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Bitcoin in China

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There has been renewed interest in Bitcoin in China as an alternative currency and speculative asset.

Much like the impact of shifts in demand in China on global markets, shifts in the volume and direction of Bitcoin trading in China has been driving the global price of Bitcoin.

Bitcoin’s first major price spike, to over $1000 USD per Bitcoin (BTC) in late 2013, was driven by a sharp rise in demand for Bitcoin in China.

At the end of 2015 Bitcoin’s price made a comeback, climbing to over $400 USD per BTC, and it was driven by another sharp rise in Bitcoin trading volumes and user activity in China.

So what is driving the renewed demand for Bitcoin in China?

Bitcoin's price has been led by sharp shifts in trading in China in 2013 and 2015.
Bitcoin’s price has been led by sharp shifts in trading in China in 2013 and 2015.

Apart from the volatility on China’s A-Share market, some outside observers claim that depreciation pressure on the Chinese currency, the Yuan, is driving the renewed interest in Bitcoin in China.

Zero Hedge, for instance, has also claimed that Chinese users are using Bitcoin to evade China’s capital controls and to move cash out of the country—a question to which we will return.

But first, some background on Bitcoin.

Bitcoin: a quick intro

Bitcoin is a digital currency–a form of digital cash–which enables individuals and businesses to make direct peer-to-peer payments without using banks or other financial intermediaries. Bitcoin is therefore a channel for financial disintermediation.

Bitcoin is also an alternative currency and a speculative asset. Whereas the major world currencies, like the US dollar or the Chinese Yuan, are government-backed fiat currencies, Bitcoin derives its ‘authority’ from an encrypted public ledger system called the blockchain.

The Bitcoin protocol was first outlined in a pseudonymous paper by Satoshi Nakamoto in November 2008 and the first version of the Bitcoin software client was released via a crypto mailing list in 2009.

Compared to traditional bank payments systems, Bitcoin’s blockchain is more secure and the time needed to settle Bitcoin transactions takes minutes rather than days.  Bitcoin is based on an encryption protocol, hence the term cryptocurrency, and all Bitcoin transactions are made through its encryption algorithm.

Bitcoin transactions are recorded on an encrypted public ledger system and verified through a process called mining. Bitcoin mining is the process by which distributed computer nodes compete to solve the encryption problem on the Bitcoin key-chain system. Bitcoin users have public and private keys (payments addresses), and the encryption process is used to match or resolve these keys.

As each transaction is verified it is recorded in the public ledger system as proof of payment, and this proof of payment or settlement is publicly available and accepted in the length of time it takes to solve the first computer node to solve encryption problem – currently about 10 minutes. In contrast, traditional bank payments take anything from 1 business day to settle local payments to 4-5 days to settle international payments.

Bitcoin therefore radically reduces the costs of making cross-currency and cross-border payments and one of the early Bitcoin applications is as a vehicle for migrant workers to make international remittance payments.

Bitcoin-based payments use in developing countries is growing rapidly, especially Latin and South American countries and across Africa, and for good reason.

Today using Bitcoin a Mexican worker earning US dollars in the United States could deposit Bitcoin to their electronic Bitcoin wallet, which is linked to a payments card held by a relative in Mexico, who could then use the card to make payments at the local supermarket chain.

Compared to international bank transfers, or Western Union, all of this could be done in real time at a cost of one per cent or less using current Bitcoin based applications.

It is also cheaper for merchants to accept Bitcoin payments than credit card payments. Whereas merchants are usually charged 2-3 percent per transaction by credit card companies, a business set up to accept Bitcoin can reduce this cost to as little as 0.5 percent.

And because users can make peer-to-peer transactions anywhere in the world without the need for banks or traditional payments companies, Bitcoin can bypass capital controls.

While the current global value of Bitcoin is small—an equivalent of $6.3 billion USD on January 1, 2015–over US $50 billion was invested in Bitcoin-based technology applications in 2015.

Bitcoin in China

Bitcoin in China got off to a slow start. This changed in May 2013, when China’s national CCTV television station aired a highly favourable documentary on Bitcoin.

The result was a flood of Chinese retail investor money into Bitcoin.

Downloads of Bitcoin clients in China for desktop computers, which allow users to buy and sell Bitcoins, surpassed downloads in all other countries.

In October 2013, Bitcoin was even briefly accepted as a means of payment by merchants on China’s e-commerce giant Taobao.com and by Baidui’s Jiasule software security company.

