China has traditionally been a very cash based society with Chinese consumers preferring tangible goods and assets as opposed to virtual/non-tangible. However, in May 2013, China's main state-run broadcaster aired a documentary about a little known virtual currency called Bitcoin. Over the next six months, the value of Bitcoin rocketed as Chinese money poured in and China became the second largest active Bitcoin market globally. This has attracted new Bitcoin based businesses to China and what could be a massive market for the developing virtual currency. Unfortunately for many latecomers, the rapid rise in Bitcoin's price and popularity also attracted government scrutiny, causing an unforeseen and catastrophic plummet in value.
What happens when you combine one of the most promising virtual currencies in the world with the largest country in the world? Even with the huge market potential though, will Bitcoin really take off in China? Can the Chinese consumer shift the value of the virtual currency as they did with gold in early 2013? What will the government eventually and inevitably do to control the currency?
This and many more topics included in “Chomping at the Bitcoin” including below excerpt:
Chapter 1: Xu Wei’s hand shook slightly as he held it over, not quite touching, the machine. The bulky device was turned off, so there was no chance of burning himself. Yet Xu was clearly nervous as he stood close to it, as he talked about it and as he looked at it. After all, this modest machine, tucked away in the back of his apartment amid stacks of paper and books, was a large Bitcoin miner that Xu Wei considered his ticket to fortune.
As he plugged the device into the wall, the machine spun into life with a slight hum. Xu reached towards a side table and turned on a fan. The fan was pointed at the miner and was designed to cool the insides of its rapidly warming body, which looked like a computer with its cover taken off. Over the next few minutes, the miner became too hot to touch, and made the small office uncomfortably warm.
Xu’s miner is an expensive piece of what has become an integral part of the Bitcoin story in China. The miner is one of thousands of machines running twenty- four hours a day all over China, solving a never-ending stream of algorithms in the hopes of being rewarded with bitcoins. A black box with no potential other use in its life besides solving virtual problems to receive virtual currency – on a certain level it feels like an incredible waste.
When Xu Wei purchased the miner in May 2013 for nearly 10000 yuan (US$1600), the machine was one of the most up-to-date Bitcoin miners available, paying for itself within one week. Yet within six weeks, Xu’s bulky naked computer, which sucked up 300 watts of power while it slowly mined for bitcoins, had already been superseded by a newer and faster batch of miners. In the Chinese Bitcoin community, anything older than two weeks – whether it’s news, hardware or business ideas – is already obsolete.
Xu’s story is not unique. In fact, his story is characteristic of the many Bitcoin tales that abound in China of Bitcoin enthusiasts who became virtual currency millionaires through mining and trading of the digital money.
Similar to gold, the stock market and real estate, Bitcoin was the speculation du jour, and thousands of people in China were trading, following and talking about the future of the currency. Although Bitcoin had been around in China ever since it was conceived in 2009, it really only started building a presence in 2011 before experiencing unprecedented popularity in 2013.
Bitcoin was something new for the country: a virtual decentralised currency with no borders or limits. For Chinese libertarians, it was an escape from the strict government control of the yuan. It was something that the government couldn’t control . . . or could they?
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