Two of China's Biggest Exchanges Stop Bitcoin Withdrawals | Hacker News Reader

Two of China's Biggest Exchanges Stop Bitcoin Withdrawals

coindesk.com

74 pointsjoeyspn46 comments

So basically, reading between the lines as a long term China resident and also the first employee of a major US cryptocurrency exchange, the Chinese government's 人民银行 (renminyinhang; People's Bank) has met with domestic exchanges and requested immediate additional processes on withdrawls. These probably include government reporting and/or blacklist processing. Since US exchanges are already subject to AML/KYC processes, this merely brings Chinese exchanges roughly in line with their US counterparts. I can see nothing to imply any additional restrictions so far.

Zooming out a little, there is good reason to believe that the Chinese government is less afraid of Bitcoin than the US, because Chinese mobile payment penetration through wholly owned systems (mostly WeChat) is already near 100%. Domestic transactions are therefore pretty much safe from Bitcoin... which offers slower settlement with more hassle on a much smaller range of goods and services. Also, relative to the US, taxation is very low and easily calculable across all of China (regardless of product type, buyer and seller location) so the appeal of Bitcoin for shortcutting that overhead is not present, as it is within the US with its famously antiquated multi-state tax nexus conundrums.

removing Bitcoin withdrawal means basically stop to capital outflow which could be circumvented by using Bitcoin instead of RMB, this just put Bitcoin in line with RMB and make it more difficult to get money out of China

It seems that contrary to discussion in yesterday's bitcoin thread [1], this is not 'unnecessary FUD.'

[1] https://news.ycombinator.com/reply?id=13601083&goto=item%3Fi...

I'm not sure if this is good or bad.

On one hand, having the government lay down a set of rules for the exchanges to follow could be seen as a stabilizing force.

On the other hand, it also, in my mind, increases the likely hood that if the government becomes unhappy with the exchanges that all the exchanges will be shutdown at once, which isn't great for bitcoin.

Big question I'd like answered.....

If I hold bitcoin, I'd do some very serious looking into what happens if most of china's exchanges and miners suddenly are brought off line for a couple of weeks.

I'm mostly interested in the secondary effects.

- ie will it lead to mass redemptions at other exchanges?

- which exchanges are fully cashed up? and which are working with fractional cash reserves?

"If I hold bitcoin, I'd do some very serious looking into what happens if most of china's exchanges and miners suddenly are brought off line for a couple of weeks."

As much as I don't like bitcoin, there is one bit of robustness built-in. If China were to shut down all of the exchanges and farms, the balance of hashing power for the bitcoin network would essentially leave China and be split between the remaining connected exchanges. This would hurt yuan/bitcoin rates, but would probably stabilize rates for the rest of the world economies attempting to utilize it.

Thanks for this explanation.

What are you thoughts if China had the goal of making the Yuan/bitcoin rate worth less to increase exports...this sounds like it could be one of many actions they could decide to take.

I find this incredibly interesting.

Historically speaking, that's shooting themselves in the foot. They'll drain their own resources, which is truly our ultimate plan (and why a majority of our resources are currently locked up - our national security depends upon exploiting resources outside of our homeland to maximum efficiency.)

If China were to shut down bitcoing mining, my understanding is that the worst case scenario is much more dire. The network only adjusts the 'difficulty' relative to current network hash power every 2,016 blocks. Depending on the severity of the overall hash power reduction, new block discovery might slow down significantly. This would also delay a recalculation of the new difficulty accommodating the reduction in hash power.

The network could be severely throttled for weeks.

"the worst case scenario"

"The network could be severely throttled for weeks"

That's exactly what would stabilize it instead of it having the wild multi-hundred dollar swing it's experienced essentially since inception. It's the wild hashing power China currently holds right now that's giving it the dominant influence over the currency. Reduce the dominance, spread the risk, stabilize the currency.

This is like a basic lesson that was taught in the TV series "Reboot" with Dot Matrix vs Captain Capacitor - Diversification.

How can you actually shut down mining? Maybe they'd make it harder for miners to convert bitcoins to fiat, but that wouldn't stop the mining.

I doubt they actually care about the mining, but they certainly could shut it down if they wanted to. I mean, it's China. It's not exactly difficult to locate the miners either - look for the building using 400 MW that doesn't have any steel or widgets coming out.

But I think the parent's point was that, if the Chinese exchanges were shut down, that could have a big impact on price if the hypothesis is true that most bitcoin activity is evading Chinese capital controls. If the hit was big enough it might push mining into unprofitability. This is all speculation, but not impossible.

First, yes, there are large farms of miners, but that's only some of the mining power. While these mining farms can be targeted and shut down, a significant amount of mining power is actually held in places that wouldn't be easy to locate. Those miners are going to keep mining as the owners have a strong economic incentive to do so, even if their mining pool in China gets shut down. They could, for example, just connect to a pool outside of China.

