From speculating in coins to settling in blockchain, the road of Chinese Bitcoin players to “break out of the cocoon”…

Author: Yibencaijing

In the gray area, they provide leverage tools, build a grand battlefield for Bitcoin players to fight, and witness the madness and cruelty of Bitcoin;

They have established a huge "grey" stock market in China's underground, where there is no supervision, no mercy, only money and naked profit bait;

They overlook the battlefield from a God's perspective and become powerful manipulators.

Now, they have become the biggest winners in this battlefield. After making a fortune, they have turned their attention to the underlying technology of Bitcoin - blockchain.

Compared with entrepreneurial teams, they have natural technical and financial advantages.

The calm future technology and the crazy Bitcoin market collide violently here...

Their story begins in 2013.

2013 was the craziest year for Bitcoin prices.

This year, a large number of ASIC (application-specific integrated circuit) mining machines produced in China were put into use, which shows that it is difficult for personal computers to get a share of the Bitcoin mining world.

The operation of thousands of professional mining machines gives China an absolute advantage in the process of Bitcoin mining.

It was reported that China accounted for 50% of the global Bitcoin network mining capacity at the time.

There are two major trends in the Chinese market:

On the one hand, the huge increase in Bitcoin has attracted a large number of Chinese speculators, and capital is eager to find investment places;

On the other hand, domestic players hold a large number of freshly mined bitcoins and are in urgent need of a platform for communication.

But before 2013, the world's Bitcoin transactions were mainly controlled by two exchanges: Mt.Gox in Japan and BitStamp in Slovenia.

In China, in addition to BTCC, some personally operated platforms also use foreign servers to provide small-scale Bitcoin exchange services.

Small trading platforms all use foreign servers.

They have fatal problems: low security, slow access speed, poor transaction experience, and generally charge a two-way transaction fee of 1,300.

Despite the harsh conditions, these small platforms still have an average daily trading volume of several million RMB.

With interests and huge market demand, a comprehensive Bitcoin trading platform is about to emerge.

In 2013 , two new Bitcoin trading platforms, OKCoin and Huobi, were born. Young, dynamic and bold, the two players quickly emerged and occupied the market.

As soon as Huobi came on the market, it announced that it would waive Bitcoin transaction fees.

Giving up the biggest dividend in the market and attracting users first - through this simple and crude method, Huobi took the initiative in the competition with foreign old-fashioned Bitcoin exchanges.

Influenced by Huobi, a number of domestic Bitcoin trading platforms such as OKcoin have also adopted the approach of waiving transaction fees.

According to statistics, as of the end of October 2013, China's daily bitcoin trading volume rose to 100,000, with a market share of 50% of the world.

China has surpassed the United States to become the world's largest Bitcoin market.

At the same time, more and more players and speculators are pouring in, and the hot Bitcoin market has even attracted "Chinese aunties" who are shopping all over the world.

"The more people speculate in cryptocurrencies and the more active they are, the more likely it is that the trading market will be overheated," said Yu Zhou, co-founder of Abbotts Technology. Just like speculating in gold and crude oil, every player and platform involved is a driving force behind the overheated trading market.

In November 2013, the price of Bitcoin soared to 8,000 yuan, and "digital gold" reached its peak of carnival.

This crazy feast finally attracted the attention of regulators.

A month later, the People's Bank of China and five other ministries issued a "Notice on Preventing Bitcoin Risks": Bitcoin does not have the same legal status as currency, and cannot and should not be circulated and used as currency in the market.

The Bitcoin carnival came to an abrupt end.

On that day, the price of Bitcoin fell 35% in 40 minutes, and the price of one Bitcoin fell from about 7,004 yuan to 2,011 yuan on the 18th.

The myth of Bitcoin and its price bubble burst at the same time.

“After the policy was introduced, some trading platforms believed that the Bitcoin trading market could not last long, and they contacted us one after another hoping to collect a unified transaction fee in order to make the last profit,” recalled Huobi co-founder Du Jun.

