It was only a matter of time before Bobby Lee, CEO of China’s longest-running Bitcoin exchange, found himself in
the crosshairs of Chinese regulators. His exchange, BTCC,
had occupied a gray area of Chinese law, neither licensed
nor explicitly illegal. Bitcoin is a decentralized digital currency that can be sent electronically around the world, and
its growing popularity made Chinese authorities nervous. In
2016, most Bitcoin trades worldwide were in Chinese yuan.
In January 2017, BTCC was investigated by China’s Central Bank. In September, China announced that it was banning initial coin o;erings (ICOs), a popular fund-raising
method for startups that use digital coins or tokens. Even
then, Lee thought exchanges like his were safe. Later that
month, Chinese regulators made it clear that BTCC and other
domestic virtual-currency exchanges had to close, an attempt
to make it harder for the general public to enter the market
and buy bitcoins.
Lee says that he was neither shocked nor panicked, just
dismayed. “Ah, finally, the party’s over,” he thought. “The
party has to end sometime.”
Bitcoin, introduced by a mysterious and since vanished
character named Satoshi Nakamoto, came into the world
around the time of the 2008 financial crisis. The fact that it
was not backed by any central authority appealed to those
who distrusted governments and big banks. Since then, the
currency’s rise—especially its popularity among speculators,
who helped push the value of one bitcoin from under $1,000
to more than $10,000 during 2017—has presented govern-
ments with a challenge. Should they allow this new kind of
money, even though it makes it easy for people to send funds
relatively anonymously—a feature that is attractive to money
launderers and other criminals? Should they try to suppress
it, in hopes of maintaining full control over monetary policy?
Or should they embrace it, as the Japanese government has
done, even passing a law to recognize Bitcoin as a legal payment method?
Bitcoin transactions are recorded on a blockchain, which
is a public, censor-proof ledger that is continually being
updated by a network of computers throughout the world.
The decentralized nature of virtual money should make
it impossible for any one country to shut it down. China’s
crackdown put that foundational belief to the test. The news
of BTCC’s shutdown briefly caused the price of a bitcoin to
plunge. China, after all, is known for trying to control seem-
ingly uncontrollable things. Beijing has been surprisingly
e;ective at fencing o; the Internet with an army of censors
and a Great Firewall that blocks sites like Facebook and Twit-
ter, and yet its online communities and commerce flour-
ish. China is now developing its own digital fiat currency, an
apparent attempt to make financial transactions cheaper and
more traceable, as well as to combat counterfeiting.
None of this would seem to bode well for Bitcoin. Yet
weeks after the crackdown, nearly everyone I spoke to in China’s cryptocurrency community was in strikingly good spirits.
They were optimistic about the future of Bitcoin and other
virtual currencies in China, whose crackdown wasn’t as all-encompassing as it might have seemed.
China’s cryptocurrency world resembles a Silicon Valley of the
East. People dress casually, work in shared maker spaces, and
scribble on whiteboards. They are global, ready to jump on a
flight to New York or Tokyo to seek out a business opportunity.
“It reminds me of the Internet community in 1995. Everyone
knows each other,” says Gao Dongliang, a blockchain investor.
Similar to early devotees of the Internet, Gao explains, people
in China’s blockchain community share a belief in a world-changing technology.
One member of this community is Lu Bin, the CEO of a
Shanghai-based blockchain startup called Andui. The energetic
Lu, who got a PhD from Louisiana State University, says he
helped come up with the term yitaifang, the Chinese name for
Ethereum, a Bitcoin-inspired virtual-currency network built for
more complicated financial transactions.
In late August Lu did an ICO to raise money for Bihu.com,
a communications platform that uses blockchain technology.
In ICOs, startups issue a new virtual token to the public,
sometimes on the premise that the token will be necessary
for use of the startup’s product. High demand for that product should, in theory, make these virtual tokens gain value.
Bihu.com aimed to be like Twitter or Reddit, except that
users could reward good content with “keys,” the platform’s
Lu was thrilled by Bihu’s ICO. He says he raised over $20
million in a matter of hours. He believed there was no way
that venture capital would deliver that kind of result. Then
the following month China’s ICO ban came down, and Lu
had to give all the money back.
He took it in stride. Lu acknowledged there was “
frustration within the team” and a general “waste of energy.” But
nonetheless, he felt that the ICO ban protected average investors against fraud.
In fact, everyone I spoke to in China’s cryptocurrency
community supported, or was at least sympathetic to, the
ICO ban. I repeatedly heard that 90 percent of Chinese ICOs
were scams. The whole model, in which you buy tokens to