How a fear of inflation is driving bitcoin’s popularity in China

Growing concerns about secrecy and the vulnerability of the global financial sector are forcing the general public to learn about bitcoin and associated technologies. Digital Gold: The Untold Story of Bitcoin, by Nathaniel Popper, is a timely primer.

It tells us that a large number of bitcoin mining farms in Inner Mongolia and other remote parts of China are taking full advantage of the cheap electricity and computer hardware to generate massive numbers of bitcoins. In the meantime, it is often said that over half of global bitcoin trading now takes place in China. While the Chinese government is generally cautious about bitcoin, several very active exchanges have sprung up in mainland China, and there is a large army of Chinese participants in the bitcoin food chain.

Why the bitcoin has become China’s new darling

This is odd in light of two well-known facts. First, China is overbanked, and there are bank outlets even in remote corners of the country. The postal savings network and state-backed rural credit cooperatives provide unrivalled banking access for the poor, as well as the rich. Opening a bank account is quite simple; anyone can do so anywhere in the country, usually in less than 10 minutes. It’s even possible to get a debit card the moment the account is opened, with no questions asked. The same applies for a business entity.

Second, Chinese banks and post offices provide very good services for money transfers. In addition, Alibaba, Tencent, Unipay and a host of other payments operators provide transfer services cheaply and even subsidise users. So it’s hard to imagine bitcoins enabling cheaper and more efficient money transfers.

So what explains bitcoin’s popularity in China? Unlike in the West, the Chinese public are not as attuned to libertarian issues as, say, Satoshi Nakamoto, the legendary bitcoin inventor. And, for example, anonymous drug purchases cannot be a big factor, as cash transactions are just as hard to trace as bitcoin’s distributed ledgers. After all, Popper notes that, in China as elsewhere, most bitcoin users are not that concerned about total privacy of their transactions. So, that leaves us with only one logical explanation: the Chinese are gripped with a real fear of inflation.

Blockchain technology can help banks beat money-laundering, Hong Kong regulator says

Popper and many others argue that the high volatility of bitcoin’s price prevents it from becoming a currency. I beg to differ.