The price of a Bitcoin (BTC), the much-discussed and highly volatile crypto-currency, has topped $200 for only the second time in its history. This was likely abetted by the optimism that Baidu – often referred to as China’s Google – inspired when it began accepting BTC as payment for a subsidiary service. At least one source, Forex Magnates, has determined that Baidu’s announcement rallied Chinese demand for the currency. For readers unfamiliar with Baidu, consider that the traffic measurement service Alexa has it as the fifth most-visited website in the world, ahead of the likes of Wikipedia, Twitter, and Amazon.
Bitcoin has seen wide coverage in the Western technology press. The most recent flurry of attention accompanied the FBI’s shut-down of the Silk Road, an online drug exchange that used Bitcoin as its unit of barter. Prior to that, many had speculated that the Silk Road, and illegal activity of its sort, was the primary driver of Bitcoin’s high price. Key features of the currency include its technically robust supply mechanism (via virtual mining) and pseudo-anonymity (not perfect). Both have made it a bullish proposition for those wishing engage in illicit commerce, and for those with a skepticism of conventional currencies and the governments that regulate them. The currency has also been popular among libertarians with a belief in the Austrian school of economics, who remain skeptical of the legitimacy of conventional fiat currencies. Cameron and Tyler Winklevoss, prominent venture capitalist backers of Bitcoin, have described its value proposition as “gold 2.0.”
BTCChina, the first and largest yuan-to-Bitcoin trading platform has experienced a doubling in its volume of transactions since Baidu’s announcement. However, China’s interest in Bitcoin had been rising steadily prior to the announcement. Baidu’s decision was motivated by its growing popularity – its press release boasts that "In China, Bitcoin is considered quite 'trendy’.” However, Chinese Bitcoin backers may be interested in the currency for a slightly different set of reasons than the Winklevii.
That Bitcoin is as global as the world-wide web and a near-anonymous instrument of commerce make it an incredibly appealing tool for Chinese citizens wishing to subvert a number of state regulations, including those on capital controls. China regulates its internal foreign exchanges, and most online marketplaces refuse to accept yuan. As a result, Chinese consumers are heavily restricted in the sorts of online commerce they can enjoy. Bitcoin solves this problem in a big way, and makes the regulation of such commerce difficult for the Chinese government. China’s political economy makes Bitcoin a uniquely compelling investment for many Chinese.
Across Asia, Bitcoin’s fortunes have been mixed. Thailand famously banned the currency earlier this year, becoming the first country to do so. Of course, in reality, Bitcoin continues to enjoy use in Thailand due to the very same technical reasons it appeals to so many of its other backers. Thailand’s Southeast Asian neighbor, Malaysia, enjoys a booming exchange, as does Indonesia. It is unknown whether the People’s Bank of China (PBOC), China’s central bank, and other regulators within China will begin attempts to regulate Bitcoin, or ban it altogether. Given its decentralized peer-to-peer nature, this would be a tall task.
At any rate, the Chinese government has been optimistic about Bitcoin. Tech in Asia reports that it was after "a 30-minute documentary on CCTV aired and a People’s Daily article was published” that the currency really took off in China. For now, at least, the chances of Bitcoin becoming illegal in China appear low. Still, one can imagine a scenario in which the same 2009 law that caused trouble for Tencent's QQ coins, another virtual currency, is extended and applied to Bitcoin.
Baidu’s sheer size and legitimacy have made its adoption of Bitcoin a major milestone for the crypto-currency. Given Bitcoin’s immense volatility and somewhat high requirement for security competency on the part of its users, it will be some time before it fulfills the philosophical objectives intended by its founder (an anonymous developer, thought to be a Japanese engineer, known only by the pseudonym “Satoshi Nakamoto”). China’s adoption of Bitcoin represents a formidable boon to the currency’s prospects in Asia and the world.
Ankit Panda is Associate Editor of The Diplomat.