A pile of newly minted bitcoins arranged for a photograph in Sandy, Utah, in the United States. Created four years ago by a person or group using the name Satoshi Nakamoto, bitcoins are a virtual currency that can be used to buy and sell a broad range of items - from cupcakes to electronics. People can also pay with bitcoins in various coffee shops, phone and computer stores and bookstores in big Chinese cities including Beijing and Shanghai. Provided to China Daily

 

While the debate over whether the four-year-old bitcoin is a revolutionary invention or a Ponzi scheme rages, some people are already using them to buy real things and appreciate the smooth and fast transaction process. "When you use the bitcoin payment system, it's like an online payment but it's more convenient," says Shen Yu, a 23-year-old postgraduate student who is majoring in telecommunications at a university in Beijing. With 20 bitcoins, worth 6,000 yuan ($979) at the time of payment, Shen bought a laptop from an e-commerce platform in the United States.

"When you pay with bitcoins, the transaction is fast and you don't need a foreign currency credit card such as MasterCard or Visa, which is usually required by websites that do not accept bitcoin payments," Shen says.

Most of those involved in the trading of bitcoins, known as bitcoiners, are students and information technology professionals. They favor transactions using bitcoins because they can't be bothered using complicated online payments or with currency exchanges, Shen says.

In China, acceptance of bitcoins as something valuable first became known to the public when holders of the digital currency donated the coins to the e-wallet account for the victims of the Sichuan Ya'an earthquake in April. Some online retailers selling products ranging from 3 yuan phone cases to 1,000 yuan ($163) bedding announced that they would accept payment using bitcoins. People can also pay with bitcoins in various coffee shops, phone and computer stores and bookstores in Beijing and Shanghai.

Shen's 200 bitcoins were earned through "mining", a process of intensive computer calculation based on specific cryptographic rules.

Bitcoiners make money, or bitcoins, by laboring, which is setting up a better environment for the bitcoin society through the Internet, Shen says.

Bitcoin.org, one of the most viewed websites for bitcoiners, says the currency has no intrinsic value, no real world counterpart, no guaranteed exchange rate and is not backed by precious metals. Transactions involving bitcoins rely on the good faith and credit of the issuing authority.

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Although critics say the "mining" process is virtual labor and is not productive for the real world in any way, bitcoiners see it as equivalent to the real labor of constructing the infrastructure for a currency system in the real world.

"Why do banks charge fees when you transfer money or withdraw cash and exchange currencies? Because certain infrastructures are used that cost money and when we conduct mining, we are contributing to the safety and smoothness of transactions involving bitcoins, which deserves a reward in the form of bitcoins," Shen says.

For Chang Jia, the pen name of a science fiction writer who prefers not to reveal his real name, bitcoins have already established their position as a digital currency and are accepted in many countries.

Chang sold 10 copies of his latest piece of fiction and received a total of 0.7 of a bitcoin, about 400 yuan, based on the exchange rate on May 7.

The income is just a tiny part of Chang's bitcoin deposits, which amount to about 2,000 and could have been sold for 4 million yuan when the exchange rate was at its peak.

Value fluctuation

Most of the coins were traded from "miners", the bitcoiners who earned the digital currency through "mining", Chang says, at quite a cheap price when the exchange rate was really low because the business had just started in China.

"I don't care much about how much money I can earn through trading bitcoins or how many things they can buy for me. I care more about how the system is developed and accepted by a wider audience," Chang says.

As a decentralized virtual currency that rules out the possibility of manipulation by the authorities over exchange rates, bitcoins are exposed to a fluctuation in value by speculators, especially when the current total market value is no more than $2 billion.

By May 7, 11,123,450 bitcoins had been issued. As many as 882,165 coins flew from one account to another in the 24 hours between May 6 and May 7, according to data from Mtgox.com, one of the biggest bitcoin trading platforms in the world.

The volatility of the bitcoin price is understandable because the total market value is small and it is fragile in the face of speculators when they inject big sums of money into trading. The fluctuation of the bitcoin exchange rate may be problematic to some investors or holders of bitcoins, Chang says.