How Will China’s Bitcoin Boom Affect Online Retail?

Bitcoin luxury e-tailer BitPremier has its sights on the China market. (BitPremier) While China’s flourishing Bitcoin market has attracted intense speculation and economic optimism, the digital currency’s anonymous nature and unregulated status make it poised to significantly affect online business in the mainland. Bitcoin is a web-based digital currency that has recently been enjoying immense popularity throughout the world. With no physical presence—transactions are made through its shared and completely digital client—the identities of its users are easily rendered anonymous. There are two ways to obtain Bitcoins: the first is simply to buy them at one of many exchange websites, while the other is to generate new Bitcoins via the complicated and expensive process of “mining”, which involves using high-powered computers to crack dense mathematical formulas that add new Bitcoins into circulation and simultaneously protect the system from hackers. With the standard unit of the currency commanding a fluctuating, yet substantial value of around $136, there is a finite supply of Bitcoins with a maximum of 21 million units. In China, the digital currency has enjoyed runaway success, with mainland users accounting for the second-highest Bitcoin market in the world. Last May, Chinese users actually overtook Americans for the world's highest number of total downloads of the Bitcoin client required to make transactions with the currency, and at the moment, completely Bitcoin-based IPOs are gaining traction as high-return investment opportunities. Many Chinese entrepreneurs are also buying into the business of “mining” Bitcoins, which has turned into a profitable computer speed arms race. “I think like as in many countries, the Chinese are very interested in the international, borderless commerce possibilities with Bitcoin,” Alan Silbert, CEO of Bitcoin luxury store BitPremier, told Jing Daily. “Especially with China receiving $50-plus billion a year in global remittances, there are real opportunities here for Bitcoin.” While many in America also look at Bitcoin as a long-term investment, its use in the West has been characterized by a tendency to push Bitcoin as a consumer payment system. This contrasts with China’s use, which has so far favored it for asset protection against inflation and the Chinese government’s centralized financial structure. According to Silbert, “The Chinese are much better savers than Americans, so they would be natural candidates for holding Bitcoins as an asset in their portfolio.” Bitcoin’s surge in China has been marked with almost no official word from the government, with the CEO of BTC, China’s leading Bitcoin exchange, Bobby Lee claiming: The Chinese government has much bigger responsibilities and many more important things to attend to. As with all new technologies and developments in China, I think the government is taking a prudent approach; they are waiting a bit, and watching to see how it develops. Although Bitcoin has not been officially regulated, it is on the government’s radar. China’s state-run TV network CCTV aired a documentary this spring which Silbert said “really kicked off interest” in Bitcoin in China. He was also interviewed by the network in June. Despite its role as an asset for investment, there is evidence that Bitcoin is being increasingly used in China for consumer purposes. The route that Bitcoin takes to China’s mainstream online retail network as a payment system is now another factor for those who are attempting to enter China’s steadily growing online retail market, estimated to be worth $457 billion by 2016. With ample room for Bitcoin to grow into the existing online retail structure, many perceive the rise of Bitcoin in China as an organic phenomenon, aided by an existing comfort with digital currencies due to the past boom of the online game currency QCoin. On Reddit, one user claims that a café popular with techies in Beijing is taking Bitcoins for lattes, however, at the moment, many Chinese retailers are just starting to adopt Bitcoin as a payment device. Bitcoin also represents a new shift for online payment, because unlike Paypal and its Chinese version Alipay, there are only minimal transaction fees, making smaller online payments a much more attractive option for online businesses. Sellers on popular auction site Taobao are beginning to accept the digital currency in exchange for goods and many inexpensive electronics, and niche e-stores are springing up. One example of these is the expat-run IJustWannaBuy, which offers, among other products, a variety of air purification devices for those who are as as forward-thinking about their health as they are about their digital spending. With an office in Beijing, international online retailers like Bitfash are also getting into position to profit from China’s online market. Bitfash claims that mainland consumers account for 8 percent of their online business and, optimistic towards China’s growing Bitcoin market, they are currently working on a Chinese version of their site. The e-store currently accepts Bitcoins for clothes from Forever 21 and ASOS (but previously Zara and luxury menswear store Mr. Porter). According to Bitfash’s co-founder Chris Woods in an interview with Tech in Asia, Our idea to link fashion with Bitcoin came from the observation that numerous users were sitting on considerable wealth in Bitcoins but had no specialist place to purchase fashion using their Bitcoins – we sought to fill this niche and meet the demand in the market in this respect. Another major shift brought about by the digital currency which may have major implications for China’s luxury market is a new relative ease for consumers to make transactions without revealing their names. Because of Bitcoin’s unregulated and discreet nature, should it take off at a mainstream level in China, there could be potential consequences for the illicit luxury trade. Bitcoin transactions may be used in the near future to supplement the existing underground luxury market, which is used mainly to skirt China’s exorbitant tariffs on high-end goods. This in turn could lead to the more regular purchase of untaxed luxury products online that have been snuck into the country, however, suspicions of inauthentic goods will most likely always remain for online purchases. In addition, party officials would definitely prefer an anonymous and untraceable cash exchange rendered possible by the currency amidst the recent crackdown on conspicuous luxury purchases—if they’re tech-savvy enough to figure out how to use it. The truth is that total anonymity with Bitcoin is extremely difficult. “The ‘anonymous’ qualities of Bitcoin are somewhat overstated. Since the transactions are all publicized to the blockchain, there will be a record of every transaction for all of time,” says Silbert. “While some characterize this as anonymous, since you are only memorialized with letters and numbers, I see the permanent record as something a little less than anonymous. Nevertheless, I think people appreciate the pseudo-anonymous nature of Bitcoin, and I think this helps Bitcoin commerce, and BitPremier, no matter the country." Despite the possibility of average consumers being wary of the clandestine nature of Bitcoin transactions, Silbert believes the digital currency looks like it might have potential to become a significant factor in China’s online luxury market. Based in America, BitPremier’s listings of luxury real estate, cars and airplanes have been receiving interest from China, and the company plans to eventually create a Chinese-language website. “Since launch, China is ranked 7th or 8th in terms of BitPremier site visits. Probably two to three out of 100 site visits are on a Chinese language-based computer,” said Silbert. Earlier this year, a luxury condo worth US$8 million in Shanghai’s Xintiandi neighborhood was almost listed on the site but pulled at the last minute. “We'll keep working on them to get them on BitPremier,” said Silbert. Ultimately, it would probably be wise to pay attention to China’s confidence in Bitcoin. While there is still a way to go before widespread adoption of the currency as a payment device, should Bitcoin continue its course to China’s mainstream, it would make for a sea change in online retail internationally.

Sectors

Insights

Company

How Will China’s Bitcoin Boom Affect Online Retail?