In 2008 following the financial Crypto Exchange Website crisis, a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published, detailing the concepts of a payment system. Bitcoin was born. Bitcoin gained the attention of the world for its use of blockchain technology and as an alternative to fiat currencies and commodities. Dubbed the next best technology after the internet, blockchain offered solutions to issues we have failed to address, or ignored over the past few decades. I will not delve into the technical aspect of it but here are some articles and videos that I recommend:
How Bitcoin Works Under the Hood
A gentle introduction to blockchain technology
Ever wonder how Bitcoin (and other cryptocurrencies) actually work?
Fast forward to today, 5th February to be exact, authorities in China have just unveiled a new set of regulations to ban cryptocurrency. The Chinese government have already done so last year, but many have circumvented through foreign exchanges. It has now enlisted the almighty ‘Great Firewall of China’ to block access to foreign exchanges in a bid to stop its citizens from carrying out any cryptocurrency transactions.
To know more about the Chinese government stance, let’s backtrack a couple years back to 2013 when Bitcoin was gaining popularity among the Chinese citizens and prices were soaring. Concerned with the price volatility and speculations, the People’s Bank of China and five other government ministries published an official notice on December 2013 titled “Notice on Preventing Financial Risk of Bitcoin” (Link is in Mandarin). Several points were highlighted:
1. Due to various factors such as limited supply, anonymity and lack of a centralized issuer, Bitcoin is not a official currency but a virtual commodity that cannot be used in the open market.
2. All banks and financial organizations are not allowed to offer Bitcoin-related financial services or engage in trading activity related to Bitcoin.
3. All companies and websites that offer Bitcoin-related services are to register with the necessary government ministries.
4. Due to the anonymity and cross-border features of Bitcoin, organizations providing Bitcoin-related services ought to implement preventive measures such as KYC to prevent money laundering. Any suspicious activity including fraud, gambling and money laundering should to be reported to the authorities.
5. Organizations providing Bitcoin-related services ought to educate the public about Bitcoin and the technology behind it and not mislead the public with misinformation.
In layman’s term, Bitcoin is categorized as a virtual commodity (e.g in-game credits,) that can be bought or sold in its original form and not to be exchanged with fiat currency. It cannot be defined as money- something that serves as a medium of exchange, a unit of accounting, and a store of value.
Despite the notice being dated in 2013, it is still relevant with regards to the Chinese government stance on Bitcoin and as mentioned, there is no indication of the banning Bitcoin and cryptocurrency. Rather, regulation and education about Bitcoin and blockchain will play a role in the Chinese crypto-market.
A similar notice was issued on Jan 2017, again emphasizing that Bitcoin is a virtual commodity and not a currency. In September 2017, the boom of initial coin offerings (ICOs) led to the publishing of a separate notice titled “Notice on Preventing Financial Risk of Issued Tokens”. Soon after, ICOs were banned and Chinese exchanges were investigated and eventually closed. (Hindsight is 20/20, they have made the right decision to ban ICOs and stop senseless gambling). Another blow was dealt to China’s cryptocurrency community in January 2018 when mining operations faced serious crackdowns, citing excessive electricity consumption.
While there is no official explanation on the crackdown of cryptocurrencies, capital controls, illegal activities and protection of its citizens from financial risk are some of the main reasons cited by experts. Indeed, Chinese regulators have implemented stricter controls such as overseas withdrawal cap and regulating foreign direct investment to limit capital outflow and ensure domestic investments. The anonymity and ease of cross-border transactions have also made cryptocurrency a favorite means for money laundering and fraudulent activities.
Since 2011, China has played a crucial role in the meteoric rise and fall of Bitcoin. At its peak, China accounted for over 95% of the global Bitcoin trading volume and three quarters of the mining operations. With regulators stepping in to control trading and mining operations, China’s dominance has shrunk significantly in exchange for stability.
With countries like Korea and India following suit in the crackdown, a shadow is now casted over the future of cryptocurrency. (I shall reiterate my point here: countries are regulating cryptocurrency, not banning it). Without a doubt, we will see more nations join in in the coming months to rein in the tumultuous crypto-market. Indeed, some kind of order was long overdue. Over the past year, cryptocurrencies are experiencing price volatility unheard of and ICOs are happening literally every other day. In 2017, the total market capitalization rose from 18 billion USD in January to an all-time high of 828 billion USD.
Nonetheless, the Chinese community are in surprisingly good spirits despite crackdowns. Online and offline communities are flourishing (I personally have attended quite a few events and visited some of the firms) and blockchain startups are sprouting all over China.
Major blockchain firms such as NEO, QTUM and VeChain are getting huge attention in the country. Startups like Nebulas, High Performance Blockchain (HPB) and Bibox are also gaining a fair amount of traction. Even giants such as Alibaba and Tencent are also exploring the capabilities of blockchain to enhance their platform. The list goes on and on but you get me; it’s going to be HUGGEE!
The Chinese government have also been embracing blockchain technology and have stepped up efforts in recent years to support the creation of a blockchain ecosystem.
In China’s 13th Five-Year Plan (2016-2020), it called for the development of promising technologies including blockchain and artificial intelligence. It also plans to strengthen research on the application of fintech in regulation, cloud computing and big data. Even the People’s Bank of China is also testing a prototype blockchain-based digital currency; however, with it likely to be a centralized digital currency slapped with some encryption technology, its adoption by the Chinese citizens remains to be seen.
