The Great Vaults of China: What’s Inside For Bitcoin Ecosystem?
It’s not a secret that China is bitcoin world’s leader in many regards. Since the major cryptocurrency glut in 2013, Chinese companies started getting increasingly involved in virtual money, including mining and various financial services. Currently there are about 20 major companies involved in cryptocurrency operations, with about 800,000 customer base, not to mention smaller startups that emerge every now and then. Chinese exchanges handle about 70% of the world’s total bitcoin trading volume. Notably, as opposed to USD-based platforms, yuan-based ones do not charge any transaction fees, so CNY trading volumes may look even greater than actual investment involved.
Chinese Bitcoin Industry Walkthrough
MINING: According to data published by Business Insider in August 2015 and later updated by Coindesk, top four of local companies collectively control more than half of the network’s total mining power. One of them is BW Pool with 6% (7.68% in August) and lack of English language publicity. One of its rare public appearances occurred in July 2015 when it signed a post favoring block size increase.
The next prominent miner on the list is BTCC, formerly known as BTC China, with 11% (from 13.74%). Even though it was launched in late 2014, it is one of the most successful miners in China. The credit, however, should probably go to the fact that BTCC tries to get involved in almost any kind of bitcoin-related activity, like providing exchange or wallet services. As an exchnage, BTCC was founded back in 2011, and is one of the world’s biggest.
Another great mining company of China is F2Pool with 24% (16.49%). According to statements made by its spokespersons, the company actually holds no mining hardware in possession, and thus essentially represents the very core of a mining pool’s concept. Its enormous hash power comes exclusively from involved users. Last July, F2Pool managed to generate the largest bitcoin transaction there ever was seeking to clear up a small transaction spam attack.
Finally, there is AntPool with impressive 25% (17.82%). It is a Beijing-based mining hardware company claiming its products are used in around 56% of all mining operations around the world. The company also states it is the world’s largest cloud miner.
Collectively, those top 4 companies account for 66% of the network’s mining power (these numbers were recently as low as 55.73% as of August 2015). With some smaller miners and pools added, the overall involvement of Chinese companies in bitcoin mining may reach at least 70% or so.
EXCHANGES: Currently, most trading transactions are effected in pairs of BTC/USD or BTC/CNY (mostly the latter though). According to some statements, nowadays about 70% of all cryptocurrency trading operations in the world have Chinese yuan in the pair. Notably, the Chinese government has not implied any regulatory requirements on bitcoin-related businesses yet, so the issue of compliance is of minor significance for Chinese exchanges. The biggest Chinese trading platforms are BTCC, Huobi, and OKCoin.
Huobi is crowned with the garland of victory in terms of trading volumes. Even if we count only BTC/CNY trading volume, it will reach 42,735,290 BTC during the last 30 days, according to bitcoinity.org. The other players are way behind following the leader:
WALLETS: As there are few merchants accepting bitcoins or other cryptocurrencies in China, local users prefer storing their assets in exchange-provided wallets. However, most of them use services provided by foreign companies like Blockchain.info or Coinbase. No Chinese wallet providers have reached the top 5 of the world’s most popular ones.
Bitcoin and the Government
In December 2015, the governor of the People’s Bank of China Zhou Xiaochuan stated that the central bank did not consider banning digital currencies.
“It is out of the question banning Bitcoin as it is not started by central bank,” he said back then.
The popularity of Bitcoin as a financial tool has significantly increased following the measures assumed by the government. Seeking to hinder investments abroad, as they cause capital outflow and consequent slowdown in economy, the government implied moderately severe restrictions on foreign transactions for everyday users willing to invest abroad. This allegedly resulted in growth of bitcoin demand.
However, in early 2016 the People’s Bank of China stated it is going to develop its own digital currency in cooperation with Citibank and Deloitte & Touche. Back in 2014, they have already commenced with researching the process of creating a digital currency.
In particular, the PBOC statement reads:
“â€¦Under China’s new economic normal, the exploration of the issuance of digital currency by the central bank has positive practical significance and far-reaching historical significance. The issuance of digital currency can reduce the significant costs of issuing and circulating traditional currencies, improve the convenience and transparency of economic transactions, reduce money laundering, tax evasion and other criminal acts, enhance the central bank’s control of over the money supply and currency circulation, better support economic and social development and aid in extending financial services to under-served populations.
Going forward, the establishment of a system for issuing and circulating a digital currency will help China build an entirely new financial infrastructure, further improve China’s payment systems, improve payment and settlement efficiency and promote increased overall economic quality and efficiency.”
As one may see from the statement, the designed digital currency is in many regards opposite to cryptocurrencies like bitcoin, as it seeks to enhance centralization of a financial system, while attempting to retain bitcoin’s features of transparency.
China and the Block Size Debate
Prevalence of Chinese miners was one of Mike Hearn’s major concerns in his historical post where he said he abandons bitcoin ecosystem. With the accursed block size debate still underway, it is Chinese miners who may have the deciding vote in its resolution. However, it appears there is no unanimity among them in this issue’s regard.
As is known, there are currently two most known proposals as for Bitcoin scaling, namely Bitcoin Classic and Segregated Witness, with possible addition of Gavin Andresen’s updated BIP 102. The latter, however, is thought to be a variation on Bitcoin Classic.
“When we were preparing for XT, we also went and talked to the Chinese miners. They told us that the original 20mb limit Gavin proposed was too high, but that they could accept 8mb. So we compromised and went with 8 + a growth function. Then after XT was launched they changed their mind and said any growth after 8 at all was totally unacceptable. Now they’re telling the Classic guys that 2 is the most they could handle. Did the Chinese internet border really get 4x worse in the span of 3 months? I doubt it,” Mike Hearn wrote.
Partially confirming Hearn’s allegations as to Chinese hesitancy, there were several controversial news as to what actually happens in China.
There were tidings suggesting that majority of Chinese miners supported Bitcoin Classic, a hard fork solution set to increase the block size to 2 MB. With commonly known bandwidth limitation of internet connection in China, the solution seems most viable to local miners. However, some miners, like F2Pool, later stated they had been misunderstood, as they never expressed explicit support for the solution. Later on, however, most of them sided with opposite proposals from Bitcoin Core.
Currently, Antpool is intending to have a test run of Bitcoin Classic on a single node.
Samson Mow of BTCC stated that, while supporting the move towards 2 MB limit, the company is still cautious about Bitcoin Classic itself.
“We support a 2 MB increase but we will not sign on to support Bitcoin Classic until we feel there is a real long term plan behind it, and enough engineering talent. Just because people are gravitating to something doesn’t mean you automatically jump on board without some serious analysis,” he said.
The lack of consensus or even continuous position within the Chinese mining community brings a significant imbalance to the equation, making even tentative predictions senseless. The block size debate is still beyond being resolved, and it is quite likely that it without the decisive word from China it will never be.
This being said one might conclude that all those Chinese pools usurped the most mining power and thus deciding vote in the industry plotting against the community. However, the Chinese mining pools reject these accusations.
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