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Show Notes
BTCC CEO Bobby Lee On Why The Chinese Probably Aren’t Using Bitcoin To Evade Capital Controls
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BTCC Mobi Bitcoin FoundationTranscript
Laura Shin:
Hi everyone. Welcome to Unchained, a podcast engineered by Fractal Recording and produced by me, your host, Laura Shin, a Forbes contributor covering blockchain, cryptocurrencies, and fintech. Thanks for tuning in. If you’ve been enjoying this podcast please tell others about the show, share it on social media or with your friends who you think may be interested. Also, if you rate, review, and subscribe to Unchained on iTunes, or wherever you get your podcasts, that also helps get word out about the show.
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My guest today is Bobby Lee, CEO of BTCC, one of the most popular Chinese cryptocurrency exchanges. Prior to that, Bobby was an engineer at Yahoo, and Vice President of Technology at Wal-Mart in China. He is also the brother of Charlie Lee, the creator of Litecoin, and for the record, Bobby and I go way back because we were in the same freshman dorm together at Stanford. Welcome, Bobby.
Bobby Lee:
Hi, Laura. Thank you for having me.
Laura Shin:
Let’s start with the basics. What products and services does BTCC offer?
Bobby Lee:
BTCC, we are a what I consider a full-spectrum Bitcoin company. We started as BTCC China in early 2011, as the very first Bitcoin exchange in China, and now we have the honor of being the longest running exchange in the whole world. We’ve been running for close to six years now. Besides offering the exchange, we also started offering wallet services at the end of 2013, and we got into the mining pool business in 2014, and then we also launched a physical Bitcoin business last year in 2016. So, we’ve done a variety of things in the cryptocurrency space, mostly focused on Bitcoin.
Laura Shin:
What does that even mean, physical Bitcoin?
Bobby Lee:
Physical Bitcoin, it’s our BTCC mint business. Basically, it’s the idea of selling these tokens, the coins that we made out of titanium, and they contain the actual private key of a Bitcoin account. As you know, each Bitcoin account is actually just protected by the private key, and the address is just derived from the public key of the private key. We embed the private key beneath a tamper-evident holographic sticker, we stick that on the backside of a titanium coin, and that’s the thing we sell. It’s essentially a hardware wallet, it’s a one-time use hardware wallet where people can put funds in the Bitcoin, and then when they want to redeem it, they would peel the sticker, and then just import the private key into a Bitcoin wallet of their choice to move the Bitcoins over to another address. These are very popular Bitcoin collectibles that we’ve been selling since last year.
Laura Shin:
Oh, interesting. Who’s buying them?
Bobby Lee:
A lot of collectors are. We have a whole range of coins, everything. The first one that we issued were the 1-bit coins made of titanium, we went into larger denominations with a 5-bit coin, and eventually the biggest ones we sell are the blocks, the full Bitcoin blocks. The one unique thing about BTCC mint is that all the big coins in these collectibles are coming straight from our mining pool, meaning they’re brand new transactions. These are Bitcoin rewards from each Bitcoin block. You know how we have the 12-1/2 new Bitcoins issued in each block reward today, it started with 50 Bitcoins eight years ago, and then after the first block halving went to 25, and then last summer via the second block halving, now there’s 12-1/2 new Bitcoins issued in every block reward. So, we sell these blocks that contain the full block reward plus the transaction fees.
Laura Shin:
That’s really interesting to create a physical memento, I guess, of something that’s created out of software. I just wanted to clarify for listeners who maybe weren’t aware of this thing about mining and the block reward, what Bobby was referring to is that the software rewards the miners who essentially kind of secure the transactions on the network by paying them in Bitcoin, and when the software first launched it was releasing 50 Bitcoin to a miner for every block of transactions that they would process, and roughly every four years or so the amount of the coin gets halved so it went to 25 and then now it is down to 12.5.
Bobby Lee:
We have something very new and exciting I’d like to tell you about, Laura. It is our new wallet called Mobi. We launched Mobi this year. Mobi, MOBI, the website is mobi.me, MOBI.ME. This is a new revolutionary hosted Bitcoin wallet that is global payments. It natively supports all the currencies in the world, so in there you could hold Bitcoin, and also trade it and exchange it to US dollars, Euros, Hong Kong dollars, ______00:05:42, whatever currencies you want in the world, and even gold and silver.
So, it’s a multicurrency wallet, and best of all it’s a mobile first application that uses mobile numbers. That means that you could receive and send money to anyone in the world with a smartphone IOS and Android, and all you need is their mobile phone number. So, for people who even don’t have Mobi, now anyone in the world can have a Bitcoin digital currency account, and that’s what the Mobi Vision is, we aim to be the first sort of bank ever to get a billion customers. We want to have a billion people in the world to have Mobi wallets, and the idea is that we can all have cryptocurrencies in our pocket, it’s a global world, we can move money to anyone we want in any currency we want. So, please give it a try, mobi.me.
Laura Shin:
What markets are your users in, generally?
