Why Chinese people will drive the next bull market in bitcoin | Hacker News Reader

Why Chinese people will drive the next bull market in bitcoin

qz.com

43 pointsrubikscube29 comments

This lacks the background of why the Chinese want to invest abroad so much. I'll try to provide a little:

Traditionally, In Chinese society it's expected that in your old age you will be cared for by your children. That is, you don't really need retirement savings. Thanks to social change and the one-child policy, millions of Chinese don't believe that this will work for them. So, they are facing either working until they drop (if they can find some place to keep working in, and that's a big if), or saving for retirement.

Saving for retirement is very hard because the Chinese government has intentionally made it almost impossible. The currency inflates quickly enough that storing as cash is completely pointless. There are very strong currency controls that block any investment into foreign companies -- and even into profitable parts of local ones. The internal stock market that the Chinese can invest in is a total scam. This only leaves real estate (which is believed to be in a huge bubble), and the technically illegal shadow banking system, which itself is having trouble.

So in summary, the Chinese middle class is flush in cash, and desperately wants to put it somewhere, anywhere.

How large of a part Bitcoin will play in this will likely depend on threatened the Chinese government will be of it. While the system is technically sound, I have little faith that it could survive the Chinese government using informants and executions against anyone taking in RMB and selling BTC. However, as of right now, most of the shadow banking system is illegal, but it's so large (nearing the GDP of the country) that the government simply doesn't dare do anything about it. Will the same happen to BTC being used to move wealth across the border?

So, why is the government doing this?

The cynical answer is that they are doing it to maintain full control over the economy and to loot the private sector dry. Note that the rich and the connected are not limited by these rules.

There are probably less cynical reasons for their actions. I just haven't ever heard any.

>5. Chinese techies are used to spending an ungodly amount of time mining virtual coins in online games.

It's like he doesn't even know how Bitcoins work.

You're polite. It's clear the author doesn't understand the difference between btc mining and mining in an mmorpg.

I don't think that's clear at all. The paragraph about gold farming is brief and vague. My impression is that he's trying to convey that many Chinese are already very familiar with an analogous system. Whereas if you haven't played mmos, bitcoin mining is an entirely alien concept.

If you take a break from thinking like a crypto-economic-engineer and look at btc mining from the pov of your average consumer, the biggest difference between btc mining and gold farming is that btc has automated the human player out of the game. From the outside, it looks a lot like farming for gold in Progress Quest.

I also appreciate how he thinks MMO gold farmers are "techies".

In China, human labor is cheap and abundant. So running a room full of MMORPG gold miners on computers isn't that different from running a room full of computers mining bit coins. A CEO friend of mine with a real estate office in Hong Kong mentioned she pays her employees 500 a month. I could basically hire 6 people a month for just what I put into savings each month currently.

If I were Chinese, I'd want a cryptocurrency which:

1) Allowed me to "store value" in a variety of different assets (USD, various US stocks, commodities, etc.) -- NOT a single speculative currency.

2) Anonymous/no transaction records

3) Multiple issuers and thus multiple roots of trust; If I had $100k to store offshore, it wouldn't all be at risk to one entity.

4) Protocol designed for anonymity; wallet software or wallet providers who left no particular trace on your local machine, network traffic monitorable from your local machine, etc.

In short, some kind of open network of blinded token issuers, NOT bitcoin.

Most of this is possible, if you use bitcoins to buy offshore assets, something which Chinese can't easily do.

It's really quite hard to move money to and from China. Bitcoin is a relatively secure way of doing so. It's probably not legal, but it's easier than Fedexing cash.

There have to be better China-specific ways of doing this. There is a relatively flourishing parallel banking system (for loans to SMBs); there has to be some hawala type system where you loan money to a producer in China, then receive retained earnings overseas.

The issue is not what to do with the money outside China; it's the first hop of being able (legally, or untraceably) to get the money out of China.

The other competitor seems to be "fly to Macau", which from what I saw at the tables, involves people who were "very new money" throwing down USD 50k at a throw of the dice. Presumably this is somehow connected to laundering money, and not purely entertainment.

Why would you want these things if you were chinese?

To hide my money from the government. If you're government connected, you just fly out of the country or otherwise invest directly in the Western financial markets, so this is for anyone else.

Do the Chinese govt regularly seize money from their citizens?

From Bitcoin you can convert some of your holdings into dollars in an exchange or in Ripple.

Yes, but the problem is the initial exchange. If you buy BTC from a Chinese provider (which is what you're going to do -- if you had a way to spend money internationally, you'd just go direct to S&P 500), that transaction exists forever. It's not hard to believe the Chinese government would roll up Chinese exchanges to get records, and then you're doomed, even if the value has been moved onward -- they'll just hold you/execute you/whatever.

There's a new Tor hidden service, TorBroker, that allows you to buy US securities anonymously using Bitcoin and the Tor network. It's like The Silk Road for stocks.

http://www.thebitcointrader.com/2013/04/torbroker-silk-road-...

