All of the big cryptocurrency news outlets are reporting today that a Chinese court, the Shenzhen Court of International Arbitration, ruled that Chinese law permits the ownership and transfer of Bitcoin, and that Bitcoin should be protected as an asset by law.
This is big news for a number of reasons, not least because of China’s unique power when it comes to bitcoin and its future.
Here’s something investors should definitely know – although Bitcoin as a cryptocurrency is built on this idea and philosophy of decentralization, it’s actually now fairly centralized. A handful of mining pools in China are responsible for the lion’s share of Bitcoin mining (reportedly around 80%!) – and that alone gives China a powerful advantage, and a lot of clout. In fact, to many experts, China effectively holds the keys to Bitcoin’s continued ecosystem.
“The fact that Chinese mining pools control so much of the Bitcoin ecosystem has direct consequences,” writes David Canellis at Hard Fork. “In particular, having such centralized hash power exposes the Bitcoin network to rampant censorship and other potentially damaging attacks.”
Canellis also paints a picture of other ways that China could effectively hobble this crypto market, point out that China’s “Great Firewall” injects latency into the process for international minors – in addition to that, there’s the general outlook that China’s view of Bitcoin has been less than favorable historically.
“China’s stance towards cryptocurrencies remains mostly unfriendly,” wrote Ali Raza at CryptoPotato today, also characterizing the latest court action as a contra-indicator. “This case has provided a valuable insight into how the current laws treat digital assets. Despite the fact that ICOs and trading still remain prohibited, it appears that cryptocurrencies do have monetary value in this country. Furthermore, China is where most of the Bitcoin mining takes place, While the relationship between the country and cryptocurrencies remains an uneasy one, it is clearly still there.”
Analysts also feel that tolerance of Bitcoin is anathema to China’s governing principles that remain rooted in the centralized notion of state communism.
However, if the Chinese government’s position is somewhat anti-bitcoin in general, there is evidence that some of China’s oligarchs have a very different playbook in mind.
A story at CoinDesk this past July tells the very interesting tale of Guo Hongcai, a Chinese beef magnate who used 500 Bitcoin in the U.S. to buy a mansion in Los Gatos, California, and a Rolls-Royce, and God knows what else.
“It’s very normal to sell bitcoin in the U.S. After selling bitcoin, you can just buy anything you want,” Hongcai reportedly told CoinDesk blithely.
Going to foreign markets, as a ploy to maximize assets, is as old as the hills – but cryptocurrency is not. These sorts of anecdotal experiences show how Bitcoin holders and users can use what financial experts call “flag theory” to outpace and outsmart national economic systems.
The long and short of it seems to be that as long as China allows Bitcoin to thrive, investors will use it in ways that get around the Middle Kingdom’s heavy-handed domestic policies. But if China decides to rock the boat and sink Bitcoin – there may not be anything that anybody else can do about it.