Were people hearing about it, and who were the people involved? I remember in early I would ask my classmates, and I would even ask people largely in a huge auditorium who has heard of Bitcoin, and it would be no one, no one person out there had ever, ever heard of Bitcoin. It felt exactly like how the Internet was.
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Only the academics, only the really nerdy people had heard of the Internet back then. So, I thought this is an opportunity of a lifetime is that the fundamentals were sound. Having studied computer science myself, I understand cryptography, I understand the problem of double spending, and I intuitively understood the concept of the fact that this is a huge breakthrough for Bitcoin having solved the double spending problem for digital currencies, virtual currencies online.
Because digital information is so easily copied, how can you have a currency where things are so easily copied? Well the solution was to have a global blockchain and have the blockchain keep track of the accounts, movement of Bitcoins back and forth, and then having proof of work as a way to guarantee the longest blockchain. Individually every single component of Bitcoin has been done, been there done that, but collectively putting these pieces together to form a new concept of digital currency online, that was a huge, huge invention, a huge innovation that I liken to the invention of electricity, and the invention of computers.
So, in were other people in China kind of hearing about it? Or was it just really under the radar? It was way under the radar.
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So, I started giving talks and talking to people about it. I remember we had a Stanford Alumni Club gathering and I dedicated a whole session to talk about Bitcoin, that was in I think May of People were still calling it virtual currency back then, today we know that the term virtual currency is a misuse of that name because Bitcoin is much more of a digital currency, a digital cryptocurrency, cryptographic currency, unlike the virtual currencies from the 90s and s from the early days of the Internet.
So, when Bitcoin became kind of…well when it broke into popular consciousness here in the US, that was the same thing that happened in China there. Is that also the same time when suddenly the vast majority of trading in Bitcoin was occurring in China? We had always been the very first and largest exchange in China, and Bitcoin trading was just in the, probably, let me try to think, a few thousand Bitcoins a day?
And remember Bitcoin prices were much, much lower back then too. So, it was a gutsy move.
The idea was to spur trading, actually, the idea was to spur trading, was to sort of borrow from the Internet model in the early days of giving out free email accounts and free news, sort of the Yahoo days. The idea was to spur trading. It had implication on the revenue model, but I thought it might be a good thing to actually give this thing a big injection. And I think it worked for the most part, because we introduced zero free trading in late September, right before the holidays, and then by October we saw trading volumes keep going up and up and up.
As we know, Chinese people are always looking for investment opportunities, so that was a fun, crazy year when the Chinese people got interested. It was very exciting to be part of that in At that time were you making money then on the conversion into and out of Yuan, and then the trades within Bitcoin were free?
We made money in other ways, we charged withdrawal fees for CNY, so we made up for that. Yeah, that was a very fun year. We have these conceptions in the West about how there was just so much trading activity in China, but was it just kind of like a really rabid niche group in China that was interested in it? Or was it the vast majority of Chinese people were actually buying and trading Bitcoin? Or who was it attracting? I mean China has 1. Yeah, absolutely. The profile we saw were young men in their 20s and 30, in their 20s mostly, these are the IT people or the people who were geeks and computer science people who understood the powerfulness of Bitcoin and the implications, and who also may have had access to some capital, they would buy and sell and buy Bitcoin to hold.
There was also narrative in the news about these old retired ladies, what they call dama in China. There might be a few dama, but certainly not an army of them doing Bitcoin investments. Was that something that you saw? The capital controls issue is complicated. Excuse me.
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Unfortunately, I honestly have not seen that happen at any scale. People may buy Bitcoins on dollars or 1, dollars to move around in the world, but we definitely have not seen any sort of evading capital controls in any large means, anything in excess of , dollars or a million dollars. And the reason is two things, one is Bitcoin is still very, very hard, even to this day in Bitcoin is still very hard, how to get an account set up and exchange, where are these exchanges around the world, which ones are trustworthy, how to deposit money, how to wire money over there, how long does it take, and how do you buy the Bitcoins, and how do you move the Bitcoins out, how do you store the Bitcoins, how do you transfer it to another exchange abroad, how to open an account over there, and so on and so forth.
