Bitcoin is a virtual currency which made its entrance in 2009. It is not an actual coin, but a string of numbers and letters. Each bitcoin has an unique identification code. The bitcoin is not administered by a central bank, like the euro, but by a network of users. There is no ‘middleman’ or third party involved, but instead, a decentralized peer-to-peer network in which people from all over the world help move the digital money by validating other bitcoin transactions, with their personal computers, earning a small fee in the process. They actually do the same as the bank or notary: to check if transactions are valid. This concept in known as ‘Blockchain’. People who run the system use their computer to hold bundles of records summited by others know as ‘blocks’ in a chronological chain. The Etherium Blockchain, in which bitcoins are traded, uses cryptography to ensure records can’t be simulated or changed by anyone else. In this way people can make reliable transactions with others.
Reliable, but legal?
The bitcoin transaction is a fast way to transfer money and cheap, since there are no transaction costs involved. You can send money to who ever you want, whenever you want, wherever you want. This makes bitcoin trading attractive for criminal activities, such as terrorist financing. Initial coin offerings (ICO) such as the bitcoin were subjected to fraud activities in China.
For this reason, the authorities in China have decided, two weeks ago, to withdraw from bitcoin trading, which will have a negative influence on the crypto currency. At least 10% of all bitcoin trading happened in China and the value of the currency has dropped in only 2 weeks from $5000 dollar to $3226. According to Bloomberg, in the long term, China is thinking about developing their own currency. Now, bitcoin lost a lot of it’s value, but what the exact effects in the long- and short term of this decision will be is not clear yet.
What do you think that will happen to Bitcoin in the future? Please leave a comment!
Chen, M. and Lee, M. (2017). Bitcoin Tumbles as PBOC Declares Initial Coin Offerings Illegal. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2017-09-04/china-central-bank-says-initial-coin-offerings-are-illegal [Accessed 5 Oct. 2017].
Hsu, S. (2017). Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/sarahsu/2017/09/15/chinas-cryptocurrency-crackdown-is-bitcoin-a-threat/#118ddb016667 [Accessed 5 Oct. 2017].
de Mulder, M. (2017). Bitcoin, Ethereumkrach gaande: China verbiedt nieuwe munten. [online] Quote. Available at: http://www.quotenet.nl/Nieuws/Bitcoin-Ethereumkrach-gaande-China-verbiedt-nieuwe-munten-203140 [Accessed 5 Oct. 2017].
de Waard, P. (2017). Volkskrant | de Volkskrant. [online] Volkskrant.nl. Available at: https://www.volkskrant.nl/economie/china-verbiedt-lancering-van-nieuwe-digitale-munten-koers-cryptomunt-bitcoin-in-vrije-val~a4514925/ [Accessed 5 Oct. 2017].
Please also look at: https://www.bloomberg.com/news/videos/2017-09-05/china-halts-initial-coin-offerings-video
Interesting article Suzanne! Even though fears were rising when the news came out that China would withdraw Bitcoin from the exchanges, Bitcoin’s price is almost at the all-time high again. Currently Bitcoin is trading at $4875, compared to the all-time high of $5013.
I do not believe this regulation by China will have a major effect on Bitcoin in the long-term. In response to China banning Bitcoin, some neighbouring countries have allowed more cryptocurrencies to be traded on their exchanges and a lot of China’s trading volume moved to these countries. People in China will find other ways to trade cryptocurrencies even if China bans them from the exchanges. The consequence of this will be that China will not be able to regulate cryptocurrencies anymore, which will be even worse for China in my opinion. I therefore think in the long-term China will allow cryptocurrencies to be traded again since they will realize they can not stop traders, the best they can do is to regulate it.