entities registered in mainland China and Hong Kong, but even moving funds between the two is problematic. To do so in the fiat economy, one actually has to invoice the other and perform a currency conversion.
To test bitcoin's efficiency Kapron bought 10 BTC in the US through Coinbase, sent it directly to BTC China and withdrew the money in CNY, which "takes 20 minutes or less once you know what you're doing".
"I was shocked by how easy it was. The value was CNY 20,000 when I cashed in and CNY 30,000 when I cashed out because of bitcoin's increase in value, so I made even more," he added.
Despite the increased trading activity and media hype, the story 'on the ground' in China is smaller-scale.
The only physical stores accepting bitcoin are a couple of enthusiast cafes in Beijing and, while about 134 individual sellers on Taobao (China's answer to eBay) accept bitcoin, it is far from a popular payment option.
"This is all being driven by a very very small part of the population. When I speak to other people they're very interested and want to get involved, but they know nothing about it yet."
You may or may not have heard, but China has been down the digital currency road before. Quite a way down, as it happens.
Government regulators stepped in, stamped down and severely limited its use, fearing it was being used for 'black market transactions' and money laundering.
Bitcoin may be bringing back memories of Q coin's glory days: with a more user-friendly interface, and with government control restricted to fiat entry/exit points, it could give the Chinese a transaction method for which they've already shown a preference.
Kapron recently covered a story about local company Shanda, whose real estate arm promoted a recent upmarket condo development by announcing it would accept bitcoin as payment for property.
Whether the Shanda real estate deal was an authentic financial experiment or just a promotional gimmick is unknown; nor do we know how many people actually paid or part-paid for new apartments in bitcoin. But Shanda is primarily an IT company and its customers mainly young and tech-savvy professionals, so their choice of PR tool was an effective one.
Search giant Baidu's 'announcement' it would start accepting bitcoin was a little underwhelming in reality: it was an unofficial statement by the company's security software arm, perhaps also trying to create hype.
Chinese are still really into mining
"It's also hard to tell exactly how much mining activity is coming out of China these days," Kapron said. Shenzhen-based company Bitfountain is also a popular manufacturer of USB mining hardware worldwide.
"The numbers were pretty incredible when we looked into operations," he said, adding:
"Some were providing 'hosted mining' — renting out the space and equipment, or providing rental equipment for miners to host themselves.
Around April-May 2013, the fast payback (just a few weeks) from doing that was amazing."
China's challenges are your challenges
Bitcoin's reputation in China faces the same hurdles as it does in other countries. There is software and security usability, public awareness and the threat of government attempts to intervene.
There are also the problems of inexperienced and rogue business elements jumping in to take advantage of the hype. Just last week, a (supposedly) Hong Kong-based exchange called GBL went missing in action, taking with it $4.1m in its customers' wealth.
At the time of writing, BTC China's rate was 1 BTC for CNY 2,972 ($487.84).
*CNY: the currency of China, also known as renminbi (RMB) or Chinese Yuan.
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