Bobby Lee:
Even though we as a company, BTCC started in China, I see ourselves as a global company. My vision for the company is that everyone will use Bitcoin, so we aim to provide the whole world…our vision is that everyone would use Bitcoin, our mission statement for BTCC is to provide the whole world with the most convenient and trustworthy digital currency services, and we truly think Mobi is the next evolution at BTCC to help establish that. So Mobi for the first time is a truly international global product rollout from BTCC, it’s no longer a China only thing. You could say that our exchange and mining pool business were Chinese businesses, but Mobi is truly a global, global play, and we have it in over 15 languages on the App Store. So Mobi today you could download from the Apple IOS App Store, it comes in 15 different languages, it’s got huge potential. I think this might be the killer app for Bitcoin, and the killer app for Bitcoin we think was hiding in plain sight, which is to use Bitcoin as money. Think about that. No one has truly been able to use Bitcoin as money.
Laura Shin:
What you’re doing with Mobi isn’t that different from what Circle has been doing.
Bobby Lee:
Well I beg to differ. I think Circle, first of all, they explicitly pulled out of Bitcoin, so I thought that was…
Laura Shin:
I mean they’re using it on the back end.
Bobby Lee:
But how many currencies do they support? I mean what market do they use?
Laura Shin:
Yeah. You don’t go buy Bitcoin there, but.
Bobby Lee:
Yeah. So, we explicitly support Bitcoin, Bitcoin in, Bitcoin out, you can even redeem your mint coins through Mobi if you scan the QR codes or type in the private keys. And once you have the Bitcoin, Bitcoin is basically globally currency, that’s the point we’re trying to make with Mobi is Bitcoin is global currency. So, we’re not trying to hide it and use it in the back end, I think that’s just a marketing speak, all right? But for us Bitcoin is the real thing, it’s a first-class citizen, it’s the global reserve currency. So, you could charge up money in Mobi by putting in Bitcoin, by depositing Bitcoin into your Bitcoin address, there’s a QR code that you can copy and paste the address, and you can send it to Mobi, and you could always at any point in time move your money out of Mobi, okay? But once your money is in Mobi, then it can be turned into any currency worldwide and you can send money to other people. So, Laura, if you have relatives around the world you could send them money, and you don’t have to send them Bitcoin, you can send them money in their native currency, or you can send them US dollars.
Laura Shin:
Did you have to get banking partners in all these countries in order to do that?
Bobby Lee:
No, no. In the end this is a cryptocurrency wallet, so all of the money in there is all hedged by our team. So even though we promise you US dollars, Euros, and so on, in the end in there we store the money as Bitcoin, yeah.
Laura Shin:
And then so when I cash out, how do I get the dollars?
Bobby Lee:
When you cash out, we would give you the equivalent Bitcoins, bits if you will, one Bitcoin is a million bits. So, let’s say Laura, I sent you 100 US dollars, so in your Mobi wallet you would see 100 dollars. And all I have to do to send you 100 dollars is to know your phone number, and I can send you 100 dollars, and you could download it and then claim it. And with that 100 dollars you want to cash out, you would say one day it’ll be integrated with Coinbase, or even without integration you could send it to Coinbase. So, you could then send the amount of Bitcoins in there to Coinbase, and then you sell it on Coinbase and you would get roughly 100 dollars.
Laura Shin:
Oh, I see. Okay.
Bobby Lee:
And because you know you have 100 dollars worth of Bitcoins you will no longer be rushed and eager to sell it on Coinbase, you might just keep the 100 dollars in Mobi and then spend it with your friends or other services without ever cashing out. Does that make sense?
Laura Shin:
Right. But it’s being held in Bitcoin.
Bobby Lee:
Exactly, it’s held in Bitcoin.
Laura Shin:
So, then the value goes up and down with Bitcoin.
Bobby Lee:
No, no, no. For you it’s 100 dollars, for you it’s always 100 dollars, regardless if Bitcoin’s going up or down.
Laura Shin:
Oh, I see. Oh, okay.
Bobby Lee:
Now if you want for it to go up and down with Bitcoin then you convert either some or all of the 100 dollars to Bitcoin, and then it would go up and down with Bitcoin.
Laura Shin:
I see.
Bobby Lee:
Or if you prefer Euros or Japanese Yen, you can convert to all those other currencies.
Laura Shin:
Okay. Well this sounds really interesting. I guess we’ll see how much it grows. I actually also then just wanted to ask you a little bit more about the mining. When you say that you offer that as a service, you talked about it as a pool, how is that set up?
Bobby Lee:
Bitcoin mining is an integral part of this industry of our ecosystem. So, mining is a concept of using computer power, we call it hashing power, to contribute to the blockchain, building the blockchain and verifying transactions. And in reward, the Bitcoin network would reward miners with newly issued Bitcoin for their services. So, this has been going on for the whole eight plus years in the Bitcoin industry, and what we offer is a mining pool. A mining pool is a service where we ourselves, BTCC our company, we don’t participate in the mining, we don’t have any hardware, we don’t invest any capital to do that, but because we have a lot of customers who do do that, we pull them together and the idea is that they can get better payout and better luck and more even distribution of their workload by joining a pool service.
