Bobby Lee is the CEO of BTC China, a three year old exchange which he purchased in 2013. Following his purchase, Mr. Lee led a brisk expansion in market share that coincided with rising Bitcoin prices in the fourth quarter of the year. December 2013 saw BTC China leading the world’s Bitcoin exchanges in volume.
While trading activity has dropped off since then (BTC China is currently ranked 3rd in worldwide volume), Mr. Lee has continued to focus on growing and diversifying his company. 2014 has seen a number of impressive features rolled out including an HTML5 wallet called Picasso, the expansion of international deposits to include USD and HKD, and the debut of an official desktop client BTC China Trader. In May of 2014 he was elected to the Bitcoin Foundation’s board of directors.
I contacted Mr. Lee hoping to gain insights about the state of Bitcoin in China, his company’s direction for the future, and what he thinks about the Bitcoin ecosystem in general. He was kind enough to take the time for a phone conversation which I have transcribed below.
Bitcoin Magazine: In an interview with Forbes last year you said you were looking for more involvement from the Chinese government. That happened in December, and had a cooling effect on the overall Bitcoin market. Are you still looking for regulation from China? And if so, what kind of regulation are you looking for?
Bobby Lee: There are two ways to answer that question. The first, is by saying what I would like to see happen. The other is what I expect to happen as a smart, educated person. Like an educated guess. So let’s start with an educated guess and then go back to what I would like to see happen.
Here’s the educated guess. For now, regulation of Bitcoin in China was laid out in the December 5th memo. The powers [th]at be have spoken. They don’t tend to speak often and they’ve spoken only once, and that was on December 5th. All the other nuances and changes over the past six to eight months have been verbal adjustments, they haven’t been formal regulation. It’s effectively course adjustments but they don’t call it that. So as an educated guess I don’t think there will be any significant changes in the near term, unless there are larger changes globally, either related or not related to large changes in price. In other words if Bitcoin, the market itself stays stable over the next three, six, nine, twelve months, I don’t expect there to be any new regulation from China.
There are two exceptions to that. If New York state or the United States have some new heavy handed regulation then China might increase pace and put out some things to more closely emulate what’s going on in the international community. That would be exception number one. The BitLicense and how soon it gets formalized and how widely it gets adopted, China might take inspiration from that.
The second exception would be, in absence of the first exception, if there was some dramatic increase in price, let’s say another 10x, in which case China might come out and do something more regardless of what the rest of the world is doing or not doing.
Now, what I personally would prefer to see, and this is not a China specific statement, this is a global statement, is more governments around the world start treating Bitcoin as seriously as they take it. What I mean by treating it is treating it by law, and what I mean by taking it is how much they’re paying attention to it. I say this with the intent that governments around the world, many governments, many central banks, are looking seriously at Bitcoin. And the reason is it’s not a toy. It’s not Monopoly money. If it were Monopoly money, if it were just coupons at a shopping mart, if it were just tickets and tokens at an amusement park or arcade game, then governments and central banks and serious people with suits on and ties and jackets, they would not be paying so much attention to it.
But yet what we see time and time again over the last six months to a year is that they’ve been afraid to acknowledge it for what it is. They’ve been in denial so to speak in terms of regulation. They have not been, in terms of law, they have not been setting the right kinds of laws and regulations to treat it as an adult. I would prefer governments to take it more seriously and give it more legitimate legal status as “money”. Freely circulated by people.
BM: In China you cannot buy or sell goods with Bitcoin, correct?
BL: So this is where it gets fuzzy. Different people will tell you different things and the reason is that there hasn’t been black and white law about Bitcoin. The December 5th regulation, if you will, is a piece of regulation issued by the central bank of the People’s Bank of China, and it governs what the status is of Bitcoin according to the central bank’s perspective. My paraphrase is that it’s been treated as a digital commodity, and likewise it is not a formal currency by that standard.
But yet, if it is a commodity, it’s a private good a private asset that people have the freedom to own and also buy, sell, or trade it. This digital asset, this digital good. But what’s curious is that the same regulation also talks about forbidding banks and financial institutions and payment companies from dealing with Bitcoin. Now that side is perfectly fair because the central bank does have regulatory authority over those kinds of businesses, specifically banks, financial institutions, and payment companies. So these three kids if you will, these three examples are well regulated under the central bank. And when the central bank says something along the lines of “bitcoin cannot be used for payment” or “goods and services cannot be priced in bitcoin” which was also paraphrased in the regulation, now the difficulty is that there’s some suggestive interpretation.
