In Depth: Getting Bitcoin into the Hands of China’s Average Zhou

China is the second-biggest and fastest growing Bitcoin market in the world, second only to the United States. This is a relatively recent development that can be traced to Cyprus’ financial crisis in spring of this year. When Cypriots and other depositors found out their accounts would be heavily levied in exchange for a national bailout, Bitcoin became a popular loophole to evade the tax. As a result, the price of a single Bitcoin shot from about $20 to $260 in a matter of days.

The price just as quickly receded, but not before news of the virtual currency hit airwaves around the world. In China, state media tend to pay extra attention to the financial happenings of the European Union, the country’s second-largest trading partner. After a 30-minute documentary on CCTV aired and a People’s Daily article was published in May—both with relatively positive outlooks—China saw its Bitcoin market explode.

From cult to currency

ASICME founder Yang Yaorui and one of his company’s Bitcoin mining machines.

Most of the Chinese demand for Bitcoins still comes from speculative investors, though, according to the folks at ASICME, a Beijing-based Bitcoin mining equipment manufacturer. The month-old startup wants to get more people in China involved in Bitcoin, whether they be miners, consumers, or store-owners, says founder Yang Yaorui.

For Bitcoin to succeed, you have to have a lot of people using it. If all the mining is concentrated within those few people, then it’s just those few people making money, and it won’t grow. The idea of making a miner that anyone can buy and spread the coins out is actually good for the health of Bitcoin.

Assuming it becomes more popular, the price will rise and stabilize. But if average people don’t start using Bitcoin in their everyday lives, then the bubble many naysayers now predict is doomed to burst. That’s the problem Yang and his team aim to help solve. A mining system from ASICME via Taobao runs from 3,000 to 45,000 RMB (~$500-$7,500), relatively cheap compared to most other options in China. A prospective miner used to be able to soup up a desktop computer to mine Bitcoins, but increased difficulty has effectively made this method obsolete.

Mining is a complex process that I won’t bother to discuss in too much detail here. Put simply, these machines brute-force the encoded hashes containing the transaction history of every Bitcoin. It’s sort of like a lottery you can play as many times as you want and as quickly as your mining equipment can run. If you win, you earn 25 new Bitcoins. This is often done in collaborative groups called mining pools to improve the odds. The process simultaneously creates new Bitcoins and secures the entire system from fraud, such as using the same Bitcoin twice. As long as there are more legitimate miners than hackers, the miners will outpace the hackers. Currently, 11.5 million Bitcoins exist, with another 25 being added every 10 minutes or so. The most that can ever exist is 21 million, but that probably won’t be achieved until the 22nd century.

Most companies capable of making mining hardware in China keep it for themselves because they make more money mining with it than selling it. That narrows the options for buying reliable mining gear. Butterfly Labs in the US is expensive, and some customers in China reported an eight month wait before receiving their system. The top mining company in the country, run by an entity known as Fried Cat (I’m not making that up) out of Shenzhen, sells the equipment, but it’s also quite expensive. A company called Avalon used to sell mining systems but now only sells the required microchips, which come in minimum batches of 300 for a 8,000 RMB (~$13,000). They take months to arrive and you still have to solder them into actual hardware.

None of those choices are exactly viable for ASICME’s demographic: novice miners. The company says it sets its prices based on how many Bitcoins it can mine. Yang says the customer should be able to recoup his or her investment in a month (not including maintenance and electrical bills).

In addition to its hardware, ASICME is also working on a Chinese Bitcoin wallet, which was just released this week. The Android and iPhone app is free and open source, so users can verify that it’s safe. The app can be used to store Bitcoins and spend them online or in person. ASICME has no plans to monetize the app yet. Yang just wants his new business venture to be a long-term one.

Everyone else is too busy thinking how are they going to make money, but we’re busy thinking about how to get more people using Bitcoin.

Yang says his team will start working on more open-source software projects to make this a reality. He didn’t specify, but it looks like Chinese point-of-access software for vendors—effectively a Bitcoin cash register—might be in the pipeline. This, in combination with the wallet app, will hopefully allow China’s Bitcoin infrastructure to grow. At present, very few Beijing stores accept Bitcoins for physical transactions.

What about the government?

ASICME is weird.