Bitcoin is popular again. Will there really be “one coin for one villa” in the future?

"One coin, one villa" is a popular phrase in the Bitcoin circle recently, which directly describes the beautiful expectations and imaginations of domestic cryptocurrency traders for the future of Bitcoin. Recently, the first investor of Snap chat, Jamie Liu, and the CEO and co-founder of Blockchain, Pete Smith, said that "the price of each unit of Bitcoin may rise to $500,000 by 2030", which made Bitcoin investors excited.

In China, on January 6 this year, the central bank interviewed and inspected several domestic virtual currency trading platforms, which greatly impacted the domestic Bitcoin trading volume and liquidity. Domestic exchanges also announced the suspension of withdrawals. However, Bitcoin trading is still booming. Since the beginning of 2017, the market price of Bitcoin has fluctuated between 6,000 and 8,000 yuan, but it has increased significantly compared with the same period in 2016. Bitcoin has become a "hot commodity" again.

However, veteran Bitcoin players told IT Times from their own experiences that making a lot of money with Bitcoin is not a pipe dream, but it is definitely not a dream that everyone can make come true.

"Old miners" with annual income of tens of millions

"When the price of bitcoin was low, I couldn't even make up for the electricity bill. At that time, the electricity bill for mining was about 2 million yuan a month. Later, I sold the mining machine and stopped mining." Zhao Dong was once a well-known "miner" in the industry, known as "Uncle Dong". From 2013 to 2014, he invested tens of millions of yuan in mining in Ordos, Inner Mongolia. Later, the price of Bitcoin plummeted. After the price of Bitcoin was halved from 8,000 yuan to 900 yuan, Zhao Dong, who suffered heavy losses, gave up mining.

Since its birth in 2009, Bitcoin has become a highly anticipated "Internet finance star". The creation of Bitcoin is based on a special calculation algorithm. The total amount of Bitcoin in the system is fixed at 21 million. Each coin is "mined" from the system by a computer relying on computing power. This process is commonly known as "mining". "Mining" is at the upstream of the Bitcoin industry chain, and there are also Bitcoin transactions and applications at the downstream.

"About 16 million bitcoins have been mined, and only 5 million are left to be mined. Domestic mining is now operated on a large scale, and the cost of individual mining is too high." Zhao Dong told the IT Times reporter that his mine had nearly 6,000 mining machines at its peak, and when the price of the currency was high, the profit a month could reach five to six million yuan.

Before entering the Bitcoin industry, Zhao Dong founded a well-known Internet company. Later, he sold the company's shares and started mining. Zhao Dong described his personality as wanting to be at the forefront of everything and preferring to do things with high risks and high returns. After giving up Bitcoin mining , he turned to become a Bitcoin trading middleman, "first doing real-name authentication for customers, then transferring coins or making money, and earning the difference."

"About 100,000 bitcoins are traded per year, with a turnover of about 1 billion yuan and a profit of about 1%." Zhao Dong revealed that he would also trade his own bitcoins, but the principle was to ensure that the number of bitcoins he held would "only increase and not decrease." He insisted that the scarcity of bitcoins was worth his long-term investment. However, the sharp rise and fall of bitcoins also made him feel insecure. In addition to being a bitcoin trader, he was also looking for new business models.

“I can’t teach you how to win the lottery”

Zhao Dong is not the only one who hopes to break away from the identity of a cryptocurrency speculator. Bitcoin investment management expert Sun Zeyu was previously a mere cryptocurrency speculator. Now, he is a partner of a Bitcoin investment management company, providing Bitcoin investors with Bitcoin account custody and trading services, and his profit model is to collect commissions from profits.

Not long ago, Sun Zeyu just accepted an interview with the British "Guardian". He told the British reporter that within ten years, the value of Bitcoin will reach "one coin, one house", which was interpreted by domestic media as "one bitcoin = one house in Beijing in the future." Sun Zeyu smiled and told reporters that although he did not mean that at the time, "one coin, one villa" is indeed very popular in the currency circle.

Sun Zeyu started investing in Bitcoin after graduation. "I entered the market on October 17, 2013, and 30,000 yuan quickly turned into 300,000 yuan." Sun Zeyu kept emphasizing that he was lucky. "The media reported Bitcoin in November 2013. I still remember that a large number of players poured in in late November, but the price had already risen to a high point." Sun Zeyu recalled that he earned his first pot of gold in life, 1 million yuan, in one month with virtual currency . So far, he has earned 8-digit assets through virtual currency , but Sun Zeyu emphasized: "The idea of ​​achieving financial freedom through Bitcoin is not advisable. We are like people who have won the lottery. I can't teach you how to win the lottery."

Bitcoin has a weakness: once the holder loses it, the bitcoins inside can never be found again. Targeting this "pain point" of users, Sun Zeyu and his partners set their sights on offline physical Bitcoin wallets. Sun Zeyu revealed that the company is currently working on the "Kushen" project to develop an offline physical Bitcoin wallet with separated hot and cold ends. The prototype has been completed and is expected to be mass-produced in May.

"The mobile app is the hot end, and the hardware device is the cold end. The cold end is the storage wallet function. Bitcoin is completely placed in an offline wallet. By scanning the QR code, transfer and confirmation information is sent, which is equivalent to adding a layer of security protection." Sun Zeyu believes that in the future there will be more and more Bitcoin users, and users will pay more and more attention to the security of Bitcoin, and the demand for physical wallets will become more and more vigorous.

