The State Council, the CBRC: bitcoin property increased, but there is a risk

The State Council, the CBRC: bitcoin property increased, but there is a risk

Bitcoin is a virtual currency based on internet. Since January 2009, significant expansion in the global scope and degree of acceptance of transactions, prices continued to rise, many investors sought by. However, because the legal status is not clear, the trading platform is vulnerable and susceptible to money laundering and other illegal transactions using bitcoin has caused widespread concern in the international community, and is included in the anti money laundering and consumer protection legal framework. The rapid development of China has become the world’s largest bitcoin trading market, with the recent price rises and falls, the accumulation of speculative risk can not be ignored. The fundamental feature of bitcoin is non sovereign supranationality. Our country should deny its currency attribute in quite a long time, at the same time the rapid development should face all kinds of virtual currency, adjust monetary statistics caliber, re design of network tools and network financial supervision, payment of judicial protection system etc..

Bitcoin is an open source based on the point-to-point (P2P) software, virtual currency generated by performing specific algorithm. Since January 2009, bitcoin significantly increased acceptance in the global trade, expanding the scope of fast rising prices. But because the legal status is not clear, the trading platform is fragile and easy to be used for money laundering and other illegal trading countries, the attitude of bitcoin is not the same, there are many disputes. Since 2013, China bitcoin trading has developed rapidly, has become the world’s largest bitcoin trading market. Recently, bitcoin prices plummeted, speculative risk exposure is expanding rapidly, it is worth close attention.

The basic concept and characteristics of bitcoin

Bitcoin (Bitcoin, BTC) is a kind of source code can be used for the public, based on network, peer-to-peer anonymous virtual currency (VirtualCurrency). Bitcoin by Nakamoto (SatoshiNakamoto) to design in 2008, is the first to the center of the distributed anonymous digital currency in the world.

The public can get bitcoins through two ways: one is through the implementation of algorithm to generate complex open on the computer, known as the “miners”. 4 years before the birth of the 10 million bitcoin bitcoin was created, the value of the half-life is 4 years, the final total coins will be close to 21 million in 2140, then no further increase in the number of. The two is through China, and other special bitcoin trading platform to buy in other currencies, known as the “merchant purchase”.

Bitcoin has the following basic characteristics: one is the non super national sovereignty. Bitcoin is the product of the development of the network, does not belong to a country all. The two is to the center. Bitcoin issue and payment without the central bank and other administrative departments as the central control center, the transfer of centralized payment by the network node management. The bitcoin system is distributed through a piece of data across the network to record the transaction, transaction risk and shared by the entire bitcoin system. The three is anonymous. Technically, bitcoin trading parties can hide their true identity through random change billing address. Electronic money is heavily dependent on traditional account system, both parties must collect personal information to complete the transaction, and bitcoin through public key technology, no longer rely on the account system, both parties can generate their own private key, then the corresponding public key and private key can inform the payer payment received. Another time, to generate a pair of public and private key transactions. This one-time approach can be completely anonymous transactions, difficult to track. Four is the network robustness. Bitcoin is completely dependent on the peer-to-peer network, no distribution center, which means that unless sustained global power or masked the entire Internet, otherwise unable to close on the implementation of the external world. The five is non uniqueness. As a virtual currency, no barriers to entry, because bitcoin open source code, after parameter modification, can produce other virtual currency with similar functions.

The monetary attribute of bitcoin increasing, but there is a risk

With the subject and expanding the scope of the monetary attribute of bitcoin is growing. Since its birth, bitcoin was significantly expanded in the global scope and degree of acceptance of the transaction, there are more than 200 countries merchants to accept bitcoin trading platform, dozens of all over the world, every day more than 100 thousand cash coins, and is still growing rapidly. Because of the characteristics of payment convenience cheap, in the community of programmers with bitcoin payment of wages, debt has become a fashion. Bitcoin is gradually with the general media function. Dorit and Adi (2012) of the study also found that, as of May 13, 2012, the global network of mining bitcoin most did not participate in the transaction, but as a store of value saved.

Specifically, the current bitcoin money media mainly has the following risk:

One is the legal status is not clear. In the world, bitcoin can be regarded as a kind of virtual goods and protected by law; but the legal status of bitcoin as a currency “has not been established in any country. If bitcoin is not officially recognized as a legal currency, is to accept the inconvenience of tax on businesses and individuals and its safety.

Two is the trading platform vulnerability. Bitcoin trading platform is usually a website, once hacked, likely to cause huge losses to the bitcoin holders and traders. In June 19, 2011, security vulnerabilities Mt.Gox bitcoin trading center in 1 bitcoin price once fell from $15 to 1 cents. In August 2011, another bitcoin trading platform MyBitcoin announced it was hacked, resulting in more than 78000 bitcoin (about $800 thousand) unaccounted for. If the network security and technology are not guaranteed, bitcoin development will face a fatal bottleneck.

The three is the lack of monetary anchor, price volatility and the risk of a Ponzi scheme. Bitcoins lack the support of the national credit, its value depends entirely on the participation of trust, lack of value set anchor, likely to be the market speculation, triggering a Ponzi scheme.

With the use of bitcoin in the network and the real economy is increasingly expanding, attracting a large number of speculators involved, resulting in bitcoin cash price fluctuation as a roller coaster, make it more suitable for speculation, but not for investment. 2009 birth, bitcoin price is very low, only about 3 cents, and by November 19, 2013, bitcoin prices have risen to nearly 8000 yuan, but the next day the price dropped to 4150 yuan, even after dropping to 2888 yuan.

About whether bitcoin investment constitutes a Ponzi scheme has been controversial. The European Central Bank research report pointed out that bitcoin users if you want to cash, there must be a new bitcoin demand, it is like a Ponzi scheme. Bitcoin investment the biggest problem lies in information asymmetry. It is very complex and may lead to potential users to understand. Once the user is trying to cash and liquidity problems in network, the system may collapse.

[author] Chen Daofu, the State Council Development Research Center of finance; Wang Gang, CBRC postdoctoral workstation.

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