This briefly integrated Bitcoin into China’s payments system.

Chinese Yuan (CNY) denominated Bitcoin trades soon surpassed US-dollar denominated Bitcoin trades and this drove Bitcoin’s market price to an all time high of over $1000 USD per BTC in late 2013.

Bictoin mining also took hold in China as as people downloaded the open source Bitcoin mining software in the hope of turning some new coins into a rapidly increasing asset prices.

As bitcoin mining became more difficult, requiring more computing power to earn bitcoins, more powerful Bitcoin mining computers were manufactured in China and these also became available through Taobao, China’s largest business to consumer e-commerce platform.

Yet, as Zennon Kapron explains in his book Bitcoin’s explosive growth in China also triggered its downfall.

China’s authorities’ responded to this flood of cash into Bitcoin–which was not under government or centralised company control—by cracking down.

The People’s Bank of China (PBOC) issued a notice prohibiting financial institutions from dealing in Bitcoin on December 5, 2013. The following day, the PBOC also ordered the largest third party payment companies, including Alibaba’s Alipay to halt Bitcoin digital currency transactions. Two days later, BTC China, the largest Bitcoin exchange in China, was forced to stop accepting Renmibi (RMB) deposits.

Not only retail investors, but also Bitcoin miners sold out of Bitcoin as quickly as they could and Bitcoin’s global price fell more than 50 per cent, led by the sell-off in China.

Bitcoin’s future in China appeared to have been bought to early demise. And yet while Bitcoin attracted few new users in China since its 2013 peak, Bitcoin mining and trading activity in China continued to grow. Chinese Bitcoin exchanges now account for over 90 percent of global Bitcoin trading activity and China accounts for as much as half of all global Bitcoin mining activity.

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About the Author

This article was written by Luke Deer of Frontiers of Finance in China.

Callum Connects

Agnes Yee, Legal & Compliance Recruiter of Space Executive

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Agnes Yee started Space Executive in Singapore, which is a hub for businesses in some of the world’s fastest growing economies.

What’s your story?
After graduation, I joined a design media company as a Business Development Executive, during the era when ‘reading a magazine online’ was unheard of. I believe that laid the foundation for being unfazed by rejections.

I fell into recruitment pre-GFC and rode the highs and lows in the early years. A decade later, I decided to set up my own recruitment company, partly because I could. I’m acutely aware of the face that being an Asian female in Singapore is sometimes a privilege, and that many women in the world are living a very different existence.
Thereafter, we joined Space Executive as part of a merger. I am currently the Partner of Space Executive, a recruitment company focused specialist disciplines, including Legal, Finance, Digital, Sales and Marketing and Change. We also run Space Ventures, a venture capital business, which invests in seed and pre-series A businesses.

What excites you most about your industry?
On a daily basis, we’re influencing how one spends a third of their day. It is interesting how the Internet has transformed the industry, and I’m excited to see how we can harness technology to bring us to the next phase of this business.

The VC is an extension of applying our skills and experience in reading people. We very much invest in the people as much as the idea. Being a native Singaporean, it’s been exhilarating watching Southeast Asia becoming a hotbed of ideas; and young entrepreneurs simply daring to dream.

What’s your connection to Asia?
I’m a born and bred Singaporean. I love that I speak both English and Mandarin, grew up playing with Indian friends and eating Malay food.

Favourite city in Asia for business and why?
Singapore for the low barriers of entry to set up a business, but has to be China (and Hong Kong) for their hunger and constant innovation.

What’s the best piece of advice you ever received?
青春不要留白 which translates to ‘Don’t waste your youth.’

Who inspires you?
Anyone who has gone against the grain.

What have you just learnt recently that blew you away?
It wasn’t recent but reading the article on https://waitbutwhy.com/2015/12/the-tail-end.html never fails to blow my mind how little time we have left. Charting our lives in weeks, and realising I only have enough time left to enjoy 60 Christmas turkeys, read 300 books (all if I’m lucky); and mostly, I’m left with the last 5% of the time that I spend in-person with my parents.

If you had your time again, what would you do differently?
I’m cognisant that every decision I made in life has brought me to where I am today, and I wouldn’t change one thing. But I’d really like to have had more time to travel.

How do you unwind?
Exercise and wine.

Favourite Asian destination for relaxation? Why?
Trekking any mountain in Asia. It brings us back to the most basic. To overcome elements of nature and our own mind.