(Du Jun, co-founder of Huobi)

When other platforms began to abandon the Bitcoin trading market, Huobi believed that the policy was indeed aimed at Bitcoin's payment function, but did not restrict Bitcoin's commodity attributes, and Bitcoin's future was still bright.

At the same time, Huobi received a $10 million investment from Sequoia Capital in April 2014, and has the capital and energy to continue to waive transaction fees.

Therefore, during the period of low Bitcoin prices, it became an opportunity for Huobi to expand its market size.

Huobi is not the only one that is optimistic about Bitcoin. OKCoin also chose to go against the trend during the low period of Bitcoin price.

OKCoin began to quietly improve its technology and services, waiting for Bitcoin's high-profile return.

At the end of 2013, OKCoin completed a tens of millions of dollars Series A financing round, with investors including venture capital funds such as Ceyuan Ventures, Mantu Capital, and Startup Factory.

In fact, as an investment commodity, the price trend of Bitcoin has always been thrilling.

Although the way to play Bitcoin is similar to stock trading, unlike stocks, Bitcoin transactions are not regulated by the government.

This means that Bitcoin transactions are in a gray area, with roller coaster-like ups and downs.

The Bitcoin market does not have the daily price limits of the stock market. In the 24-hour exchange, a 30% surge or 30% plunge is common.

Bitcoin has become a hunting ground for speculators.

After 2013, due to the crackdown by various governments and frequent attacks by hackers, especially the bankruptcy of Mt.Gox, once the largest Bitcoin trading platform, the price of Bitcoin plummeted.

The Bitcoin trading market has reached a low point. Bitcoin trading platforms are beginning to seek ways to break out.

In order to stimulate the market, domestic Bitcoin exchanges have launched "financing and currency lending" products.

Players can borrow money from individuals or platforms, or borrow Bitcoin or Litecoin, which is actually a leverage policy in the Bitcoin market.

You can borrow money to go long, or you can borrow coins to go short. This method of play increases the volatility of the Bitcoin market.

To put it bluntly, this is no different from "leveraged stock trading".

In 2014, Huobi.com experienced a Litecoin liquidation problem, and some players moved to OKCoin.

In 2014 , China's Bitcoin trading market saw a two-horse race.

In order to compete for the market, OKCoin and Huobi have successively launched 20x leverage, and other exchanges have even reached 50x leverage.

During that period, the internet was filled with news about players’ positions being liquidated or blown up, and one can imagine how dangerous it was.

This high leverage rule was soon stopped due to excessive risks.

The entire digital currency trading market is also in a process of continuous maturity. Currently, OKCoin and Huobi have begun to control the maximum leverage ratio at around 1:3.

Digital currency trading itself is a high cash flow business.

According to Duan Xinxing, vice president and chief researcher of OK Inc., in 2013 when Bitcoin trading was at its hottest, OKCoin’s highest trading volume could reach 4 billion RMB a day, and “exchange fees and withdrawal fees were nearly nine figures each year.”

(Duan Xinxing, Vice President and Chief Researcher of OK Inc.)

At present, the handling fee for withdrawing Bitcoin from OKCoin is between 0.1% and 0.5%, and the handling fee for withdrawing RMB is 0.5%. However, leveraged cryptocurrency trading is a P2P model, and the platform does not charge any fees.

Du Jun also said that relying solely on value-added services and withdrawal fees, Huobi achieved full-year profitability in 2015, and its turnover in the first six months of this year has doubled that of last year.

Huobi's withdrawal fee is as low as 0.5% and as low as RMB 2. A fee of 1% is charged on the leveraged transaction amount. The maximum leverage for leveraged transaction amount application is 5 times, and the daily fee is 0.1%. For example, with triple leverage, you actually borrow RMB 20,000 and a fee of RMB 20 is charged every day.

In this Bitcoin boom, just like the stock market, where there is profit, there is money to be made and there are losses.

But this group of Bitcoin trading platform players provide the battlefield and rules, and they watch all the fighting and gaming from a God’s perspective—the so-called “final winners.”