Also, what would happen to all the mining equipment should a mining farm get shut down? If the shut down is permanent, you can bet the people that own those machines would try to sell those miners as quickly as possible to people outside the country that can run them.

The economic incentives of bitcoin are such that there will be significant resistance to any government attempts at shutting down.

FWIW, the largest Bitcoin mine in the world is more like 10MW, and most are significantly smaller than that.

I do agree though that shutting down the larger Chinese mines wouldn't be too difficult if the government had the will to do it.

> How can you actually shut down mining?

You may not be able to shutdown mining, per se, but if you are the PRC government, you may be able to isolate miners in China from the network (especially if it is important enough to you to accept false positives), which has the same pragmatic effect.

>"I don't like bitcoin...hashing power for the bitcoin network would essentially leave China and be split between the remaining connected exchanges"

Exchanges aren't necessarily the miners. Your first phrase suggests you may not know much about bitcoin, but maybe you have info I am missing. Are all the big exchanges also miners now?

Majority of mining power is in China. If the govt is really cracking down enough to take their exchanges offline, an ancillary effect could be that Chinese miners would get skittish and stop. (Or not, they could well just keep operating in the hopes that the government won't go after them). Hard to say.

Won't guys like this https://www.youtube.com/watch?v=K8kua5B5K3I get affected? If all they can do is mine but not cash out, what happens to the network transaction speed and the overall difficulty?

How is cashing out got anything to do with processing speed?

> which exchanges are fully cashed up? and which are working with fractional cash reserves?

If an exchange is running a fractional reserve then they aren't an exchange, they are an insolvent fraud.

And you will only know for sure when they finally stop withdrawals all together... just like MtGox did.

It's worth noting that Mt. Gox started with blocking fiat withdrawals first. That was a situation of insolvency; this is the heavy hand of government. Apples and Oranges.

And it is much more limiting to move fiat around than it is to move bitcoin.

If they stoped fiat withdrawal and kept bitcoin withdrawals it would be mostly fine. You would just move the bitcoin to another exchange outside China and do as you please with it.

So it is actually a much bigger deal if a Chinese exchange stops users from moving their bitcoin around. Specially when you are in Europe since you actually stop having any easy means to recover the assets you have there.

Some of us that are in bitcoin for a while still remember how in the end the MtGox bitcoin withdrawals stopped for a week, than that week became a month and then that month became an eternity and the bitcoins deposited there where lost forever to their rightful owners.

https://en.wikipedia.org/wiki/Mt._Gox

> Some of us that are in bitcoin for a while still remember how in the end the MtGox bitcoin withdrawals stopped for a week, than that week became a month and then that month became an eternity and the bitcoins deposited there where lost forever to their rightful owners.

Yes, I've been in Bitcoin since 2011. Before Mt. Gox stopped Bitcoin withdrawals, they stopped fiat (actually a small trickle could leak out). For months, Gox traded at a significant premium (since you could still withdraw Bitcoin during that time)

This situation may be worse, but it has different circumstances and different root causes, so attempting to draw a parallel between the two doesn't provide much value. One was a failed exchange trying desperate measures to attempt survival; the other is a mandated government action.

PBOC doesn't need to stop people from being able to move BTC funds around on the blockchain in a timely / efficient manner-- The miners have done that all by themselves!

Also to address your "rightful owners" claim-- the rightful owner of a bitcoin is the person or company who holds and secures the private key to the wallet that coin is stored in. If you don't have that private key secured you don't own bitcoin, you own some type of bitcoin derivative backed by an exchange.

You can know for sure if they fail their cryptographic proof-of-reserve.

Unfortunately, people don't want proof-of-reserve as they flock to exchanges which don't use it, and people always get what they want, good and hard.

Both exchanges are still allowing withdrawals in renminbi. If you have any funds there, get them out now.

The statements from both exchanges are almost identical, indicating the statements were dictated to them. The PBOC itself has a statement: [1] (Reuters summary [2])

"Following the early January on the "fire network" and "currency" two major Bitcoin currency trading platform to carry out inspection, the afternoon of February 8, the People's Bank business management department inspection team also engaged in other bitcoin currency transactions (List of companies: CHBTC, BtcTrade, HaoBTC, Yunbi, Yuanbao, BTC100, Jubi, BitBays and Dahonghuo.)