How it works is that it turns out Bitcoins are mined on average of once every 10 minutes, so a block comes out every 10 minutes, so six blocks per hour, 144 blocks per day. Now you can only get rewarded if you actually find the block, quote unquote find it, and the way to find it is to calculate the right hash number, the special hash number. People all over the world with mining machines are sort of guessing at these different numbers, and once every 10 minutes, depending on the rate of difficulty, someone in the world would guess the right hash number, and by guessing the right hash number they would get the full block reward.
Now imagine if you’re just a single miner somewhere, whether in China, United States, or in Europe, your chance of getting it might be very slim, you might not get it once an hour, you might not even get it once a day, you might only on average get it once every five weeks, but if that were the case you would get 12-1/2 Bitcoins every five weeks, but that’s a huge volatility in terms of your income. So, what they do is these miners would join a pool, and then rather then getting the payout on actual, you would actually get a fractional payout on a per day basis, and that smooths out your income. So, that’s a service we offer, and in return we charge a small service fee for offering this mining pool service, and then we actually put these new Bitcoins into these Bitcoin collectibles from BTCC mint. So, it’s a win-win for everyone in the ecosystem.
Laura Shin:
So, for your pool, what percent of the computing power on the Bitcoin network does that account for?
Bobby Lee:
Right now, it’s about 8%, 7 to 8%. The mining pool ecosystem has changed a lot over the years. A few years it was more centralized, but this year, in a good way in the last 6 to 12 months, the whole mining pool ecosystem and market share has been very decentralized, so it’s a good thing overall for the Bitcoin ecosystem.
Laura Shin:
Why has that happened?
Bobby Lee:
There are many players getting into the space, so mining is very decentralized. There are talks about a lot of miners are in China, that may be true, but the reality is there are thousands and thousands of people mining with terahashes and petahashes equipment spread out all over the world. A lot of it could be in China, a lot of it is elsewhere in the world, and this is what makes Bitcoin healthy because as we all know, the virtue of Bitcoin is its decentralized global nature, in that there’s no single point of failure so that no single company, no single individual can succumb to government pressure or any other pressure that can bring down the Bitcoin network.
Laura Shin:
As you mentioned, you are running the longest running exchange in the world, so you have quite the history in Bitcoin. How did you get started into all this?
Bobby Lee:
It’s actually through my brother, as you mentioned earlier, he’s famous for creating Litecoin. So, he tipped me off on Bitcoin in early 2011, at the time I was with Wal-Mart. I had my role in China with Wal-Mart ecommerce, so I had a good job. My brother told me about Bitcoin, at first, I was intrigued, and again he I think read about it from Slashdot or something the year before, in 2010. So, by early 2011 I heard about it and he was starting mining Bitcoin with a setup of GPU graphics cards. So, I started mining in the summer of 2011 as well by getting some graphics cards from him, from Charlie. He was mining in California, I was doing some Bitcoin mining in Shanghai that summer of 2011. I mined about 20 Bitcoins in all, I at the time didn’t think much about it. I remember setting up these machines, these graphics cards, and of course it generated a lot of heat with all the power supplies and the fans and all that stuff, so it would heat up the whole room in the apartment. So, eventually I turned it off in the fall, but that was a lot of fun just poking around.
At the time, it was Bitcoin, it was a digital currency, but hey, Bitcoin has not changed in the last few years at all, it’s still what it is in terms of the essence of it. But truth be told at the time, in 2011, six years ago, I did not fully understand and fully comprehend the impact and the fundamentals of Bitcoin, which is why it took me a long time before I actually was willing to put my own money to buy Bitcoin. So, I didn’t actually touch Bitcoin until 2013, that’s when I decided, after I left Wal-Mart decided I wanted to get a new career in something, and rather than go back to the traditional tech sector I thought that I could do a startup. In the back of my mind I’ve always thought Bitcoin was intriguing enough to do a startup, I promised myself in the summer of 2011 if I ever were to do a startup it would be in Bitcoin.
And that’s why by the end of 2012, early 2013 I thought hey, this might be the chance, let me come in and do something and that’s when I got together with my two co-founders in China to sort of take BTCC China to a new level. So, we agreed to cooperate, I came in as CEO and Co-Founder, and we raised venture money for BTCC China. So, we were actually the first company in all of Asia to get VC funding, so that was in the summer of 2013. And then, of course, that whole year was a huge bull year for Bitcoin, having seen the bull market in April of 2013, and then once again a huge bull market run in the fall of 2013 going up to eventually 1,200 US dollars per Bitcoin.
Laura Shin:
Yeah, so let’s talk about kind of those early days because here we are in 2017, for most of the last few years China has been kind of a main hub of activity in Bitcoin, but what was it like back then in those early days? Were people hearing about it, and who were the people involved?
Bobby Lee:
Yeah. So, in the 2011 days, those were way, way early, like it was just some software, something we were doing on the Internet, I didn’t even bother talking to anyone else about it. My wife was asking me what’s this, why do you have this machine running, I was oh yes, I’m just running some servers and stuff like that, so didn’t really talk too much about it. It’s only when I got serious about Bitcoin for my career, that’s when I started talking to other people about it. So, I distinctly remember in 2013 I was studying getting my EMBA degree at CIBS out here in Shanghai. I remember in early 2013 I would ask my classmates, and I would even ask people largely in a huge auditorium who has heard of Bitcoin, and it would be no one, no one person out there had ever, ever heard of Bitcoin.
