So what's
bitcoin's future in China?
China did not ban bitcoin as such, but just certain businesses.
I think the way how people in China can buy & sell bitcoin in the future, should today's bitcoin exchanges become non-operational for legal reasons, is to
do it via an escrow platform like the european "bitcoin.de" - there is never any fiat money flowing to or from bitcoin.de.
This mode may look strange for those of you only familiar with "traditional" modes of exchanges, but bitcoin.de is in fact the second largest EUR/BTC market behind MtGox (
http://bitcoinwatch.com), and it is very usable as long as you only trade from time to time and not several times a day.
It works like this:
- Buyer and seller open a web account at bitcoin.de.
- A seller transfers some bitcoins to his online wallet at bitcoin.de.
- A seller can place a limit order for some bitcoins he wants to sell, or directly accept a buy offer from someone else.
- A buyer can place a limit order for some bitcoins he wants to buy, or directly accept a sell offer from someone else.
- If a deal is made, the seller's bitcoins get "frozen", and both buyer and seller receive an email
from bitcoin.de (and have it shown in the web browser):
- The buyer is requested to send xxx.xx units of fiat currency directly to the fiat bank account of the seller,
with a unique code in the reference field. He has to do so within [12/18/24] hours (adjusted by bitcoin.de
based on market volatility). He has to indicate in the bitcoin.de system that he has triggered the transfer
as soon as he has done so.
- The seller is asked to check his bank account and confirm reception of the fiat transfer at bitcoin.de.
- When the seller confirms receipt of the fiat money, bitcoin.de will transfer the (frozen) bitcoins to the buyer's online wallet
and the deal is concluded.
If the buyer does not transfer the fiat money within the [12/18/24] h period, he'll get a negative rating and the deal gets cancelled.
Otherwise, buyers and sellers are asked to rate each other after the deal.
Acc. to the rating system there are gold, silver and bronze users, and everyone is free to accept only users of a certain rating class. Also a personal white/blacklisting is possible.
How does bitcoin.de take commissions?
bitcoin.de takes 1% commission for each deal, so both buyer and seller contribute 0.5% (actually, from the buyer's point of view it looks like 0.50505%, see example below). It works like this example:
- Assume that the deal is about 1 BTC for 1000 fiat currency units.
- The buyer is requested to pay 995 fiat currency units to the seller (1000 - 0.5%).
- From the seller's 1 BTC, 0.01 BTC (1%) go to bitcoin.de as commission, and 0.99 BTC (1 BTC - 1%) go to the buyer.
So the deal looks like this:
- From buyer point of view, he got 0.99 BTC for 995 currency units (so he paid a price of 1005.05 fiat units per BTC (5.05% fee)
- From seller point of view: He sold 1 BTC for 995 currency units (so he sold for a rate of 995 fiat units/BTC (5.00% fee)
- From bitcoin.de point of view: They earned 0.01 BTC commission for a 1 BTC deal (1%)
Fraud prevention:
It has happened in the past that fraudulent buyers transfer the fiat money from a stolen (not their own) bank account for example by filling out money paper transfer forms from any bank and falsify the signature (banks normally do not check the hand-written signature). The seller received the money and acknowledged it and the bitcoins were credited to the buyer by bitcoin.de. Later, the fraud was detected by the 3rd person whose bank account was mis-used without his knowledge, and the fiat money transfer was reverted by the involved banks. Now the seller was left with having neither bitcoins nor fiat money.
Today bitcoin.de prevents this fraud attack by telling the seller the bank account details of the buyer! So the seller shall check if the incoming payment really origins from the correct bank account (which was formerly verified by bitcoin.de). Note that some banks do and some banks do not give their customer the information of the bank account number of the sending side for an incoming payment.
Dispute handling:
In very rare cases it may happen that the buyer says that he has transferred the money while the seller says he has never received any fiat payment, i.e. one of the two is lying. In this case bitcoin.de has to ask for proofs (scans of bank statements etc.) from both parties, or even for an authorisation to query the bank directly with regard to the particular payment. Then bitcoin.de has do decide who is telling the truth and whether or not to transfer the bitcoins from seller's to buyer's online wallet.-->
I think that a web service like bitcoin.de can be readily established for the Chinese market, either within China (if legal - maybe the new operational model of btcchina?), or otherwise in Taiwan or any other country. For this service the platform does not need to reside in China, since no fiat money transfer happens between users and this platform.
The advantages and disadvantages of this model:
(-) A little more complicated for the user
(+) User does not need to "pre-pay" fiat currency to the exchange
(-) Automated frequent intra day trading not possible - all trading requires *human* interaction
(+) The previous point also has it's pros because market manipulations by the exchange (who may exploit insider knowledge of the order book) or "stop loss avalanches" are avoided, potentially yielding more stable exchange rates...
(+) This mode does not require fiat money flows between user and the platform, so it could well reside outside China, as long as it is trusted not to embezzle online wallets' bitcoins and as long as it is trusted to do good escrow service on the users' bitcoins funds.
So the future is not as dark as one may think.
Does this make sense what I wrote here?
