【Solution】Bitcoin was "killed"

Nakamoto 2025-10-14 10:53 13790人围观 BTC

According to multiple financial media reports, Chinese regulatory authorities require domestic Bitcoin exchanges to formulate a risk-free liquidation plan and shut down before the end of September.

At present, among the three major domestic Bitcoin trading platforms, "Bitcoin China" and "Weibit" have officially announced that they will close their trading platforms. Bitcoin trading, which has been booming all the way, has finally pressed the pause button in China.

However, calm down and think about it. From the public trading in April 2010 to the rise in China's investment circle in the past two years, why did the regulatory authorities suddenly press the pause button at this time point? How should we understand these new financial concepts?

Popularity

Yesterday, the China Internet Finance Association issued the "Tips on Preventing the Risks of Bitcoin and Other So-called "Virtual Currencies", pointing out that the Bitcoin trading platform has an expanded number of stakeholders and a strong speculative atmosphere, and is a tool for illegal and criminal activities such as money laundering, drug trafficking, smuggling, and illegal fund-raising.； Various so-called "coin" trading platforms have no basis for legal establishment in our country.

At the same time, the price of Bitcoin fell from its highs. According to Reuters, since "Bitcoin China" announced that it would stop trading at the end of this month, the price of Bitcoin has fallen sharply by 11.3% to $3,426.92. This is also Bitcoin’s seventh consecutive day of decline, making it its longest decline in a year.

Tracing back to its roots, how did Bitcoin become popular?

This has to go back to the 2008 financial crisis. After the crisis, the United States implemented a quantitative easing (Quantitative Easing) monetary policy and continuously injected large amounts of currency into the market to stimulate economic development. This led to a sharp depreciation of the US dollar, followed by major central banks around the world, which further intensified currency depreciation. People began to have deep doubts about the government's monopoly on currency issuance and currency credit.

At this time, Bitcoin's appearance has a bit of "its own aura." As the world's first virtual currency, Bitcoin has several major characteristics: anonymity, decentralization, non-tampering, non-traceability, cross-border flow, etc. In addition, the developers claim that its total quantity is limited (21 million) and its output is slowing down.

These characteristics undoubtedly hit the excitement point of those liberals and anarchists. They believe that virtual currency can not only make up for the natural shortcomings of legal currency, but also avoid supervision and conduct "underground" and cross-border capital transactions, so it must be vigorously promoted.

In the past few years, its momentum has become even more overwhelming. At its peak, its value increased by 5 million times compared to 7 years ago. Participants quickly spread from professional niches to the general public. There was even an argument in China that "stock and real estate speculation is not as good as currency speculation".

At the same time, a large number of "virtual currencies" followed the trend and rose in turn. Since 2017, the price of Litecoin has increased by 476%, the price of Ripple has increased by 54 times, and the price of Ethereum has increased by 13 times.

So popular, with the word "coin" in its name, can virtual currency really be as good as legal currency as those liberals want?

nature

Putting aside fancy concepts, we can understand virtual currencies such as Bitcoin by comparing them with the basic functions of legal tender.

As a general equivalent, the basic functions of currency are: value scale, means of circulation, means of payment, store of value, world currency, etc. Let’s look at it one by one:

First of all, virtual currencies that have skyrocketed and plummeted lack a clear value basis, making it difficult to function as a measure of value and a means of circulation, and ultimately can only become a tool for speculation.

From the perspective of currency credit, sovereign countries such as China and the United States rely on standards such as national credit and gold reserves to issue currencies, while the "credit" basis of virtual currencies is mathematical algorithms.

what does that mean? If the algorithm of today's coin is strict, then the security of this coin may be higher. If the algorithm of that coin tomorrow has loopholes or is broken by hackers, it is very likely that investors' assets will be damaged. In fact, in the currency circle, it is common for Bitcoins to be stolen, so its storage function cannot be realized.

In addition, new algorithms are emerging one after another, and so are new virtual currencies. So how are these virtual currencies exchanged between virtual currencies and legal currencies? Obviously, there is no good solution yet.

The more serious problem is that when there are more types of currencies, transaction costs will increase. The anonymity and non-traceability of virtual currencies will make it more difficult to monitor monetary policy. In this way, unregulated virtual currencies can easily become a tool for cross-border money laundering.

