Virtual currency a bit overpriced for the real world
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E-mail China Daily, November 22, 2013
Real risk
In China, when bitcoins are actually used to buy something, it's usually in coffee shops, pizza restaurants, digital appliance stores and other outlets selling low-priced products or services.
But Shenyu used bitcoins to buy a laptop from an e-commerce platform in the United States. The price was 20 bitcoins, worth 6,000 yuan at the time of payment.
"The value surge of the bitcoin has exceeded the expectations of most people. Who could have imagined that the currency could reach such a high value, while back in 2011, one bitcoin was worth less than a dollar," he said.
The bright side, he said, is the increase in value will enhance the bitcoin's acceptance among manufacturers, traders and consumers, even though its legitimacy hasn't verified by the government.
There are rising calls for governments to step up supervision of digital currencies to preclude illegal activities. These currencies, after all, operate totally outside the control of any government or central bank.
Chen Sheng, vice-president of the China Real Estate Data Academy, said a property price denominated in bitcoins is so far just an example of successful marketing. But he said that eventually, a real deal will be sealed using bitcoins.
"Only a real deal can prove the feasibility of bitcoin payments. There will be quite a few questions surrounding such a deal, for example, government recognition of it," said Chen.
Chen Ye, a Shanghai-based wealth manager at Industrial Bank Co Ltd, said it is risky to pay for an apartment with a "nonstandard" currency.
"For homebuyers, the risk lies in obtaining the invoice and receipt. As far as I know, there is no authorized receipt in China recognizing payment in bitcoins.
"For sellers, calculating and declaring income and taxes based on bitcoin payments may be something they need to figure out before they accept such payments," said Chen.
Mining for value
Usually, a bitcoin owner acquires a coin through "mining", which involves a complicated process of calculations with many partners.
"I mine a bitcoin with 10 other co-miners, I gain only 10 percent or less, so I can collect only 0.1 coin.
"If I want to collect eight coins, equivalent to about 36,000 yuan, it may take years under current mining conditions," said Shenyu.
The cost for mining a bitcoin is about $180 each at the moment, far less than what it would cost to buy one in the market, according to the current bitcoin exchange rate for the dollar.
But the complex and difficult requirements for mining mean most people can obtain bitcoins only through trading.
According to a Forbes report, the digital currency has gotten an official nod in the United States, in the form of a primer out of the Federal Reserve Bank of Chicago.
Francois R Velde, senior economist at the Chicago Fed, called the young currency a "remarkable conceptual and technical achievement, which may well be used by existing financial institutions."
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