South China Morning Post: China's looming inflation problem is the main reason why Bitcoin is so popular in the country

Today, the high incidence of information leakage and security issues in the traditional financial industry has prompted the public to turn to Bitcoin and its underlying technology. More and more people are beginning to learn about these technologies. Digital Gold: The Untold Story of Bitcoin, written by Nathaniel Popper, is a primer on Bitcoin.

A large number of Bitcoin mining companies choose to locate in Inner Mongolia and other remote areas of China because these places have cheap electricity and low costs in all aspects. At the same time, it is often said that more than half of the world's Bitcoin transactions take place in China. However, the Chinese government has expressed concerns about Bitcoin. There are also several relatively active exchanges in mainland China, but compared with the huge domestic customer base, it is just a drop in the bucket.

Why has Bitcoin become the new favorite of Chinese people?

It is strange that Bitcoin is so popular in China for two reasons. First, the country is overpopulated with banks. Even many remote rural areas have a well-established banking system. The postal savings network and rural credit cooperatives cater to both the rich and the poor. Opening a bank account is simple and anyone can open an account anywhere in the country in less than 10 minutes. Applying for a debit card is a snap for both individuals and businesses, and you don't have to answer any questions.

Second, both the Bank of China and the post office can provide comprehensive transfer services. In addition, the transfer services of third-party payment platforms such as Alibaba, Tencent, and UnionPay are very cheap, and they even subsidize their users from time to time.

So why is Bitcoin so popular in China? Unlike Western countries, Chinese people are not interested in tracing the true identity of Satoshi Nakamoto. And buying drugs anonymously is not a big deal in China because it is as difficult to track cash transactions as it is to track transactions on the Bitcoin distributed ledger. Popper found that Chinese Bitcoin users are not worried about the confidentiality of transactions. Then there is only one possibility: fear of inflation crisis.

Many people, not just Popper, believe that Bitcoin cannot be considered a currency due to its price instability. I disagree with this view.

The exchange rates of the ruble (Russian legal currency) and the naira (Nigerian legal currency) are also very unstable, but they are still currencies. More importantly, people regard their Bitcoin as an asset, so price fluctuations are normal, as long as the long-term trend is upward. In the six years since the birth of Bitcoin, its price has been rising, even outperforming all legal currencies.

In the near future, it is an excellent choice to consider Bitcoin or other cryptocurrencies as a medium of exchange. Popper said that high inflation rates, backward payment systems and the gray market for foreign exchange are the three main reasons for the rise of Bitcoin in Argentina.

The above reasons also apply to China. However, China's payment system has become more and more sophisticated with the development of companies such as Alibaba and Tencent, and China's gray market did not exist 15 years ago.

However, China's inflation rate is about to reach Argentina's level. For the Chinese people, inflation seems to be an everlasting nightmare. It was the high inflation rate that led to the collapse of the Kuomintang government.

From 1949 to the end of 1980, the Chinese government resolutely dealt with the inflation crisis. During these 40 years, the government solved the crisis by strictly controlling commodity prices. In the 1990s, the government believed that inflation was a necessary economic bubble. It was not until the economic crisis in Western countries in 2008 that the Chinese government was hit hard.

In order to prevent excessive money issuance, the central bank and government in Western countries exist independently. In China, the central bank is part of the government, so the government may solve political and management problems by issuing money, which may lead to irreversible consequences.

Over the past 25 years, China has been plagued by inflation, widening the gap between the rich and the poor. Over the past 10 years, real estate prices have soared, forming a bubble. In addition, the trading prices of China's securities market are still among the highest in the world. In summary, it is not surprising that Bitcoin is popular in China as a safe haven asset, as the purchasing power of the RMB is declining and inflation is imminent.