How can such a currency be called legal tender?

In fact, as early as 2013, the People's Bank of China specified that Bitcoin is an "online virtual commodity" and not a legal tender.

Recently, Li Dongrong, former deputy governor of the Central Bank of China and current president of the China Mutual Finance Association, also pointed out: “Virtual currencies do not have monetary attributes such as legality and compulsory nature. It cannot be used as a measure of value or a means of payment. ”And, he said, there is solid evidence that Bitcoin and its platform are being exploited for illegal activity.

Chaos

Since it is just a virtual currency, why does the central bank pay so much attention to it and take such harsh measures?

The reason is simple. Bitcoin is increasingly becoming an "accomplice" in various illegal and criminal activities, lurking social risks.

In fact, in the "Dark Web" world, which is filled with all kinds of serious illegal and criminal activities, Bitcoin is becoming popular as the main payment tool. These illegal activities include: smuggling, drug trafficking, arms, pornography, assassination, etc.

A typical case is the Silk Road website, which sells drugs through the "dark web" and relies entirely on Bitcoin for transactions. The FBI banned the Silk Road website in 2013 and version 2.0 again in 2014, but similar websites still emerge one after another.

in the country, public investors face not only illegal crimes and speculative risks, but also risks brought by trading platforms. Recently, the Internet Finance Association pointed out in a risk warning that various so-called "coin" trading platforms have no basis for legal establishment in my country.

In China, 98% of Bitcoin transactions are conducted through Bitcoin trading platforms.

But these trading platforms are risky. One situation is absconding with money. For example, in 2013, the domestic Bitcoin trading platform GBL suddenly ran away on the grounds of being hacked, and users lost more than 20 million yuan.

Another situation is that network security and risk prevention and control are not in place. In 2016, approximately US$72 million in Bitcoins from Bitfinex, a Hong Kong Bitcoin trading platform, were stolen, but the final loss was shared equally among users.

In addition, the Bitcoin trading platform has the functions of both information intermediary and transaction intermediary, providing information and transaction convenience for speculation and trading activities, and is also an important reason for Bitcoin market risks.

departure

What kind of currency and what kind of monetary environment do we need?

Central Bank Governor Zhou Xiaochuan’s speech on digital currency is worth thinking about. He said: “Technologies such as digital assets and blockchain will have impacts that are not easy to predict, and problems that arise during the development process need to be regulated. ”

It can be seen that the research at the central bank level is to digitize legal currency and improve the efficiency and security of the payment system through technological innovation. However, society and the public have used virtual currencies and blockchain to move towards financing and speculation.

For example, there are few blockchain technologies that can be explained clearly so far. When used as the underlying technology of virtual currency, there are many problems.

The first is cybersecurity. A friend of Uncle Dao who is engaged in blockchain research once said that people who really own Bitcoins basically do not store tokens online, but store them in hard drives. Isn't it a bit ironic that the most advanced technology is stored in the most primitive way?

Secondly, the code of Bitcoin is open source, which means that technicians can modify the code and generate a steady stream of virtual currency, which breaks through the "limited total amount" attribute of Bitcoin.

What's the key to this? The reason is that these virtual currencies can be exchanged with legal currencies. For example, Bitcoin can be exchanged for Japanese yen, and Japanese yen can be exchanged with almost all legal currencies in the world. In this case, if the number of virtual currencies increases arbitrarily, the entire international monetary system will be in chaos.

In addition, Bitcoin is prone to arbitrage. For example, you can exchange RMB for Bitcoin, then exchange Bitcoin for Japanese Yen to buy a house in Japan, even the intermediate exchange is omitted. Doesn’t this provide technical means for capital flight?

Therefore, on September 4, the central bank suspended the exchange function of the token trading platform, especially the exchange function with legal currency, which was a very precise means of attack.

In recent years, regulatory authorities have been emphasizing the need to move away from virtual reality and protect the real economy. However, both in terms of technology and development direction, virtual currencies such as Bitcoin run counter to this concept.

The recent round of supervision is not only the implementation of the spirit of the National Financial Work Conference, but also the protection of the legitimate rights and interests of investors, and the implementation of the concept of early prevention and early resolution of financial risks.

Text/Pao Ding riding an ox

Editor/Snow Mountain Fox