That’s when I thought this is very interesting, because it’s a huge opportunity. It felt exactly like how the Internet was. When I was at Stanford with you, Laura, in the early 90s, 1993, ’94, no one has heard of the Internet, right? Only the academics, only the really nerdy people had heard of the Internet back then. So, I thought this is an opportunity of a lifetime is that the fundamentals were sound. Having studied computer science myself, I understand cryptography, I understand the problem of double spending, and I intuitively understood the concept of the fact that this is a huge breakthrough for Bitcoin having solved the double spending problem for digital currencies, virtual currencies online. Because digital information is so easily copied, how can you have a currency where things are so easily copied?
Well the solution was to have a global blockchain and have the blockchain keep track of the accounts, movement of Bitcoins back and forth, and then having proof of work as a way to guarantee the longest blockchain. So, all these things coming together is a tour de force, it’s really, really innovative. Individually every single component of Bitcoin has been done, been there done that, but collectively putting these pieces together to form a new concept of digital currency online, that was a huge, huge invention, a huge innovation that I liken to the invention of electricity, and the invention of computers.
Laura Shin:
So, in 2013 were other people in China kind of hearing about it? Or was it just really under the radar?
Bobby Lee:
It was way under the radar. So, I started giving talks and talking to people about it. I remember we had a Stanford Alumni Club gathering and I dedicated a whole session to talk about Bitcoin, that was in I think May of 2013. So, slowly, slowly, that was a breakout year for Bitcoin in China and worldwide, that’s when the media started covering it about what is Bitcoin, why are we even talking about it, the idea that oh, there’s a new digital currency, a new cryptocurrency. People were still calling it virtual currency back then, today we know that the term virtual currency is a misuse of that name because Bitcoin is much more of a digital currency, a digital cryptocurrency, cryptographic currency, unlike the virtual currencies from the 90s and 2000s from the early days of the Internet.
Laura Shin:
So, when Bitcoin became kind of…well when it broke into popular consciousness here in the US, that was the same thing that happened in China there. Is that also the same time when suddenly the vast majority of trading in Bitcoin was occurring in China?
Bobby Lee:
Yeah. 2013 was also the year for the breakout in trading for Bitcoin. We had always been the very first and largest exchange in China, and Bitcoin trading was just in the, probably, let me try to think, a few thousand Bitcoins a day? And remember Bitcoin prices were much, much lower back then too. So, that was in the summer, and then we introduced zero free trading in the fall, and that’s when the volume started to come up, big time. So, it was a gutsy move. The idea was to spur trading, actually, the idea was to spur trading, was to sort of borrow from the Internet model in the early days of giving out free email accounts and free news, sort of the Yahoo days. The idea was to spur trading. It had implication on the revenue model, but I thought it might be a good thing to actually give this thing a big injection. And I think it worked for the most part, because we introduced zero free trading in late September, right before the holidays, and then by October we saw trading volumes keep going up and up and up. I can’t say if it’s causation or correlation, but certainly that’s also when the prices started coming up from about, if I recall correctly, it was about 150 dollars US going up to 200, 250, 300, and then…so that was like a 3-month bull run from October all the way through December, went up eventually to 1,200 US dollars. As we know, Chinese people are always looking for investment opportunities, so that was a fun, crazy year when the Chinese people got interested. Well they first got word of Bitcoin, they now understood wow there’s this site online that now you could actually deposit money and trade these things called Bitcoins and actually make money, so a lot of day traders came out of that. It was very exciting to be part of that in 2013.
Laura Shin:
At that time were you making money then on the conversion into and out of Yuan, and then the trades within Bitcoin were free?
Bobby Lee:
Yes. We made money in other ways, we charged withdrawal fees for CNY, so we made up for that. Yeah, that was a very fun year.
Laura Shin:
We have these conceptions in the West about how there was just so much trading activity in China, but was it just kind of like a really rabid niche group in China that was interested in it? Or was it the vast majority of Chinese people were actually buying and trading Bitcoin? Or who was it attracting?
Bobby Lee:
Yeah. Certainly, it was not all of China, that’d be very dishonest to say it was all of China. I mean China has 1.3 billion people, so it wasn’t all of China. Now I would say it’s slightly more than a niche, so a niche, whether you think it’s 10, 15, 50 people, it’s probably in the hundreds and thousands, in the hundreds up to a few thousand people, so it’s not in the millions and tens of millions. Now certainly I would say that millions of people heard about Bitcoin, but as we all know, just because you hear about it doesn’t mean that you’re trading it, right? There’s a huge drop off rate, so you hear about it and then the drop off rate is like one-tenth of people who hear about it actually understand it, and a tenth of the people who understand it actually go, decide they want to take action, and then of that only a tenth of them actually do take action and end up being traders.
Laura Shin:
Okay. But was there a particular profile of the type of person who took that step?