Everyone in business should read this book:
Start with Why, Simon Sinek

Shameless plug for your business:
Space Executive started in Singapore, a hub for businesses in some of the world’s fastest growing economies. We assist organisations in accessing a targeted and specialised, and often times transient talent pool.

Out of Singapore, we have recruited across 14 countries; and have embarked on our global expansion plans with offices in Hong Kong and London this year, and US, Japan and Europe in the following years.

Space Ventures provides funding, management and financial guidance to young businesses with original ideas. We have invested in peer to peer lending platforms, credit scoring, social media education, and other start-ups spanning diverse industries. We are always interested in hearing more about new ideas.

How can people connect with you?
https://www.linkedin.com/in/agnesyee/

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Chrystie Dao-Szabo, Founder of iPayMy

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Chrystie Dao-Szabo founded iPaymy for Business – a secure and easy to use
platform enabling SMEs to pay rent, salaries, invoices, and even corporate tax using the credit cards they already have in their wallet today.

What’s your story?
I’m Chrystie Dao-Szabo, and I’ve worked as an international banker for over 22 years. During that time, I travelled through Asia, Australia and Europe, and everywhere I saw how my clients struggled with managing their finances and keeping cash around.

I wanted to use my experience to help them, but I also knew the solution they needed didn’t exist yet. This pushed me to give up on my secure career, and instead look into the innovative world of FinTech for an answer.

This is how I founded iPaymy – at its launch, a platform to help consumers pay their monthly expenses using their credit cards. We’ve grown a lot since, and today, iPaymy for Business is a platform that allows business owners to use their credit cards to pay for rent, salaries, invoices and taxes, freeing up their cash for business-critical operations.

What excites you most about your industry?
What excites me most about FinTech is it’s culture of constant disruption, thanks to cool and innovative products and services coming out every day.

What’s your connection to Asia?
I was born in Vietnam, grew up in Australia and worked in Asia, Europe and Australia. Being raised by traditional Vietnamese parents meant that deep down I was still an Asian at heart, so I have a strong connection with the region.

Favourite city in Asia for business and why?
Singapore of course. It’s easy to do business, English is the main language, and the infrastructures like public transportation are great. Also, the government supports local innovation in multiple ways, like giving grants for SMEs and FinTechs.

What’s the best piece of advice you ever received?
Keep giving, and one day you will receive.

Who inspires you?
My parents. My father had a successful business in Vietnam just before the fall of Saigon in 1975. After the war, my father was sent to a re-education camp for three years, which meant my mum had to bring up two young kids – a 3-year-old, me and my 4-year old brother on her own.

In 1980, we all fled Vietnam on a boat and arrived in Sydney, Australia via refugee camps in Indonesia and Singapore. There, my parents had to start over with nothing to their names and only AUD 50 given to them by the Australian government.
They went on to build several businesses in Australia!

What have you just learnt recently that blew you away?
The number of young and smart people who have carved out successful careers by founding their own startups (or joining really cool ones). When I was starting out my career, doing any of these was not a viable option; it was either working for an accounting firm, an insurance company or a bank.

If you had your time again, what would you do differently?
If I were starting out my career now, I would choose the path of joining a startup as you get to learn so much about running a business and how to assemble a winning team.

How do you unwind?
I like travelling to a beach or a resort destination and just relaxing by the pool or beach. I also like to unwind after work with a glass of champagne or wine, and a bowl of truffle fries.

Favourite Asian destination for relaxation? Why?
Thailand. I love the people and the spicy Thai food.

Everyone in business should read this book:
The E-Myth. It’s a book series that dismantles common myths about entrepreneurship in different industries.

Shameless plug for your business:
With iPaymy for Business, SMEs can pay rent, salaries, invoices, and even corporate tax using the credit cards they already have in their wallet today. SMEs love iPaymy because it works like a credit card, but pays like cash.

iPaymy’s secure and easy to use platform reliably delivers payments to vendors while freeing up cash and providing access to interest free credit. Forget the delays and aggravations that come with traditional SME financing options. Schedule recurring payments, manage invoices, set payment reminders, and monitor payment status all from one dashboard.

It’s never been easier for SMEs to meet monthly payment obligations while keeping cash available to fuel growth, bridge receivable gaps, and make immediate investment in the supplies, services, and expertise needed to drive a growing business forward.

How can people connect with you?
You can find me on LinkedIn or contact me by email.
My LinkedIn: https://www.linkedin.com/in/chrystiedaoszabo/
My email: [email protected]

Twitter handle?
https://twitter.com/ceedeees

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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