Bitcoin's production has been reduced twice, and the price has remained stable for seven years. The initial shape of the ecological chain has emerged

The legal status and regulatory policies regarding Bitcoin have always been in a blank stage, and under the cover of the Bitcoin-related industrial chain, it may also become a tool to facilitate and conceal illegal activities such as asset transfer and evasion of foreign exchange controls.

If we go back to May 2010, when Laszlo Honyets, a programmer in Florida, USA, successfully bought two pizzas for 10,000 bitcoins, I wonder if he could realize that this transaction and pricing would become the beginning of the entire Bitcoin industry chain.

In the early morning of July 10, Bitcoin entered its second halving period. According to the rules, the income of global miners in a fixed unit of time will be reduced to half of the original amount. Compared with the reduction in production in 2012, this reduction did not bring about a significant change in the price of Bitcoin in the short term, but its impact on the Bitcoin ecosystem is still difficult to ignore. In fact, behind the halving of Bitcoin production is the domestic Bitcoin upstream and downstream industry chain that has already taken shape.

According to the investigation of the 21st Century Business Herald reporter, on the one hand, after nearly seven years of operation, China is gradually becoming the main region for Bitcoin trading and mining, and the "virtual currency" under this new concept, which involves mining, trading, payment, storage and other links, has also spawned related companies and industry phenomena. But on the other hand, the legal status and regulatory policies of Bitcoin have always been in a blank stage, and under the cover of the Bitcoin-related industrial chain, it may also become a tool to facilitate and conceal illegal activities such as asset transfer and circumventing foreign exchange controls.

Production cuts have not affected prices

In the early morning of July 10, the "Bitcoin" that is in full swing officially ushered in the second reduction in production since its birth. According to the rules, Bitcoin is a decentralized currency that relies on blockchain technology. Its cumulative total issuance is 21 million. This reduction in production has reduced the number of Bitcoins mined from 25 per minute to 12.5. However, compared with the surge caused by the last Bitcoin reduction in production, this Bitcoin "reduction in production" is relatively stable. According to the price of domestic Bitcoin platform OKCoin, as of 5:30 pm on July 12, the Bitcoin transaction price was about 4362.90 yuan, which is almost the same as the price on the day of the reduction in production - on July 10, when the reduction in production was made, Bitcoin closed at 4333.13 yuan. "This reduction in production did not cause too much change in the price of Bitcoin. This can be said to be expected, but the small fluctuation is a bit unexpected." Yang Jingyuan, a senior Bitcoin investor, said.

In fact, the first "production cut" four years ago really shocked Bitcoin investors including Yang Jingyuan. At the end of 2012, Bitcoin, which was still priced at $13 per coin, ushered in the first production cut. In the following two months, the unit price of Bitcoin soared to a high of $260, an increase of nearly 20 times. In Yang Jingyuan's view, the two Bitcoin production cuts in 2012 and 2016 cannot be simply compared. "Because from the trend before the production cut, Bitcoin has already seen a relatively large positive overdraft. In 2012, the production cut was still an unprecedented event, so the expectations were not clear." This phenomenon is also in line with the prediction of Zhu Jiawei, vice president of Huobi.com. "What drives the price up is people's recognition of the value of Bitcoin, not the change in supply." On July 8, Zhu Jiawei predicted, "Unless there is major positive information about Bitcoin, such as the advancement of applications, the Bitcoin halving is unlikely to cause a surge in Bitcoin prices." However, other industry insiders believe that the arrival of the production cut will still have a long-term impact on the issuance and trading ecology of Bitcoin. The impact of the reduction in production is the greatest on the primary market, that is, the mining link," said a BAT person involved in Bitcoin mining, "because the direct income is equivalent to a decrease of half. Although mining can also earn Bitcoin transaction fees, mining itself is still the bulk of the income. The halving of production will also bring changes to the demand for Bitcoin mining."

Mining specialization When it comes to Bitcoin mining, it is usually difficult for ordinary people to "think about it". The so-called "mining" refers to the process of using a host (mining machine) that can provide ultra-high computing power to provide computing power to obtain rewards in the form of Bitcoin, and people who engage in this activity are also called miners.

The "2014-2016 Global Bitcoin Development Research Report" (hereinafter referred to as the "Bitcoin Report"), recently released by the Internet Finance Laboratory of Tsinghua University's PBC School of Finance and Huobi.com, pointed out that the overall computing power of mining machines, mining costs and the price of Bitcoin will play a decisive role in mining revenue.

"The greater the computing power, the better the overall stability and security of the Bitcoin network. Since the output of Bitcoin is constant, for a single mining unit, the proportion of computing power determines the proportion of Bitcoin that can be mined." The Bitcoin Report pointed out that "the total computing power of the system, the unit computing power cost, and the price of Bitcoin determine the mining income; when the amount of Bitcoin generated is stable, reducing mining costs (such as improving the efficiency of mining machines and reducing electricity costs) can increase mining income. In addition, only when the price of Bitcoin increases can mining income be higher."