The launch of the Trusted Blockchain Open Lab as well as the China Blockchain Technology and Industry Development Forum by the Ministry of Industry and Information Technology are some of the other initiatives by the Chinese government to support the development of blockchain in China.
A recent report titled ” China Blockchain Development Report 2018″ (English version in the link) by China Blockchain Research Center detailed the development of the blockchain industry in China in 2017 including the various measures taken to regulate cryptocurrency in the mainland. In a separate section, the report highlighted the optimistic outlook of the blockchain industry and the massive attention it has received from VCs and the Chinese government in 2017.
In summary, the Chinese government have shown a positive attitude towards blockchain technology despite its enforcement on cryptocurrency and mining operations. China wants to control cryptocurrency, and China will get control. The repeated enforcements by the regulators were meant to protect its citizens from the financial risk of cryptocurrencies and limit capital outflow. As of now, it is legal for Chinese citizens to hold cryptocurrencies but they are not allowed to carry out any form of transaction; hence the ban of exchanges. As the market stabilizes in the coming months (or years), we will see undoubtedly see a revival of the Chinese crypto-market. Blockchain and cryptocurrency come hand-in-hand (with the exception of private chain where a token is unnecessary). Countries thus cannot ban cryptocurrency without banning blockchain the awesome technology!
The real estate industry is on the cutting edge of many issues. Bitcoins included. While the use of Bitcoins may not be mainstream yet, they are being seen throughout the industry and it’s important to understand the risk and rewards that Bitcoins present.
What is a Bitcoin?
Originally introduced in 2009, the Bitcoin (BTC) is considered as a crypto currency. While not widely accepted (yet), the use of Bitcoins is becoming more widespread as many Bitcoin enthusiasts believe that Bitcoin is a government-proof currency (note that the IRS announced last year that it considers bitcoin as “personal property” for tax purposes). Additionally, some banking authorities have a different viewpoint of the crypto currency as they believe that it can be a basis for criminal activity.
It’s not a formal currency. Rather, Bitcoin is made through ‘mining’ which is a computer process and unregulated internet-based exchanges allow for the crypto currency to be traded online. Because Bitcoin is not regulated by any federal government or central bank, the majority of merchants will not accept the virtual currency. While the Bitcoin may not be common practice just yet, there are a growing number of real estate listings that are beginning to advertise that they accept the virtual currency.
A few countries are leading the way in Bitcoin acceptance. China is currently experiencing the largest exchange of Bitcoin while Japan and Europe are also seeing Bitcoin usage growing in popularity.
The Bitcoin Market
The Bitcoin currency market can be volatile and has already experienced many highs and lows. As an example, a single Bitcoin could have been purchased for $13.30 on January 1st, 2013. Then on December 4th, 2013 the Bitcoin could have been sold for $1,150! Not a bad return on investment. But many haven’t been that lucky with the Bitcoin market.
The Securities and Exchange Commission has been keeping an eye on the Bitcoin and issued a warning in May of 2014 that stated the following: “the rise of Bitcoin and other virtual and digital currencies creates new concerns for investors. A new product, technology or innovation – such as Bitcoin – has the potential to give rise both to frauds and high-risk investment opportunities.”
Many investors warn against investing in Bitcoins as it has great volatility and it is not considered as a functional currency. Because it has no intrinsic value, the Bitcoin is not a viable investment vehicle for most. For instance, a computer hacker can steal all of the Bitcoin currency from an owner. And, due to the price risk, many warn that the investment in Bitcoins should only be in small amounts, if any, so that a large swing in value won’t adversely affect someone’s livelihood.
A variety of online retailers are beginning to accept Bitcoin as an acceptable form of payment. Tesla.com is just one such business. In larger cities, some property management companies are also accepting Bitcoin as a form of rent payment for tenants with the advantage being that the currency can’t bounce like a check can.
Buying Real Estate with Bitcoin
Home sellers are beginning to consider additional ways to market their homes and think outside the box when it comes to advertising. By listing a home for Bitcoin, sellers may be able to capitalize on the media hype and also expand their potential client base by allowing Bitcoin buyers to enter the mix. In 2014, a few Bitcoin transactions took place and, perhaps the most notable, was a home near Lake Tahoe that sold for 2,749 Bitcoins. This equates to $1.6 million of real U.S. currency. Companies are beginning to emerge that specialize in Bitcoins and real estate. One such company is Homes4Bitcoin. This website allows for homeowners and agents to list a property for Bitcoins. BitPremier is another website that specializes in Bitcoins.
While it’s not yet feasible for escrow, title, insurance or property tax to be paid in Bitcoins, it may just one day be. BitPay is a company that was established to allow transactions utilizing bitcoin to easily take place. Similar to the PayPal concept, this company solely operates around the bitcoin currency and has an allotted timeframe for a transaction to be completed before the exchange rate has to be recalculated since the Bitcoin exchange rate is constantly fluctuating.
It’s not just real estate that you can buy with Bitcoin. Other high dollar items have also had some success when sold for Bitcoin. A small airplane and a luxury yacht are just a few of the many items that are seeing payment through Bitcoin as a currency.