Bobby Lee:
Yeah, absolutely. Absolutely. The profile we saw were young men in their 20s and 30, in their 20s mostly, these are the IT people or the people who were geeks and computer science people who understood the powerfulness of Bitcoin and the implications, and who also may have had access to some capital, they would buy and sell and buy Bitcoin to hold. There was also narrative in the news about these old retired ladies, what they call dama in China. It’s a term where they are as a class of people these mothers and grandmothers who are retired but they have a lot of savings, and they would go out and make savvy investments in either gold, real estate, and now they caught onto Bitcoin. But that was more of a narrative, that there’s a huge dama following who are investing in Bitcoin, but I think that was more fluff than reality. There might be a few dama, but certainly not an army of them doing Bitcoin investments.
Laura Shin:
And then another thing that you often heard, or maybe it’s still the case is that a lot of Chinese people were interested in Bitcoin because it enabled them to evade the capital controls that limited how much money people could send out of the country. Was that something that you saw?
Bobby Lee:
Yeah. The capital controls issue is complicated. It’s always been a topic, people always, always come and ask me about it like oh, how do I use Bitcoin to ______00:27:21 controls? Excuse me. Unfortunately, I honestly have not seen that happen at any scale. People may buy Bitcoins on 100 dollars or 1,000 dollars to move around in the world, but we definitely have not seen any sort of evading capital controls in any large means, anything in excess of 100,000 dollars or a million dollars. And the reason is two things, one is Bitcoin is still very, very hard, even to this day in 2017 Bitcoin is still very hard, how to get an account set up and exchange, where are these exchanges around the world, which ones are trustworthy, how to deposit money, how to wire money over there, how long does it take, and how do you buy the Bitcoins, and how do you move the Bitcoins out, how do you store the Bitcoins, how do you transfer it to another exchange abroad, how to open an account over there, and so on and so forth. So, it’s a huge, huge hassle for the vast majority of the people. So, I would say only the elite subset in the Bitcoin industry actually know how to do that and buy sell Bitcoin across multiple exchanges worldwide. Even myself, I have an account on BTTC, but I don’t have any other accounts at any other exchanges, that’s just a reality, so even I don’t have the ability to do that.
So, the other reality is that if you look at China, China definitely has a capital control policy. The Renminbi is not a freely exchanged currency, and part of that ______00:28:49 China has built up a huge reserve of foreign currencies, approximately 3 trillion dollars, it’s a little bit less than that now. But in any case, China is hugely concerned over the last year about this outflow of money. So, when people in China go change money from US dollars to Chinese currency or from Chinese Renminbi to US dollars at a local bank. When they do that at a local bank, it actually affects the currency reserves, because the foreign currencies that are provided by the bank are basically held and controlled by the central bank, who hold the foreign reserves.
So, for Bitcoin it turns out, there is no capital flight for Bitcoin because everything is neutral, and the lesson here is that when people buy even a lot, let’s say they buy 1 million Renminbi worth of Bitcoin in China, the reality is that buying it from someone who’s selling the Bitcoin, so first of all the buyer’s money, the local Renminbi would go into the account in the hands of the sellers, so the Renminbi doesn’t leave the country. So, the Bitcoin is always in the cloud because Bitcoins don’t have a geographic location attached to them, right? As we all know, Bitcoins are held in Bitcoin accounts, Bitcoin accounts are protected by the private keys, so they’re just all registered in the blockchain which is global, there’s no Chinese blockchain versus international blockchain versus American blockchain, so it’s just one big blockchain.
So, if you think about it that way, whenever there’s a large Bitcoin transaction buying and selling, the money stays in the same country, it’s just changing hands between one person to another person in the same currency and the same banking system, and then the Bitcoins stay in the blockchain, it’s just changing ownership and title of it.
Laura Shin:
Right. But then what if the person exchanges their Yuan for Bitcoin and then they open an account on Coinbase, and then they cash out in US dollars and you know what I mean?
Bobby Lee:
Sure. Sure.
Laura Shin:
Then obviously it’s…
Bobby Lee:
You’re actually right that they could do that, but my point is that when they do that, someone else is on the other side of the trade. It would be similar to someone else buying the Bitcoins on Coinbase and then selling it on BTTC in China. You see it’s net neutral, does that make sense? I’m not arguing no one’s doing it, I’m arguing it’s all net neutral.
Laura Shin:
Yeah, for the individual who’s doing it, they are able to have their holdings in what starts out as Yuan, they’re eventually able to convert those into some other currency.
Bobby Lee:
Sure. That’s what trade is all about. If you come back to the idea of trade, global trade, that’s what trade is all about, cross-border trade. So Bitcoin does engage in cross-border trade, but it’s not like a massive export event or massive import event, it’s all neutral, it’s all trade neutral.
Laura Shin:
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I’m speaking with Bobby Lee, CEO of Chinese Cryptocurrency Exchange, BTCC. One thing that’s been in the news a lot in terms of…well, for Bitcoin people has been some of the Chinese government’s actions around the industry, particularly this year. Can you just describe for me how the Chinese government’s attitude toward Bitcoin and cryptocurrencies has changed? What was it when you founded BTCC and then how has it evolved since then?
