Throughout history, currencies have evolved in conjunction with technological and economic advancements. Now, the exponential development of the internet and global payment systems has delivered the technologies necessary to issue and circulate virtual currency, the broad adoption of which would improve financial infrastructure and economic quality and efficiency. A pivotal player in the virtual currency world, China, is well positioned to drive the broad adoption of pioneering virtual currency technologies.
Some of the largest bitcoin mining farms are located in China. The Chinese government subsidizes electricity to lower its cost and thereby increase manufacturing output so, by happenstance, mining virtual currency in China is also much more cost efficient. The electricity required to power the mining farms is arguably the largest expense in that operation, giving Chinese currency mining operations a huge advantage there. Continuing to drive virtual currency technology forward, one of the largest mining farms has recently switched to mining Ethereum.
Regarding virtual currency exchanges and bitcoin specifically, the Chinese Yuan (CNY) accounts for over 90% of the volume by currency. This means that over 90% of the bitcoin purchases are made with the Chinese Yuan. Ethereum on the other hand is traded at around 2.5% volume by currency with the Chinese Yuan. This leaves major room for Ethereum to grow in the Chinese market. China’s “Big Three” bitcoin exchanges, OkCoin, BTC China, and Huobi have yet to integrate Ethereum into their platforms.
OkCoin has experimented with Ethereum on its platform and rumors of its integration began when OkCoin listed what appeared to be an Ethereum wallet balance on the website. Although the changes were removed, this discovery sparked a +8% increase in Ethereums valuation on the markets, proving that virtual currency price action is driven by speculation on Chinese exchanges. OkCoin responded to this situation via Twitter stating, “To be clear, there are no plans to offer Ether trading currently. As always, we continue to monitor the development of blockchain assets.”
BTC China has not announced any plans to integrate Ethereum trading into their platform. The CEO of BTC China, Bobby Lee, is the brother of Litecoin founder Charles Lee. There may be some conflicts there, since Ethereum took Litecoins place as the second most valuable crypto-currency in the world. BTC China would only strengthen the market capitalization of Ethereum if they allowed Ether trading on their platform.
Huobi also has not announced any plans to integrate Ethereum trading into their platform yet. Xu Qing, a spokesperson for Huobi, said it is interested in the technology developments but that it has no plans to add support for ether. Qing added, “We still keep an open mind to outstanding [virtual currencies]. Any new [virtual] currency needs time for market validation and acceptance ranging from issuing mechanisms to market liquidity.”
These exchanges are very dense in China, and it’s likely that the government is catching up to this technology with their rules and regulations.
Recently, the People’s Bank of China (PBOC) drafted a “virtual property” law that, if enacted, could provide further protection of virtual currency in the country. The draft bill groups virtual property as objects of civil rights legally protected by the government. In February 2016 China’s Central Bank Governor, Zhou Xiaochuan, stated that virtual currencies will inevitably replace cash, but the government will regulate and control any virtual currencies that are used as legal tender. China is looking to launch its own virtual currency soon which will have the status of “legal tender” but may very well omit the element of decentralization common to most if not all virtual currencies.
This draft legislation follows on the heels of a landmark decision, Li Hong Chen v. Beijing Arctic Ice Technology Development Co. (2003), issued by the Beijing Second Intermediate Court which is famous for its intellectual property decisions. This court battle is the first virtual property rights dispute case in China according to Chinese news site Xinhuanet. In that case, the lower court considered a complaint made by Li Hong Chen, a gamer of the massive multiplayer fee-based online game “Hongye” or “Red Moon,” who spent two years and more than 10,000 Yuan ($1,496) amassing a cache of virtual money and weapons. Chen claims that his belongings in this online game were stolen by a hacker and demanded that the developers of the game compensate him for damages in the amount of 10,000 Yuan. The software firm behind the game, Beijing Arctic Ice Technology Development, responded that Chen’s possessions in Red Moon had no real world value and represented only “piles of data” and would not honor Chen’s request to restore the stolen virtual property. Chen told Xinhuanet, “I exchanged the equipment with my labor, time, wisdom and money, and of course they are my belongings.” The lower court ruled in favor of Chen.
On appeal the Second Intermediate court agreed with the lower court and stated “About the value of lost equipment, although the virtual equipment is invisible, and there on the particular network game environment, but does not affect the virtual goods as intangible assets and will receive appropriate evaluation and legal remedies.” The court found that the virtual goods have a legal basis and should be treated as private property and that Arctic did not fulfill the necessary duty of care making them liable for the hacking incident that harmed Chen.
China has long been perceived as unwilling to protect traditional intellectual property rights, providing a safe haven for software, video and audio counterfeiting. But cases like Chen, and China’s draft “virtual property” law, demonstrate that China intends to establish itself as a global leader in the arena of virtual property rights. By driving the recognition of virtual property rights (likely motivated, in substantial part, to benefit its own virtual currency exchanges), China will necessarily advance the legal infrastructure necessary to cope with the seismic shift towards global reliance on virtual currency. In a reversal of traditional roles, the legal status of virtual property in the United States remains comparatively far less certain. If the United States intends to compete with virtual currency leaders like China, it must move swiftly to implement the legal and technological support necessary to permit, protect and facilitate virtual currency adoption.