"The main person in charge of Bitcoin trading platform to inform the current Bitcoin trading platform problems, suggesting the trading platform may exist legal risks, policy risks and technical risks, understand the operation of the nine trading platform, and put forward specific requirements Shall not violate the state's laws and regulations on anti-money laundering, foreign exchange administration, payment and settlement, etc., and shall not violate the laws of the State on taxation and administration of industry and commerce advertisements, and so on, and may not engage in money laundering activities. If there is a Bitcoin trading platform in violation of the above requirements, (and) the circumstances are serious, the inspection team will be brought to the relevant departments to be closed down according to law."

The PBOC had previously, back in January, made some exchanges stop allowing users to trade on margin. That's what the first line is about.

[1] http://beijing.pbc.gov.cn/beijing/132005/3248926/index.html [2] http://www.reuters.com/article/us-china-bitcoin-idUSKBN15O1C...

at the prices of bitcoin right now, about every day I wonder if it's the day to cash out. While I see these changes are to stop money laundering, I wonder what percentage of the bitcoin worth is from it being used for money laundering.

And more importantly, how much have you benefited from it? I don't mean in the moral sense, but as in how much of Bitcoin's gains have come from a house of cards with no long-term foundation, and how much from "organic" growth as a currency?

I hate bitcoin because by design it burns resources, polluting the environment, and by design it enables extralegal monetary remittance subject to the laws of no one, no matter how "legitimate" those laws and no matter how well they reflect the will of the governed. The idea of government is fundamental: otherwise, might makes right. Bitcoin makes it impossible to ensure anything like that is happening.

I state all this as my "credentials" for making the statement that theoretically it is not a house of cards. Transactions could take 72 hours to clear. The blockchain could be 1.7 terabytes in size. And transactions could cost hundreds of dollars. None of this would stop bitgold from having a market capitalization in the hundreds of billions. (What could stop it is some technical bugs or mismanagement.)

It is emphatically not a house of cards. (But I don't like it.)

In what way is it a house of cards? It is a legitimately scarce resource being legitimately used exactly as designed.

I'm referring to the gains of Bitcoin, not the currency itself. Bitcoin advocates point to price growth as a sign of stability and use, but I'd posit that much of the growth comes from early use-cases which will likely disappear due to increased regulation (drugs, tax avoidance, escaping capital controls) or the result of fake market conditions (WillyBot, artificial Chinese volume due to bots operating in a zero-fee environment)

About the environment, I have not crunched the numbers, but I suppose Bitcoin is actually greener than gold. Literal mining is messy.

Presumably bitcoin mining is generally done in places that have hydro-powered electricity (cheaper)?

my interest in btc began to increase when I started to learn about "money".

Did you know that all fiat (government issued/backed) currency is inflationary by nature? The reason the Swiss used to be regarded for having the strongest currency was because it was still backed by gold. They are mostly fiat now sadly.

So you say Bitcoin has no long term foundation? How about a hedge against inflation? the USD will ALWAYS lose value over time ABSOLUTELY. If I don't want to lose the value of my fiat, and there is enough people who also feel the same way by exchanging it for cryptocurrency, in which direction can we expect the price of bitcoin to go ?

*sidenote - bitcoin is capped at 21 million tokens, hence NOT inflationary.

Like so many discussions on Bitcoin's value, you're conflating the currency/technology with the currency's value. Bitcoin is inflationary; it's exchange rate is not. The exchange rate is influenced by news and psychology, and fiat inflation has very little influence on the price. I'd call that a weak foundation, and much of what we've seen in the past may not continue (anonymous drug sales, lack of government regulation, etc). Bitcoin has several years before it's an inflationary hedge, but in the meanwhile, it's a great speculative play with potentially unlimited upside. There's also an unlimited number of events that could occur in the next twelve months to destroy its exchange rate.

I expect money laundering is only a small fraction. On the other hand, the use of Bitcoin to evade currency controls and take legitimately earned money out of China is probably a large fraction of total Bitcoin use.

I'm puzzled as to why the prices have not collapsed. Removing China from Bitcoin....isn't there a big shock in the hash rate and thus the prices?

Why do you think the hash rate will change? This is talking about the exchanges not the mines.

If the price collapses then the cost of electricity will be greater than the mining rate

If you have anything in a Bitcoin exchange in China, get it out now. Even if you have to take it in RMB. It's not clear if those operations have 100% of the reserves they're supposed to have. Do you want to gamble on that?

The following is my exchange if anybodys looking for a new one. http://bitcoinsexchange.itmustbetrue.com

Has the same problem as Expert's Exchange had back in the day.

Idea: A registrar service that helps to identify and avoid awkward lexical ambiguities like this one. Or one which generates them!

Doesn't anyone look at the domains they click...

Quit trying to scam people.

Didn't you read the copy? It's totally legit.

Keeping anything in China is inherently risky. Rights (ie property, monetary, human, civil, etc.) aren't consistently certain from one day to the next.

the chinese are not fools. they have a good control over the btc network hash why would they give up this power?

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