Bobby Lee:
Yeah. What we know in the industry is that Bitcoin is actually truly a sort of monetary financial instrument. The reason is because it has the properties of money, it has the properties of a store value. However, for the first time in history we have a monetary money instrument that is not actually issued and controlled by government. Though gold is decentralized, but eventually governments co-opted it and used it as a base of money, so coinage and minting gold coins back for centuries, right? Where today Bitcoin is still untouched by government in the sense that no government authorities have actually recognized Bitcoin as money and no one so far expressed willingness to do so. So, Bitcoin stands unique in that position.
This also says that central banks around the world are still refusing to acknowledge that Bitcoin is money or Bitcoin is at the same level as what we call the fiat currencies. And in terms of China, as with many other countries, in the early days in 2011, 2013 it wasn’t even on the radar, it’s just this brand new sort of geek thing on the Internet pretending to be money when it has no legal status. So, that was the situation up through early 2013, and by the end of 2013 the PBOC got attention of Bitcoin, and that’s when the first sort of regulatory inklings came out, and in December essentially stated that Bitcoin is actually a virtual good, and thus so people are allowed to own it, people are allowed to trade it, websites are allowed to offer exchange services such as BTC China, BTCC. However, because it’s only a virtual good and not actually a monetary instrument, all existing financial institutions such as banks, third-party payment companies, insurance companies, and so on, they are not allowed to touch Bitcoin. So that was the sort edict ruling issued in December 5 of 2013. So, for the last four years we’ve been running under that guideline. So, unfortunately, the PBOC still has not issued any new update to that ruling, since December, 2013.
Laura Shin:
Okay. But earlier this year there were certain steps that they took, I guess regulators talked to several of the exchanges about I think it was maybe KYC AML type things which are know your customer, anti-money laundering processes, and maybe the fact that you guys were doing no-fee trading, what were some of the talks that you had with them?
Bobby Lee:
Yeah. I can’t go into the details, those were all privileged conversations. But it’s true that early this year in January the PBOC central bank, they had officials come visit us and many other exchanges. There’s started to be a renewed interest in the topic of Bitcoin and potentially regulating Bitcoin. So, obviously like you mentioned, the main concern was about the financial risks of trading and Bitcoin, if prices go up people can make money or people can lose money right, if prices come down, so there’s a lot of concern there.
There’s also concern for money laundering, so want to make sure all the exchanges put in the right best practices to prevent money laundering, so a lot of anti-money laundering rules to make sure those are followed, as well as know your customer, the idea is to make sure the customers are legitimate and trading on their own names, and there’s not to have fraudulent activities or any sort of other imposters and stuff like that. So, these are real legitimate issues that the banking system has faced over its many decades of operating, and likewise Bitcoin exchanges need to improve these areas. So, we’ve been working closely with the central bank to try to essentially elevate our service offering to the level that we need to, given the importance of Bitcoin.
Laura Shin:
What are some of the changes that BTCC has instituted, as well as some of the other bigger exchanges?
Bobby Lee:
Yeah. So, earlier this year in 2017, we stopped offering margin trading services, we also eliminated the zero fees, the zero trading commissions, we re-instituted a trading commission on all buy sell. The idea was to sort of calm down the market a little bit, I think it was a little bit overheated maybe at the end of last year. So, these were moves that we took voluntarily to try to appease the situation a little bit.
Laura Shin:
And how have Chinese cryptotraders and investors, how have they changed their behavior since then?
Bobby Lee:
Well, it’s a very prominent change, which is the trading volumes have come down a lot. I mean essentially, we had a lot of inflated volumes from zero-fee trading, and that all went away, a lot of wash trading, that all went away. So, now I would say the market is quite subdued, the trading market, the exchange trading market. Now what’s interesting is now it’s developed into two markets, there’s the on-exchange market in China and then separately there’s the OTC market, so the prices have actually diverged so that’s an interesting phenomenon. So the on-exchange market, the Bitcoin price is lower, and then the OTC market which is the so-called off exchange over the counter market where people buy sell themselves on the street without going through a third-party exchange, that price is actually much higher, so there’s some…
Laura Shin:
Why is that?
Bobby Lee:
It’s market dynamics, I would say. The on-exchange market has requirements ______00:39:00 by the PBOC, including the KYC, all that stuff because there’s more overhead, so there’s a discount on the price due to the fear of burden, if you will, there’s some extra burden, extra inconvenience, maybe extra concerns, whereas in the OTC market it’s just two individuals, it’s a peer-to-peer change, right? It’s just you, one person on a street corner selling Bitcoins to another person walking up to him on the street corner, and they could exchange in cash or whatever currency, whatever they want, it’s just consent amongst two adults, right? So, that price apparently is much higher than the market piece, so that price is actually more closer to the US dollar price in Bitcoin as well. So, the so-called global international price.
Laura Shin:
Something that I find interesting about this conversation is that I don’t remember was it a year ago, or I think it was a year ago I did a story where I interviewed you about some of the cultural differences between how Chinese investors approach Bitcoin versus how you see people approaching it here in the US?
Bobby Lee:
Yes.
Laura Shin:
Can you describe what those differences are, and kind of like what they were historically versus what they are now? Like do you think maybe the differences are less stark now?
