Chinese government regulation of Bitcoin exchanges unexpectedly leads to further decentralization of Bitcoin

Chapter 0 Introduction

When the Chinese government tightened controls on Bitcoin transactions, causing all Bitcoin exchanges in China to stop withdrawals, everyone was very pessimistic.

But two months have passed, and the tenacious Bitcoin has not only not been defeated, but has instead gained an unexpected benefit: decentralized transactions have been achieved.

Chapter 1 The Necessity of Decentralizing Bitcoin Transactions

If Bitcoin wants to succeed as a currency, it must be used by people. People must first have coins, which requires the existence of exchanges.

Throughout the history of Bitcoin development, the type of event that has the greatest impact on Bitcoin prices is exchange accidents, such as the famous Mt.Gox bankruptcy, Bitfinx theft, Bitstamp theft, and the Chinese government joint inspection team entering Bitcoin exchanges... These events have all led to a significant price pullback.

Even though there are many exchanges around the world and the impact of exchanges on the price of Bitcoin is really huge, it still shows a very centralized feature.

The so-called centralization means that there is a central node for the enemy to attack, or a single point failure of the central node will cause serious damage to the entire system.

Because of the existence of exchanges, prices frequently fall sharply due to attacks or failures of exchanges. This is exchange centralization.

Bitcoin transactions need to be decentralized.

Some people also proposed to use technology to complete the decentralization of transactions, including BitShares, which designed a system to pledge BTS to solve the problem of centralized institutions keeping trading assets, and to realize the trading of various digital currencies. However, the design is too complicated and difficult for ordinary people to understand. Such complex things are difficult to promote without a professional marketing team. In addition, Bitsquare uses a multi-signature custody of trading assets to eliminate the need for centralized institutions to realize Bitcoin transactions. However, it requires people who buy Bitcoin to have Bitcoin first, and the application is complex and there is no professional marketing. As a result, almost no one uses it.

It can be said that no matter how sophisticated the technical design is, it will not help much in decentralizing transactions. People naturally don’t like complexity, which makes it difficult to use complex technology to solve the problem of centralization.

Chapter 2: Bitcoin trading unexpectedly decentralizes in China

Because the Chinese government suddenly entered the Bitcoin exchange at the beginning of this year and subsequently introduced a policy to ban Bitcoin withdrawals, the trading function of Chinese exchanges has been greatly reduced. All Bitcoin exchanges in China are temporarily almost in name only.

But the free market is powerful. If there is a market, demand and supply, there will definitely be tools to match demand and supply. Exchanges are not the only tool. Since exchanges have been castrated, we can think of something else. OTC trading has become popular in China.

The current Bitcoin community is full of people selling and buying Bitcoin, including various WeChat groups, Moments, forums, QQ groups, and over-the-counter trading platforms. It is very lively.

Trading tools have changed from exchanges to WeChat groups, Moments, QQ groups, over-the-counter exchange platforms, and forum posts. Traders are almost everywhere in the community, and the first friends I came into contact with after entering Bitcoin have more or less joined the ranks of buying and selling Bitcoin.

These people are looking for buyers everywhere and shouting to find sellers everywhere, making a difference of 30 or 50 yuan for each coin.

In fact, the transaction depth and volume are not much inferior to the exchange. In various groups, people can easily shout out the transaction volume of 1,000 bitcoins. If you say that I only receive a few tenths of a bitcoin, I will be embarrassed. The number of matches on the over-the-counter trading platform is even more astonishingly large. You must know that these transaction volumes cannot be faked, and they are not done by quantitative robots.

Yesterday, Bitfinx, the pig teammate in Bitcoin trading, was exposed to problems again, prohibiting users from withdrawing fiat currency and facing the situation of having their assets frozen by banks, just like Mt.Gox in 2013. However, after the news came out, there was no negative impact on the price of Bitcoin.

This is the benefit of decentralized transactions.

Chapter 3 Bitcoin Promotion is also More Successful

This accident also brought another benefit: many Bitcoin science popularizers emerged in the community.

In the past, we had to hide when playing with Bitcoin, and few people were willing to tell their families that they were playing with Bitcoin. For a long time, if you wanted your WeChat friends to post an article about Bitcoin on their Moments, they would not agree.

Now, there are a lot of posts about buying and selling Bitcoin in my circle of friends every day, and people are no longer ashamed to be Bitcoin players.

Many of my former friends, when sharing their OTC trading experiences with me, all told me how they introduced Bitcoin to their relatives and friends.

Bitcoin successfully counterattacked by taking advantage of the Chinese government's castration of exchanges and obtained free advertising in thousands of households.

Chapter 4 Conclusion

A blessing in disguise.