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Good and Services, China's Path Forward

author: Nefario
published: 2011-04-18 12:20:02 UTC

One of the great things about having a few bitcoins is being able to go to the exchanges and check their latest value. It seems almost daily that BTC is on the rise against the Dollar. This is an exciting time and watching that graph climb causes a great feeling. It's nice to be able to see an exchange value on bitcoin. It certainly makes it easier to use, both practically and psychologically.

This is also why the acceptance of bitcoin in China will be both slower and significantly different to its acceptance in the West. Lets face it, bitcoin is US centric; at the very least, Western centric. The biggest exchanges, the biggest holders of bitcoins are all based in the US or Europe, but from the Chinese point of view, they're all foreigners.

There are only a few people, countable on the fingers of one hand in China who have any bitcoins. Double this number and you have everyone who has heard of it(their spouse). There are no Chinese generating bitcoins(miners), there are no goods being offered by Chinese and with the exception of myself, there are no Chinese exchanges; my own exchange being something of a failure.

Lets face another fact, that Chinese bitcoin exchanges are going to be few and far between until long after a bitcoin economy has been established here. This is primarily for two reasons.

1)Most,nearly all bitcoins are held outside China by foreigners, non Chinese.

2)Foreigners, at least those who have bitcoin have no reason to buy Yuan, after all who wants to trade a deflating currency for an inflating one.

China is going to be late arriving at the game, if it comes at all. This guarantees that there will be no Chinese generating bitcoins, that ship having sailed. In addition there is no economic reason for the western holders of bitcoin to buy Yuan. How will Chinese get their hands on their BTC?

There can be only one answer to this question, goods and services.

If there is any money to be made from selling for bitcoin (and the various exchanges around the world guarantee that there will) then someone is going to take that opportunity and make it. But at least in the beginning, they will be in it for the $USD they can make, and not for the BTC. There is little if any interest in having a currency for the sake of privacy or the principles of sound money. What the Chinese want is something hard, cash. It is for this reason that when possible all their bitcoin earnings will be converted to USD and transferred to a Chinese account.

This creates a kind of circle of exchange; Yuan to goods, goods to BTC, BTC to USD and USD to Yuan. This is the same circle faced by all merchants accepting BTC for goods. At some point that BTC must be converted to another currency with which to buy the goods; unless those goods are being sold by the initial producer, such as a farmer who accepts bitcoin.

This is the same chicken and egg situation facing the rest of the bitcoin economy. What is needed is to find initial producers offering goods for bitcoin, and until we do, all goods offered through bitcoin will need to be exchanged to another currency at some point to pay for those goods or their components. Making the exchanges a critical economic element. The end result, without this circle of exchange, is the merchant converting local currency into goods, and then goods into bitcoin. It is an investment more than trade, a way for a merchant to convert local currency into bitcoins, with their goods as an intermediary step.Unless they have significant local currency reserves this is a process that cannot continue indefinitely. These exchanges add costs, and with the additional cost of exchanging USD into Yuan over American or European bitcoin merchants, Chinese ones are at a slight disadvantage. Throw in postage and the only goods that will be profitable to offer are those where China has a significant price advantage in production and perhaps in lower taxes, where quality is not the most important factor.

China will be late to the game, if it arrives at all.

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