Bobby Lee:
I don’t exactly recall what I told you specifically, but I’ll say this. Bitcoin is a global thing, and Bitcoin itself is a big invention, Bitcoin, okay? Because it’s a big invention, it’s due to its complexities, let’s put it that way. Bitcoin has a lot of things in it, it’s got a lot of things, a lot of factors in it, that’s why it’s so complex that’s why such a small portion of the world actually know about Bitcoin and understand Bitcoin. It’s very, very complicated, and because it’s global, we have countries all over the world, all these cultures and people all over the world, it turns out different people see Bitcoin differently, meaning that some cultures value Bitcoin for its store value, other people value it for being digital, some cultures value it for being a payment system, and so on and so forth.
Laura Shin:
How do you feel the Chinese view it as opposed to Westerners?
Bobby Lee:
Yeah. Yeah. Westerners may view it as a payment system, but Chinese people, they truly see it as a monetary instrument, as a store value, right. We see it as a system where it has a 24/7, 24 hours a day, seven days a week sort of trading. Nothing in the world trades, I mean except for I think only Forex, foreign and currency exchanges trades 24/7, so Chinese people see it much more like Forex.
Laura Shin:
And so what behaviors do they exhibit that are different from what you see Westerners exhibiting?
Bobby Lee:
Yeah. Because the Chinese people see it as Forex, and because China is unique in the world to have actually a capital control system on the Renminbi, they see Bitcoin as sort of the vent to escape the capital control system. But the vent goes both ways, right? It’s both to escape the money and also to inflow the money. That’s why there’s huge potential, that’s why I always get asked the question is Bitcoin being used to evade capital controls, right? So, because of that it’s also a store of value. So, people in China, just like the rest of the world, we’ve seen depreciation of a monetary system in terms of purchasing power, we’ve seen the loss of purchasing power in our currencies, we’ve seen huge ramp-up of money printing over the last eight years. That’s why if you think about why is Bitcoin moderately successful today, why is Bitcoin even a topic today, it’s precisely to mirror the failures and deficiencies of the government-issued monetary system, which is the US dollar, the paper money, right?
So, I know this is sort of getting into a philosophical discussion, but the Chinese people see it that way, they see it fundamentally that oh, Bitcoin is an escape. It’s sort of like the Exit sign, it’s sort of like the thing that you can use it to leave the existing system which has its problems. So that’s why it’s been ______00:43:29 that way. So, in China, for example, something practical, practically no one uses Bitcoin to pay for things in China, it’s not even used as a payment system, right? And the other reason for it is China actually has very mature payments systems like AliPay and now WeChat Pay. So, China has very mature payment systems, even though Visa and Mastercard is not established in China, but China has China UnionPay, the credit card standard here.
Laura Shin:
One other thing that I think has been influenced a little bit by cultural issues between China and the West is that there’s this stalemate that we’ve seen in Bitcoin over how best to scale the network. And correct me if you disagree, but the miners who are largely Chinese, not all but largely, and then the core developers who are largely Western, I think they play the biggest role here in this decision over how to grow the network. Do you think that there are cultural differences that are influencing this decision-making process and making it difficult for them to get past this impasse?
Bobby Lee:
Well, I don’t want to pinpoint the cultural differences. I think it’s natural that whenever there’s a contentious issue that there are multiple sides and multiple factions. I think just by definition, anything that has multiple factions is contentious, so for anything that’s important enough, inevitably you reach a point in time where there will be an issue that’s important and two large populations take opposite viewpoints, right, and this is just human nature, it’s nothing to do with culture, it’s nothing to do with language, or nothing to do with east versus west, it could be north versus south, it could be whatever, and it’s happened in Bitcoin, and in many ways it’s a great thing, right, because Bitcoin has grown up to be large enough to have an issue that’s contentious.
So, I see the positive aspects of it, and now the question is well what’s going to happen? Well, the other single best thing about Bitcoin is no one explicitly has power, there’s no single person, no single group organizationally that explicitly has power, so the so-called checks and balances, the concept of checks and balances are inherently built into the Bitcoin system. So, like you said, there’s the miners, there’s developers, there’s exchange operators, there are the users, there are multiple, multiple stakeholders and factions if you will, and no one single group of people have ultimate power over Bitcoin. And if there’s a stalemate there’s a stalemate, that means Bitcoin won’t change, and that’s also the strength of it, that Bitcoin is not easily changeable.
Laura Shin:
Another blockchain network that’s generated a lot of interest in the West is Ethereum, but I believe that trading of its currency ether is pretty low in China. What are Chinese attitudes towards Ethereum?
