Bitcoin, Meet China. May You Have Many Happy Days Together.

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Tyler Cowen points me to this from the Economist:

Most trading in bitcoin takes place in China: Huobi and OKCoin, two Chinese exchanges, are thought to account for more than 90% of transactions. The currency seems to have become an outlet for Chinese savers frustrated with their limited investment options and searching for high-yielding assets. The Chinese authorities are worried enough to have banned banks from dealing in bitcoin, but individuals are still free to speculate and have been doing so with gusto.

….China has also become the global hub for bitcoin mining, the process by which heavy-duty computing power is used to process transactions involving bitcoin, earning those doing the processing some new bitcoin as compensation. Over 80% of new bitcoin are now minted in data centres in places like Sichuan and Inner Mongolia.

One of the selling points of e-currencies like Bitcoin is that their decentralized nature makes them inherently free of government meddling. But is that really true? I’ve long thought that techno-evangelists show far less respect than they should toward meatspace assets like nuclear bombs, gun-wielding police forces, ownership of fiber optic networks, vast fortunes in physical goods, and so forth. This is, for example, why so many of them were naive enough back in the 90s to believe that the internet would spell doom for traditional marketing—only to wake up a few years later and discover that traditional marketers had adapted remarkably quickly to their supposed revolution. It turned out that high IQs aren’t limited to Silicon Valley, and that websites and Google searches and Facebook advertising posed no more of a challenge to the existing order than television did in the 50s.

So is Bitcoin really safe from government meddling? It has been so far, but only in the same sense that an ant is safe from my boot as long as it doesn’t annoy me. China, however, has already proved that a meatspace government can, in fact, crush the digital world if it’s sufficiently motivated to do so. It’s not even all that hard. So if e-currencies are now mostly a ploy for evading Chinese capital controls, I’d say we’re about to learn pretty quickly whether (a) e-currencies can grow big enough to matter, and (b) national governments are truly helpless to do anything about them. I’ll put my money on the meatspace men in Beijing if push ever comes to shove on this.

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