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Can China Contain Bitcoin?

Some interesting bits via Can China Contain Bitcoin?:

  • In 2016, most Bitcoin trades were in Chinese Renminbi
  • China’s Central Bank Has Begun Cautiously Testing a Digital Currency – testing between the central bank and commercial banks.
    • “A digital fiat currency—one backed by the central bank and with the same legal status as a banknote—would lower the cost of financial transactions, thereby helping to make financial services more widely available. This could be especially significant in China, where millions of people still lack access to conventional banks. A digital currency should also be cheaper to operate, and ought to reduce fraud and counterfeiting.”
    • They want more oversight and traceability. This is good from a reducing corruption standpoint.
    • “Yao writes that the currency would only use a distributed ledger in a limited way. A blockchain might not be used to process transactions, as this could prove an insurmountable bottleneck for a currency with such a huge transaction volume as the renminbi. But such a distributed ledger might be used to periodically check who owns what. “The ownership of digital currency can be verified directly by the issuing bank, so as to realize peer-to-peer cash transaction[s],” Yao writes.”
    • Source – in Mandarin, but you can read it via Google Translate (Yao Qian: Digital Currency and Bank Accounts | Central Bank and Currency) – translated
  • “I repeatedly heard that 90 percent of Chinese ICOs were scams. The whole model, in which you buy tokens to use on a platform that does not yet exist, might never exist, or could be a total flop, can be a magnet for fraudsters.”
  • “It’s easy to understand why many Chinese people would be attracted to Bitcoin. In China’s heavily regulated financial environment, speculating on the currency represented one of the few investment options for the retail investor, Kapron observes. In 2013, the Shanghai stock exchange had been underperforming for years. Real estate prices were too high for many ordinary people, but you could buy a fraction of a bitcoin for as little as one dollar. By mid–2013, Chinese exchanges were moving more than $35 million in bitcoins each day.”
  • On how to bypass capital controls: “Beijing was also worried about yuan leaving the country. China caps yuan outflow at $50,000 per person per year. While it’s not clear that large numbers of people were using Bitcoin to evade Chinese capital controls, the potential was there. People in China could buy bitcoins in yuan, sell them on an American exchange, and then withdraw the sum in dollars.”
  • When China banned financial services companies from dealing with Bitcoin exchanges in late 2013, the Chinese found a workaround: “Instead of paying exchanges directly from their bank accounts, they used cash to buy vouchers that could then be traded on the exchanges. Alternatively, purchasers could send money to the personal bank account of someone who worked at an exchange.”
  • Blockchain development as part of China’s 13th 5 year plan

In late August Lu did an ICO to raise money for Bihu.com, a communications platform that uses blockchain technology. In ICOs, startups issue a new virtual token to the public, sometimes on the premise that the token will be necessary for use of the startup’s product. High demand for that product should, in theory, make these virtual tokens gain value. Bihu.com aimed to be like Twitter or Reddit, except that users could reward good content with “keys,” the platform’s own token.

Lu was thrilled by Bihu’s ICO. He says he raised over $20 million in a matter of hours. He believed there was no way that venture capital would deliver that kind of result. Then the following month China’s ICO ban came down, and Lu had to give all the money back.

The above is definitely interesting – Bihu seems a lot like Steemit.

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