Sun Zeyu and Zhao Dong are a microcosm of domestic Bitcoin players seeking transformation, and their investment and work trajectories also reflect the ever-changing Bitcoin industry chain. Startup companies of various types, including information, physical wallets, and trading platforms, that rely on Bitcoin have sprung up like mushrooms after a rain.

But one thing that Sun Zeyu and others are clear about is that the digital characteristics of Bitcoin in China have been greatly weakened, and speculation has been strengthened. The market seems a bit impetuous, and such impetuosity has attracted the attention of regulators.

The central bank has launched a strong regulatory crackdown

On January 6, the central bank summoned the three major Bitcoin trading platforms , Huobi, OKCoin, and Bitcoin China , and launched an on-site investigation of the three platforms.

Subsequently, the central bank announced in the first batch of inspection results that Bitcoin China was operating beyond its scope and illegally conducting margin trading, and OKCoin and Huobi.com had not established an anti-money laundering system in accordance with regulations. The three major platforms immediately shut down their financing and currency lending businesses. After the investigation, the era of free domestic Bitcoin transactions ended, and the three major platforms began to levy a transaction service fee of 0.2% of the transaction amount. On February 9, the central bank warned that Bitcoin trading platforms that violated serious regulations would be shut down and banned in accordance with the law. That night, the three major trading platforms issued an announcement to suspend Bitcoin and Litecoin withdrawals.

Under the heavy blow, Bitcoin investors who engage in quantitative trading have been strongly impacted. "For trading users, the impact varies. Users who are optimistic about the value of Bitcoin and hold it for the long term are basically unaffected. However, users whose main purpose is short-term arbitrage are more affected. Since all platforms have stopped currency withdrawal services after the announcement, not only can they no longer withdraw currency for arbitrage, but they also have to bear the risk of price fluctuations." A person from a trading platform who did not want to be named told the "IT Times" reporter that for currency speculators, transactions used to be free of fees, but now they have to pay fees, which has greatly suppressed the enthusiasm of investors and speculators.

Qu Zhaoxiang believes that the impact of the suspension of withdrawals on the Chinese market is not only the disappearance of arbitrage opportunities, but also the prosperity of over-the-counter transactions and the stripping away of the influence of the Chinese Bitcoin market in the global Bitcoin trading market. "The impact of the policy on Bitcoin is obvious. The domestic trading volume has shrunk and lost its first position."

Zhao Dong confirmed Qu Zhaoxiang's point of view. He said that after domestic Bitcoin exchanges stopped withdrawing coins, his daily trading volume as an over-the-counter trader at least tripled.

In the past, due to the lack of transaction fees and 7×24-hour service, China's Bitcoin trading volume has long been far ahead of the international market, and once even had more than 80% of the global market share. According to the research data of Huobi Blockchain Research Center on March 17, the current Bitcoin trading volume denominated in Japanese yen ranks first, accounting for 19.3%; followed by US dollars, accounting for 16.8%; and RMB ranks third, accounting for 3.9%. Qu Zhaoxiang believes that if the exchange itself is not open and transparent, it is difficult to protect the rights and interests of investors. In the long run, regulatory intervention is conducive to the standardization of the industry.

Becoming a settlement medium is still a long way off

As a virtual currency or digital currency , Bitcoin must become a means of settlement if it wants to achieve great success. Canada was the first country to use Bitcoin for transaction settlement. On October 31, 2013, the world's first publicly available Bitcoin ATM was put into use in Vancouver, Canada. Since 2017, Bitcoin has made significant progress in becoming a means of settlement: Japan officially defines Bitcoin as a means of payment. As of the end of March 2017, there are about 4,500 stores in Japan that support Bitcoin settlement.

However, the currency attribute of Bitcoin in China is minimal. The central bank and five other ministries and commissions expressed their views on Bitcoin as early as 2013, issuing the "Notice on Preventing Bitcoin Risks", which clarified the nature of Bitcoin and believed that Bitcoin is not a real currency, but a specific virtual commodity, which does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market. Ordinary people have the freedom to participate under the premise of assuming their own risks.

Although the notice confirmed the legal status of Bitcoin investment, the road for Bitcoin to become a means of payment in China has been blocked. "In practice in various countries, Bitcoin has failed to form the ideal currency function, but has always played the role of a financial asset." Li Aijun, dean of the Internet Finance Law Institute of China University of Political Science and Law, said in an interview with the media.

"Bitcoin's innovation based on blockchain has provided important technical support and applications for many subsequent financial innovations. From the perspective of economic and financial development, although the government does not recognize Bitcoin as a payment voucher, it cannot be denied that it is a new attempt at financial technology innovation and application, and it has indeed solved some problems." Ying Zhanyu, a professor at the School of Finance of the Central University of Finance and Economics, said that if viewed from the perspective of monetary connotation alone, he is not very optimistic about Bitcoin.

"As a medium of payment, the basic requirement for currency is the stability of its value, which is also the basic prerequisite for ensuring social division of labor and exchange. Since its birth, the price of Bitcoin has fluctuated greatly. The unstable value of the currency is an inherent limitation of Bitcoin as a means of payment." Ying Zhanyu believes that Bitcoin will have a living space in transactions in the virtual world based on the Internet or in real transactions, but the conditions for it to completely replace legal currency are still immature.