To whoever is thinking of trying this:

1) Beware they haven't built any reputation yet.

2) Find a good guide about how to anonymize your bitcoins.

Well, there is a point for Chinese gov't to crack down on: bitcoin exchanges and businesses accepting bitcoins. After all, you need to cash them out somehow.

Virtual currencies are heavily regulated in the PRC. E.g. QQ coins can only be used in a few ways.

Right--it's easy for the Chinese government to restrict the points of exchange for bitcoin into other currencies, like banks (most of which are state-owned), mobile phone recharge cards, credit cards, etc.

Doing that would leave bitcoin only attractive to the elite that can move their country in and out of the money easily. But then the obvious question is: for folks that can already move money around easily outside of government control--why would those people want to take on the extra risk inherent in bitcoins?

For corrupt officials BTC presents an easy way to hide black money. A banking account has official records which can be obtained by police (and seized by it!).

So, a criminal moves his funds into Bitcoin, either at a Chinese exchange or at a foreign one, and then hides the private key on paper somewhere. If he gets arrested/sentenced to death/whatever, family/friends can always recover the money.

Actually, I'm wondering why the Mafiya doesn't use Bitcoin for cross-border drug exchanging already...

Hawala or the equivalent makes MUCH more sense for moving money. BTC has neither the depth nor technical features to accomodate massive illegal flows.

The problem with cross-border drug exchange is that at the retail level, you end up with a fuckton of $5-20 bills. You could color up to $100s in some cases, but even that is hard at scale.

Dealing with bulk currency in the heavily surveilled customer nations (USA, EU) is hard. The gold standard seems to be shipping bulk currency out, since most drug people are already good at moving bulk products in. Trying to deposit it into

If you had a way to spend infinite $5 bills in the US to buy BTC, you'd be just as likely to have a way to spend infinite $5 bills in the US to buy bank deposits in Macau. It's the first stage which is the serious problem, not stages 2/3. Pretty much all 3 stages of money laundering now happen outside the US -- or you bring washed money back into the US to invest in some cases, the last stage.

Hawala works because you can net stuff out, thus reducing the need to move bulk currency. But you still need to move bulk currency eventually to settle up.

Well, the retail-level $5/10/20 bills can be exchanged anonymously at Bitcoin ATMs. If I were a dealer, I'd do this so that coptards can't seize the money at the place I store it.

Often in local news there are reports about small dealers getting busted, while they only have small quantities of drugs at home, if at all, most have shitloads of money in their homes - which breaks their neck in court.

The issue isn't street dealers dealing with shoeboxes of cash, it's levels up from that. You can pay for jewelry, guns, rent, stolen precursors, grow equipment, labor, rims, etc. in cash. You can't pay for cars or houses. You can generally pay the dealers 1-2 steps up from retail in bulk cash without problems, but at the point where they need to bring product in internationally, it becomes an issue.

It used to be meth worked a lot better (since you could produce it more locally/closer to consumption), but since Diane Feinstein severely restricted effective formulations of Sudafed (pseudoephedrine) in the Methamphetamine Control Act of 1996, most of the production moved to Mexico, along with most of the (ditchweed) marijuana production, and smuggling routes for both South American cocaine and heroin (also brought in from abroad).

The pharm market is probably more cash-based, since it seems to be just as much "buying pills off people who get them for ~free from pharmacies, for cash" as "bringing in bulk pills from India/China/Israel". This might vary per medication though, but there are definitely entirely-domestic pharm dealers.

I'm not really sure what's happened with the MJ market post-MMJ; I know a lot of the grow ops in the Triangle went from being local people to being Mexican gang grows, but I think there are plenty of 100-400 plant warehouse grows now. I'm not really sure about the outdoor market in places like Missouri (which I believe is one of the bigger domestic outdoor producers). I do know there's a huge pricing differential between Oakland and the East Coast, probably due to MMJ and quantity.

> 6. The government can’t track it, can’t block it, and can’t crack down on it.

This is a common misconception about bitcoins. In fact, bitcoin lets you track every transaction that has ever been made.

But you can't track where the transaction happened (eg. if inside of China or not). Also you cannot reliably trace funds over multiple transactions due to the easy mixing with other funds.

Kinda... If you are smart you can set up several wallets and launder the money through them. Hard to be smart though. Tor, in person meetups to buy BTC for cash, etc.

BRB, off to open a Bitcoin exchange in China ..

Seriously though, could it be that we're finally seeing a solution to the worlds problems, with decentralized currency become a peoples movement to remove the existing power structures?

Methinks if thats the case, then duh .. China is where it needs to happen most of all. For all of our sakes!

Good luck. Business owners in China frequently claim the government can just take your business any time they feel like it. You can't even run a business without friends in the government and police and massive gifting.

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