So, I would say only the elite subset in the Bitcoin industry actually know how to do that and buy sell Bitcoin across multiple exchanges worldwide. So, the other reality is that if you look at China, China definitely has a capital control policy. But in any case, China is hugely concerned over the last year about this outflow of money.
When they do that at a local bank, it actually affects the currency reserves, because the foreign currencies that are provided by the bank are basically held and controlled by the central bank, who hold the foreign reserves. But then what if the person exchanges their Yuan for Bitcoin and then they open an account on Coinbase, and then they cash out in US dollars and you know what I mean?
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You can learn more and see examples of their work at thinkonramp. What was it when you founded BTCC and then how has it evolved since then?
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What we know in the industry is that Bitcoin is actually truly a sort of monetary financial instrument. The reason is because it has the properties of money, it has the properties of a store value. However, for the first time in history we have a monetary money instrument that is not actually issued and controlled by government. Though gold is decentralized, but eventually governments co-opted it and used it as a base of money, so coinage and minting gold coins back for centuries, right?
Where today Bitcoin is still untouched by government in the sense that no government authorities have actually recognized Bitcoin as money and no one so far expressed willingness to do so. So, Bitcoin stands unique in that position. This also says that central banks around the world are still refusing to acknowledge that Bitcoin is money or Bitcoin is at the same level as what we call the fiat currencies.
So that was the sort edict ruling issued in December 5 of So, unfortunately, the PBOC still has not issued any new update to that ruling, since December, But earlier this year there were certain steps that they took, I guess regulators talked to several of the exchanges about I think it was maybe KYC AML type things which are know your customer, anti-money laundering processes, and maybe the fact that you guys were doing no-fee trading, what were some of the talks that you had with them? So, these are real legitimate issues that the banking system has faced over its many decades of operating, and likewise Bitcoin exchanges need to improve these areas.
What are some of the changes that BTCC has instituted, as well as some of the other bigger exchanges? So, earlier this year in , we stopped offering margin trading services, we also eliminated the zero fees, the zero trading commissions, we re-instituted a trading commission on all buy sell. The idea was to sort of calm down the market a little bit, I think it was a little bit overheated maybe at the end of last year.
So, these were moves that we took voluntarily to try to appease the situation a little bit.
And how have Chinese cryptotraders and investors, how have they changed their behavior since then? I mean essentially, we had a lot of inflated volumes from zero-fee trading, and that all went away, a lot of wash trading, that all went away. So, now I would say the market is quite subdued, the trading market, the exchange trading market. So, that price apparently is much higher than the market piece, so that price is actually more closer to the US dollar price in Bitcoin as well.
So, the so-called global international price. Can you describe what those differences are, and kind of like what they were historically versus what they are now?
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Like do you think maybe the differences are less stark now? Bitcoin is a global thing, and Bitcoin itself is a big invention, Bitcoin, okay? Westerners may view it as a payment system, but Chinese people, they truly see it as a monetary instrument, as a store value, right. And so what behaviors do they exhibit that are different from what you see Westerners exhibiting? Because the Chinese people see it as Forex, and because China is unique in the world to have actually a capital control system on the Renminbi, they see Bitcoin as sort of the vent to escape the capital control system.
But the vent goes both ways, right? So, I know this is sort of getting into a philosophical discussion, but the Chinese people see it that way, they see it fundamentally that oh, Bitcoin is an escape. So, China has very mature payment systems, even though Visa and Mastercard is not established in China, but China has China UnionPay, the credit card standard here. And correct me if you disagree, but the miners who are largely Chinese, not all but largely, and then the core developers who are largely Western, I think they play the biggest role here in this decision over how to grow the network.