The reason I say that is because it was clear cut that these businesses could not interact with Bitcoin, however if Bitcoin was truly just a digital asset, and people on the street, at a restaurant, at a shopping mall decide to barter and trade for things, that’s not payment per-se because payment involves money and Bitcoin is not money under the prior definition. And the central bank does not govern commercial transactions that don’t deal with money. They don’t govern barter, especially not restaurant or coffee shop transactions. Something like Ministry of Commerce would cover that. So it is slightly in a gray area.
BM: In contrast to how “gray” this regulation seems to be, do you think the Chinese government ever considered the option of completely banning Bitcoin use in the country? Does it seem like they consider it a threat?
BL: They don’t see it as a threat, per se. The regulation came out and it was never because Bitcoin was perceived as a threat. The notion that Bitcoin can become a threat is mostly the Bitcoiners are thinking that might be the true reasoning. There’s no evidence that anyone who’s actually done the deed of the regulation has done it because of the notion of Bitcoin was a threat to China or the economy here.
The reason has more to do with stability, with finances, with preventing another bubble of an asset class.
BM: Do you think China will ever ban bitcoin?
BL: That question is politically sensitive because there are a lot of questions about whether the Chinese government can or cannot, whether they should or should not, whether it’s right or not right to do so. And without getting into the weeds I would say: banning Bitcoin is a legal option but, as adults, we know that the law is one thing and how it is enforced is totally different. Countries can ban chewing gum, but the question is does it actually rule out all forms of chewing gum and all activities of chewing gum. Not necessarily.
BM: In the interview with Forbes you described yourself as a “global citizen”. As the world becomes more interconnected via the internet, do you see Bitcoin becoming a global currency?
BL: So there’s the word currency and then there’s the word money. And the reason I bring up these two words is because I’m a layman not a lawyer, but my layman understanding is that money is more colloquial whereas currency has legal definition and strict definition of whether something is a currency or is not a currency.
In terms of treating Bitcoin as a currency, that will be up to countries individually. As of today, I don’t think any country has recognized Bitcoin as currency. However, one day that’s bound to happen. During my lifetime, hopefully/cross my fingers, one country around the world or several will recognize Bitcoin as currency. That doesn’t mean to say that the elite countries will, but at least some will.
The second way to answer that question though is to answer if countries will be willing to allow Bitcoin to transact and flow as money, and that answer is surely yes. More and more companies globally will allow for Bitcoin to be utilized as “money”. And then you can pay for things and barter for things. It’s already happening, you live near Seattle, I’m sure you can find a handful of coffee shops or venues that accept Bitcoin. In that sense it’s being utilized as money.
I’ve been to other countries around the world, countries in Europe where merchants accept Bitcoin, and I’m sure it’s being done in Africa, so it’s a matter of time. It’s happening already.
BM: BTC China recently began accepting deposits in USD and HKD. Is this part of a strategy to expand your business globally?
BL: I’m going to be a bit careful when I answer this question, because I don’t want to give you wrong information or mislead the public. I recognize that sometimes things I say get taken very seriously. So here’s how I would say it.
We are certainly looking at how to expand the business beyond just China, however that’s not to say that we want global domination or that we want to launch international expansion plans to five continents in thirty days. It’s two different things. We have some intent to try that, but we’re not launching a full-fledged international expansion, so that’s sort of the situation right now. And I am sincere when I say that. So in other words, we welcome international customers to an extent and we are showing our actions by allowing for USD and HKD deposits and withdrawals through one of our affiliate companies. For the record it is not directly done with the PRC company because there are some legal restriction and so on and so forth.
BM: BTC China recently released Picasso, a hosted HTML5 wallet. What are your hopes for this product and how does it improve over existing hosted wallets?
BL: There’ve been many hosted wallets before Picasso; this is more of a trial for us. Adventuring into new territory so to speak, we’re eager to innovate in this area. We’re the first to come up with the concept of a mobile ATM where people can sell Bitcoins on the go, person-to-person, on-demand, operating as their own ATM operator without the hardware component.