Bitcoin is still crazy. In recent days, Bitcoin has broken the two-year record and rose to RMB 5,179.

However, in the international market, a major signal emerged - in 2015, Bitcoin's underlying technology, blockchain, became the sector with the highest financing in US venture capital, exceeding US$1 billion.

The cheers and expectations for blockchain far exceed those for Bitcoin, which has received mixed reviews.

As the first-tier Bitcoin trading platforms, Huobi and OKCoin have also seen the hot trend of blockchain.

For a long time, these trading platforms have been in a gray area, and have been subject to much suspicion and the infamy of being “cryptocurrency speculation” platforms. This is exactly the opportunity they have been waiting for to break out of their cocoon.

In the blockchain field, China's two largest players are taking two completely different paths.

Huobi has established a digital currency blockchain research center, which is led by Vice President of Technology Zhang Jian.

(Zhang Jian, Vice President of Technology at Huobi and Head of Huobi Digital Currency and Blockchain)

Zhang Jian is one of the earliest experts in China to come into contact with blockchain. In early 2014, he founded the country's first blockchain data query platform, Block.com.

This blockchain research center focuses on exploring the basic theories and infrastructure of blockchain.

"Blockchain is still in its infancy and is immature in many ways," Zhang Jian said in an exclusive interview with Yiben Finance. Blockchain, like the Internet, is a very broad concept, and Bitcoin's blockchain technology cannot be directly used in finance or life scenarios.

Therefore, the conditions are not sufficient to conduct research on the direct implementation of blockchain application scenarios.

"Just like urban construction, building roads and railways is not the same as driving the economic development of the region. However, road construction is a business and it also needs people to do it."

In this initial stage, Huobi’s main focus is on blockchain infrastructure construction:

On the one hand, we study diversified blockchains, that is, building blockchain technologies required by different industries and fields;

On the other hand, research on connection facilities between blockchains.

In short, what Huobi wants to do now is to "build roads" and "build bridges" in the blockchain field, building and connecting them at the same time.

OKCoin, on the other hand, is actively planning blockchain application scenarios.

Currently, the OKCoin team has launched a new brand, OK Inc., which includes OKLink and Haoyouqian, which already use blockchain technology.

"Because blockchain does not require a central settlement point, it can be traded and settled directly, which greatly reduces costs," said Duan Xinxing, vice president of OK Inc., in an exclusive interview with Yiben Finance. OKLink is trying to solve payment and settlement problems among small and medium-sized financial participants around the world.

Another product of OK Inc., “Hao You Qian”, is also quite interesting, being equivalent to a blockchain self-financial platform.

In this platform, every user is a bank, and through blockchain technology, convenient personal lending, repayment, and financial management are achieved.

In addition, on the distributed general ledger that is recognized, tamper-proof, and credible, users can record transaction credit and build personal credit.

This ledger is inclusive of currency. It can use digital assets such as Bitcoin or blockchain, as well as private chain assets that are uniformly recognized by everyone, for unified and fast exchange.

OKLink and Haoyouqian are working together on standardized clearing and settlement, while the other is working on credit investigation and credit transaction records.

Yu Zhou, co-founder of Abots Technology, believes that these two models are actually the company's 2B and 2C choices.

Huobi is a typical 2B model, just like IBM many years ago;

The way OKCoin combines scenes is the 2C model, just like when the http protocol was born, the scene-building browser became the killer application of the http protocol.

It is undeniable that digital currency trading platforms represented by Huobi and OKLink will focus on two key businesses in the future:

First, we will continue to build Bitcoin, Litecoin and future digital currency trading platforms, and carry out vertical and in-depth product development and service upgrades around transactions.

The second is to continue to focus on the field of blockchain technology, from two directions: infrastructure and scenario applications.

China's two largest Bitcoin trading platform players are seeking their own way out of the cocoon.

Their ways of playing, whether 2B or 2C, have their own advantages. We will have to wait and see which model will be successful in the future.

However, what is certain is that they do not want to miss out on either the current dividends of digital currency or the future prospects of blockchain.