Bobby Lee:
I can’t speak for all of China in terms of attitude towards Ethereum, but I can tell you my personal views is that it’s this power loss situation. It’s basically the power loss situation, I don’t know the exact formal terminology, it’s basically Bitcoin is hard enough, okay, let me just put it out there, Bitcoin is hard enough, it’s complicated enough, it’s really esoteric already when we talk about the real world, the common world, the common society, okay, Bitcoin is just way esoteric. So, what I’ve dedicated my life over the last few years is to promote and advocate for Bitcoin, it’s a tough enough job, and it turns out Ethereum is just one of many other cryptocurrencies that came after Bitcoin, and we were talking about there’s Litecoin, there’s Dogecoin, there’s Ethereum, there’s a whole bunch, Ripple and a whole bunch of other, there’s hundreds, literally hundreds of these cryptocurrencies that came after Bitcoin, and some of them are popular like Ethereum, there’s a few more that are quite popular. But for me, it’s like I want to spend time and make Bitcoin successful first, and it’s only when Bitcoin is mainstream that the other coins have a chance, that’s my perspective. So, this could also explain why for Chinese people the majority of interest and attention so far has been on Bitcoin. And there are attention and trades in these other coins, but the reality is that there’s a lot of other pump and dump multilevel marketing schemes on these other Allcoins. So, it gives the whole Allcoin category a bad reputation.
Laura Shin:
You’re a board member of the Bitcoin Foundation, and it’s had some stumbles over the years, in 2015 it almost disbanded, the money was mismanaged, what has it been doing since then?
Bobby Lee:
Yeah, Bitcoin Foundation is interesting. I joined I forgot, I think it was 2014, yeah, as a board member. It had an interesting start, it was founded by the early people in Bitcoin, and many of them…well okay, I don’t want to go and dig into the past, but the point is that there has been some concerns from the public about the early people in Bitcoin Foundation. So, today we have a healthy board of I think it was six or seven board members, and it’s a new group of people. Today to be honest, we’re trying to find the right bearing, find our bearing in terms of how to contribute and help. What we know is we as the Bitcoin Foundation, we’re focused on big coin.
I think over the last year we see a lot of industry and society efforts have put more attention on blockchain, there’s a lot of hype around the word blockchain. We have decided to stay true to the core, and to promote Bitcoin, Bitcoin the cryptocurrency itself, Bitcoin the global decentralized digital currency. So, we’re making an effort to do that, and obviously where there’s funding, where there’s support, ______00:49:33 are challenges, but in the end I think we have a good group of people who are behind it, and we’re going to try to make a difference in this world, especially in these challenging times with block size debates, with the government regulatory stuff, so it’s never a boring day in the Bitcoin space.
Laura Shin:
So, speaking of it never being a boring day, what are some developments that you expect to see in cryptocurrency this year?
Bobby Lee:
This year I’m looking for more and more adoption and understanding of Bitcoin. Bitcoin reached 20 billion dollars in circulation value, what they call market cap, this year, I think it’s a huge accomplishment. I think the good thing is it’s a one-way street, and I truly think that, meaning that the adoption, the understanding that Bitcoin’s a one-way street, meaning once you know something you cannot ever unknow it. So, every day that goes on, every day with more newspaper and media coverage, with more podcasts spreading out, more and more people are learning about the concept of a digital decentralized cryptocurrency, and that’s what Bitcoin is. And when more people learn about it, they won’t immediately buy into it, right, obviously it takes some time to digest it, for me it took two years, it took a good two years for me to digest and understand Bitcoin, for me to dip my toes into it in any meaningful way. So, for many people if it’s not two years it’s at least six months or three months, so with a larger and larger population, Bitcoin and data currencies will become mainstream. It might take a generation. Certainly, the millennials, for them Bitcoin and digital currencies is natural, it’s completely natural, they just don’t understand why gold is valuable. For them, digital currencies will be a completely natural thing, so for that I’m very, very excited.
We are on a multi-decade mission, right? Bitcoin’s going to keep being issued for the next 130 years to reach the 21 million target amount, so we’re only at 16 million, it’s going up pretty fast, but it’s going to slow down very fast as well. So, today we’re seeing only 1,800 Bitcoins being issued per day, that’s a very, very small amount, that’s roughly a little bit over 2 million dollars in new excess Bitcoin value added to the world. So that means the world today is handling over 6, 700 million dollars of net new inflow, that’s a very small amount for a huge, huge concept of a decentralized digital currency, the equivalent amount for gold is in the billions, right? So, for that I’m excited for the continued increase in awareness over the coming year, and with awareness comes price appreciation, I think it’s a direct correlation.
Laura Shin:
Great. Well thanks so much for coming on the show. How can our listeners find out more about you and BTCC?
Bobby Lee:
So, come to our website btcc.com.
Laura Shin:
Thanks for joining us today.
Bobby Lee:
And for all the listeners out there who try Mobi we’re going to give you a free Visa debit card, you could just order it with Mobi and then you can spend money anywhere in the world by using the Visa debit card, you could even get cash at the ATMs, so that’s an amazing thing about Mobi, okay? Thank you, Laura.
Laura Shin:
Interesting. Thanks.
Bobby Lee:
Been a lot of fun talking to you on this podcast.
Laura Shin:
Yeah, yeah, same here. If you’re interested in learning more about Bobby, check out the show notes which are available on my Forbes page, forbes.com/sites/LauraShin. Thanks so much for tuning in to Unchained, which comes out every other Tuesday. Please share the podcast with friends and on social media, and please remember to review, rate, and subscribe to it in iTunes or your preferred platform. Thanks again for listening.
