by Stan Stalnaker
November 18, 2013
Stan Stalnaker is Founding
Director of Hub Culture and the Ven, an asset-backed Internet
reserve currency that along with Bitcoin and Ripple, is leading the
digital asset market.
China is quickly
moving to become
one of the leading players in
the Bitcoin market.
China is quietly positioning itself to
dominate the brave new world of Bitcoin.
Until recently the digital crypto-currency was considered a joke by the
financial mainstream, but the view is starting to shift now that prices have
surged above their April peak and are now hovering around $600.
Bitcoins are still being viewed cautiously
by lawmakers and regulators in the United States. In fact, there are two
Senate hearings this week about the risks Bitcoin poses. But that is
decidedly not the case in China.
There has been a steady drumbeat of positive
news in the Chinese press this year, including a landmark report on CCTV,
China's national television network.
China's fascination with the currency upstart resulted in an estimated
40,000 client downloads a day and a burgeoning acceptance rate from online
retailers down to physical traders standing in Tiananmen Square.
The largest Bitcoin exchange in the world is located securely inside China,
and one of the world's largest Internet companies,
Baidu, is integrating and using Bitcoin. It
seems highly unlikely that Baidu would be able to integrate Bitcoin payments
across its vast network of users without some sort of complicit nod from
Chinese interest could play a huge role in turning Bitcoin into the first
trillion dollar non-fiat currency.
So why has China been so quick to embrace the virtual currency? It has been
down this road before. In 2009, the government moved to staunch the rapidly
rising phenomenon known as QQ, the virtual currency from social juggernaut
In just a couple of years, QQ had grown to such an extent that some
estimates put it at 13% of the Chinese cash economy. It was threatening to
supplant the yuan in a viral tsunami that showed no signs of abating. At its
height, people similarly gathered in public places to trade QQ, and
shopkeepers began accepting it for payment.
Because Tencent controlled QQ through central online reserves, the Communist
Party's response was swift, hobbling QQ at its knees and bringing it well
back into line overnight.
How did they do it?
Since QQ was centrally managed, all the Chinese
government had to do was tell Tencent to limit QQ's use or face a total
shutdown of their business. So Tencent reeled it in.
Such a move is not so easy with the decentralized cryptography of Bitcoin,
and Chinese officials know that.
Within months of the chop on QQ, the Bitcoin algorithm was released
anonymously online. Bitcoin is difficult to trace. And as the open source
aspects of Bitcoin grew and strong demand began to push up prices, China
took notice, perhaps having been more aware than others of how quickly and
completely these things can take off.
In terms of geopolitics, the implications of Chinese support for Bitcoin are
clear and complicated for the U.S. The more bitcoins a person or entity
control, the higher their influence in all things Bitcoin. While it is
unlikely anyone will ever control more than 51% of Bitcoin, such an event
could put the currency under control of that actor.
In the meantime, Bitcoin presents a marvelous gift for China, a country
anxious to exert financial influence on a global scale, but nervous to
overtly undercut the U.S. dollar, which it holds in abundance.
It could also help China exert more economic influence over commodity-rich
Africa. Digital currencies like Bitcoin are already set to take off there
and bring financial inclusion to 2.5 billion of the world's most
As Bitcoin infrastructure matures, it has the potential to be used as a
currency in commodity markets and other areas of trade with lightning
quickness, from gold to wheat to cotton and, yes, oil.
In Africa, this could mean the,
destruction of weak country currencies
large scale consumer adoption via mobile
a new era for Chinese financial
supremacy in Africa at large
For America, oil contracts from non-OPEC
countries denominated in Bitcoin would pose significant threats.
That's why next year will be key for the future of Bitcoin.
Ironically, it is the United States, the "free
market" financial heavyweight in the world, that finds itself moving slowly
to figure out how to adopt Bitcoin. Meanwhile, China is proving to be a
leading player in this 21st century currency.
If the U.S. winds up over-regulating Bitcoin, the existing power structure
in finance could be put at risk. The message to Congress is clear. Bitcoin
is here to stay and lawmakers would do well to make sure that the U.S. does
not get left behind in this brave, new digital currency world.
The race is on, and Bitcoin doesn't care about