Horry Chan spends more time on internet communication than talking to real people. As the owner of the Hong Kong-based online application store easyapp.hk, his team designs and customizes applications for local and international clients.
In the past year, a new feature has been added to his website: accepting bitcoins for transactions. That’s right. Bitcoins.
Rumors of bitcoins’ demise are exaggerated and Asia, increasingly attuned to electronic commerce, is waking up to their convenience and economy despite the well-publicized disappearance of MT GOX, the Tokyo-based electronic currency’s biggest and most important exchange, which was handling 70 percent of all transactions. Hackers apparently stole 850,000 of customers’ bitcoins valued more than $450 million. Although 200,000 have since been found, the other 650,000 seem to be lost forever. That caused the bitcoin value to plummet by more than half.
Nonetheless, for Chan and a growing number of merchants, bitcoins are becoming an integral part of the flow of commerce because transactions are fast and cheap. Across the planet, Dell the computer, giant, is now accepting Bitcoin for payments, as is Expedia, one of the world’s largest online travel agencies.
“The idea actually started from our foreign developers’ requests,” Chan said. “When one of our projects was finished, one of our application developers based in another country asked if he could be paid in bitcoin. Why would he rather take a crypto-currency instead of US dollars? I was curious.”
Chan investigated and found out that bitcoin transactions beat traditional remittances or telegraphic transfers conducted by banks, which often take about a week. Bitcoin transactions can be completed within an hour regardless of the amount of money. And for such efficient service, it costs less than 0.1 percent of the transferred amount compared to the 2-3 percent charged by credit card processors.
Bitcoins are not only used to pay for applications and online services. In early 2014, Pineapple Fair, the first Chinese e-commerce platform on which bitcoin is accepted, went online, catering to foods, toys and utilities sold by different shops. The founder, Laomao, a former law student and e-commerce expert in his early forties, started his business by opening an online shop accepting bitcoins for payment.
“After a while I thought: ‘why not develop a platform where all people can buy and sell with bitcoin?’” Laomao said. The merchants on Pineapple Fair were selected carefully from mainland bitcoin enthusiasts with high business credibility. Pineapple Fair employs third-party payment platforms like Bifubao and Quick Wallet which use multi-signature systems so that the user and the platform hold their own passwords respectively. Transaction can be completed with confirmation from both sides, without middlemen.
The unit commonly used in transactions now is 1/1000 of a Bitcoin, worth about US$.6¢. Although transactions by small online businesses might seem trivial, the Bitcoin market volume is already too big to ignore. On July 25, 2014 the market cap of all Bitcoins was more than US$7.7 billion based on an intraday weighted price of $601.28.The number of bitcoins in existence has risen to 13 million. More than 65,000 transactions are done globally daily with a trade volume of $57 million.
Doing business with bitcoin requires setting up an account. Every owner has an account ID, a public key in bitcoin transactions. Bitcoins can be bought and deposited on exchange platforms all over the world, with most platforms also providing depository services for clients as banks do. As one of the two biggest bitcoin service providers in Hong Kong, ANXBTC even has a bitcoin ATM in Wan Chai. ANX deposit cardholders can withdraw a corresponding amount of Hong Kong dollars by the real-time exchange rate.
Each Bitcoin transaction is recorded in a publicly available database called the “block chain,” with all Bitcoins associated with theirs owners’ addresses – the public key. Public-key cryptography relies on private and public keys to encrypt and decrypt messages. Bitcoins are sent to the recipient’s public key with an encryption of the sender’s private key as his digital signature. The digital signature verifies the sender while reveals the address of the recipient, by which the transaction is verified as valid.
This is what makes Bitcoin exchange platforms distinctively different from banks: clients are anonymous. Clients’ digital wallets keep track of the public key and the private key and only the public keys of the buyers and sellers are revealed, not their names. The dark side of the story is if you lose your digital wallet, the Bitcoins are lost forever, because without that private key the digital signature for transferring Bitcoins to anyone else is not possible to be produced. Hacking such as theft of private keys will also lead to the loss of the associated Bitcoins.
There is another dark side. Anonymity can mask illegal activity. In October 2013, the Federal Bureau of Investigation in the United States shut down the online Silk Road black market and seized 144,000 bitcoins worth US$28.5 million at the time. In China, buying bitcoins with yuan is subject to restrictions and bitcoin exchanges are not allowed to hold bank accounts.
Experts caution against saving bitcoins on one’s own hard drive. If a conventional saver loses his wallet, he can report the loss of his credit cards and keep his bank account intact, even if all the cash may be gone. Lost bitcoins unfortunately, are no safer than the cash in a lost wallet. Last summer a British named James Howells threw a hard drive containing 7,500 bitcoins into the trash. He had mined the coins in 2009, when barely any people except for geeks knew about them.
“Either depositing bitcoins on an exchange platform or keeping them in a sole hard-drive wallet is insecure,” Horry Chan said. He keeps his bitcoins safe by backing up his bitcoin wallet with encrypted USBs – in other words, a “co-wallet”.
“I can have my wallet backup as many times as I want to,” he said. “All I have to do is write down the password on a paper - and not lose that piece of paper.”
Exchange platforms are also making moves to heighten their credibility in providing security for clients’ money. BTC China, the first Chinese bitcoin exchange platform and now the “biggest bitcoin exchange platform” as it claims, provides a new security service called “Lock the Money (币加锁).” Yang Linke, one of the founders of BTC China, says the exchange functions basically like an online co-wallet program, providing multiple ways of user authentication to protect accounts from hacking.
But for people like James Howells, who lost his 75,000 in a trash can, the pain of regret might be less agonizing now than it was in last November, when the bitcoin hit a historical peak of $1,200. Back then Howells’ lost hard drive was worth around US$9 million. Today, the price of one bitcoin has stabilized at around $620, which means there are ‘only’ about $4.65 million buried somewhere under a mountain of garbage in Wales.
Such fluctuations in exchange rates would be unimaginable in the world of real currencies. But for some, the volatility of the value of bitcoin is fatal beauty. Bitcoin is a baby given birth by the internet community. Unlike real currencies or bonds, it is not controlled by any government or major financial institution. It is an organism purely developed and supported by netizens. No artificial inflation, deflation or manipulation of value in the world of bitcoin, and because of its scarcity, it responds only to the market mechanism of supply and demand.
Where does the core value of bitcoin lie, as a means of investment or just a means of payment? “Domestically or internationally, on-line or off-line, bitcoin is the ideal medium for people to do transactions with,” said Yang Linke, “I invested in it not because I want to buy low and sell high – bitcoin is more than that. It has the potential of changing how the market works, or at least making it work better.”
For small business owners like Horry Chan, bitcoin is probably both. He puts part of his bitcoins in the company’s current account to manage daily buys and sells, and invests in bitcoin with a personal account.
“I personally keep a certain amount of bitcoin and don’t do frequent buys and sells – I just wait for them to appreciate, to double or triple their value. I have confidence in its future, because as a payment tool it saves time and money. What else can you expect from a payment tool?”
Chen Yajiao and Wu Hanqi are interns with Asia Sentinel