As more and more people around the world participate in mining, the probability of a single mining machine mining Bitcoin is very small. Therefore, some companies have emerged around the professional capabilities of mining machines and the scale effect of mining.

For example, Bitmain, founded in 2013, is a company that researches, develops and sells special chips and mining machines for Bitcoin mining. According to its website, the computing power of one of the company's latest mining machine chips can reach 74GH/S, and its unit price is close to 3,000 yuan.

"The computing power of this type of chips currently used for Bitcoin is basically the fastest among all types of chips, but they cannot handle complex problems and can only be used for mining. Things such as heat dissipation are all designed." said a person close to Bitmain.

In addition, in order to solve the problem of Bitcoin mining probability, based on the fact that Bitcoin can be wirelessly divided, some mining machine manufacturers and Bitcoin platforms have also independently developed a "mining pool system", that is, a software system that allows single mining machines scattered across the country to be interconnected and connected to the same mining pool to achieve equal sharing of revenue and costs.

“Operating a single mining machine is basically a lottery, and usually nothing can be mined. Entering a mining pool is equivalent to everyone drawing a lottery together, and then sharing the winnings. This will fix the income, and it also solves the problem of uncertain income from Bitcoin mining.” said the aforementioned “mining” person.

According to the statistical distribution of mining pool computing power on QuKuai.com, as of July 12, 62.92% of the world's computing power was concentrated in the hands of four domestic mining pool operators, namely F2Pool (19.21%), Ant Pool (18.54%), BiWang (13.25%), and Bitcoin China (11.92%).

There is also a form of mining business called "mining farm", which is to provide a suitable environment and venue for mining machine operation, so as to maximize the efficiency. "Currently, there are relatively few companies that have set up mining farms. Each company may have its own mining farm, and then connect it to the mining pool as a whole." said a person from Huobi.com.

Trading ups and downs The most successful value discovery of Bitcoin in China is still attributed to the secondary market. At present, Huobi.com, OKcoin and Bitcoin China are the three largest Bitcoin trading platforms in China. Billions of funds are traded on the three platforms every day. Participants include investors with different risk preferences and strategies, as well as quantitative trading teams that take advantage of the price difference between different platforms. "In 2013, there were many Bitcoin trading platforms, but because of the lack of custody by financial institutions, many platforms ran away, just like the law of nature, leaving only a few reliable ones." Yang Jingyuan said frankly. In fact, the biggest problem faced by the above-mentioned Bitcoin trading platforms is the lack of corresponding financial institutions or third-party payment companies to provide them with fund custody services, and this industry status is not unrelated to the ban issued by the regulatory authorities at the end of 2013.

At the end of 2013, Bitcoin ushered in a round of fierce rise. In order to prevent risks, five ministries and commissions including the People's Bank of China urgently issued a document "Notice on Preventing Bitcoin Risks", requiring financial institutions or payment institutions not to participate in any business related to Bitcoin, which also made the cooperation between banks, payment companies and Bitcoin trading platforms slim. With the financial institutions missing out, the "transfer model" has become a helpless choice for Bitcoin platforms. 21st Century Business Herald reporters found that after registering on the above-mentioned trading platforms, it is necessary to transfer money to a designated account or company in order to conduct RMB transactions for Bitcoin. However, industry insiders pointed out that although this method is a helpless move by the industry, it does have compliance risks. "At present, these platforms mainly complete fund settlement through online banking and Alipay transfers, which is equivalent to the platform maintaining an account for depositing transaction funds." A person from the banking regulatory system in Northeast China said, "This model is very dangerous and almost steps on the red line, but there is no way, because no institution dares to do third-party supervision of Bitcoin." In terms of the choice of profit path, most platforms have also abandoned the traditional commission income of the traditional securities market and adopted a "cash withdrawal fee" similar to WeChat wallet. In addition, providing financing transactions and collecting corresponding interest income is also a way for the above-mentioned trading platforms to make money. Take one of the platforms as an example, its maximum buy and sell leverage can be as high as 4 times, and the commission is calculated on a daily basis. 21st Century Business Herald reporters found that the main body providing fund disassembly services comes from an overseas legal person. Similar to the RMB, the Bitcoin purchased on the above-mentioned trading platforms does not directly enter the investor's personal account, but is "custodied" by the trading platform. This also means that the trading platform also needs to keep separate accounts for RMB, Bitcoin and even US dollars. "If investors want to withdraw the purchased bitcoins, they need to open a bitcoin 'wallet' to solve the problems of bitcoin storage, payment, etc." A bitcoin trading platform staff member told reporters, "There are online and offline wallets." However, bitcoin investors like Yang Jingyuan do not seem to have a strong demand for "withdrawal". They still buy and sell bitcoin as an investment or speculative product; under this state, bitcoin transactions are more like a game of gambling around virtual currency.

"Because there are not many commonly used places that accept Bitcoin payments, the scope of application is still relatively narrow, so it is still an investment product at present. As an investable security product, it has obvious advantages, such as divisibility, no price limits, 7×24 hours trading, up to 4 times leverage, and two-way options of shorting and long positions." Yang Jingyuan said frankly.