We are using HTML5 which avoids all the app store controversy and we’re working on improving it day by day. I’m sure you’ve seen a few quirks and bugs in the past. We were also intending for it to be more of a worldwide product with multiple languages and with support for multiple currencies in terms of the display and the ATM sell feature. So we are venturing into this new area to innovate and this is a, technically, hosted wallet where we as the company hold the private keys for our users, and our users can transact their Bitcoin once they’re totally verified by us and authenticated. Then we allow you to dictate how you move the coins to and from people.
What I would say is that this a very mobile specific interface. There are only a few other products like it out there. Most mobile wallets that are popular are what we call the traditional wallets where the private keys are actually kept and stored within the device. So this is a hosted web wallet, a mobile wallet, so that’s one difference.
When things are fine it’s all the same for the user, but when things go wrong like if the mobile device is lost stolen or hacked, that’s when the difference shines in terms of are the bitcoins lost or not. If they’re held by the company, in that case the users don’t lose the bitcoins. But they have to trust us as a company to manage that for them.
BM: There are competing wallets that generate a passphrase so the user can recover their coins in the chance something happens with the parent company. Have you thought about allowing that feature?
BL: We’ve thought about it, but that isn’t to say we plan to do anything or operate along those lines. To explain the difference, a hosted wallet is like a debit card. You have access to funds when the debit card is authenticated by use of a PIN code, whereas a non hosted wallet is like cash. You put some money in your wallet and the money is with you. You get robbed, you lose your wallet, then the bank has no liability. Whereas if you lose your debit card, you report it lost, then you won’t lose money per se. You just get a new wallet and set up a new debit card. So that’s different and I think people in society appreciate both aspects. Some people appreciate holding cash in their wallet and some people appreciate holding debit cards and credit cards in their wallet. What we offer with Picasso is more in line with the card-based example. Your now asking if we’ve thought about offering things along the line of cash, and we’ve thought about it but we don’t have any product or service right now at this point.
In that direction though, people have talked a lot about multi-sig and, you know, I don’t want to poo-poo multi-sig, but I mean people who are advocates of multi-sig are still overlooking one problem.
This is, when you have two out of three, or let’s say three out of five, you think you’re safe because it’s hard for the hacker to get access to multiple keys, but the reality is that it’s not that hard because when they get access to one of them, they won’t tell you that they’ve got access to one, so you should now rotate your keys and move into a different set. Most of the time what happens is they get access to one of the three keys and they wait and keep hacking you until they get the second. And as soon as they get a second, poof, your money’s gone. And if that happens, if your money’s gone, how is that different than one out of one? From a security perspective.
BM: The argument would be that the hacker had to go through two different steps instead of one. Of course, however, you are also right that the more security steps you go through, the more points of failure are created. It seems to be an ongoing debate over which is better, going through all these steps to create a wallet securely or simplifying the process to reduce the risk of making a mistake along the way.
BL: Exactly. This is why the Bitcoin industry, despite the progress we’ve made over the last couple of years, we’re still so young and immature. For this thing to take off and become mainstream and cross the chasm and become ubiquitous, we are so so early. I’m one of the biggest supporters and I admit that we’re just not there yet.
BM: Lately there has been some backlash in the community against the Bitcoin Foundation, with the logic being that if we are supporting a decentralized currency, why have a centralized organization try to run the community? Since you are a board member, I wanted to ask, why do you think we need a Bitcoin Foundation?
BL: I’ll say this. I fully appreciate the decentralized nature of Bitcoin, that’s why we’re all in this industry, in this revolution. I may be biased but we don’t need the Bitcoin Foundation to run Bitcoin. The Bitcoin Foundation is centralized, I do acknowledge that. It’s trying [its] best to be a representative, democratic sort-of organization by having elections and having board members. But in the end it’s an executive team that has to hire people to get things done. So I recognize it as a centralized entity, but it’s not the gatekeeper of Bitcoin. It’s viewed better as a group of people, group of members who come together with a common goal and agenda, and a common sort of direction for how they want to help Bitcoin grow, help promote Bitcoin, in the face of challenges and push-backs from governments and other aspects of society. So in other words, even in a perfectly decentralized situation, right, where you pick gold or something else, some people will get together who have common goals and ideas and they should be free to do so.
For example you know that gold is decentralized, and let’s say you and I are big fans of gold then we get together and we form a committee and we say “hey, let’s do something together and let’s put our dollars to work and let’s make something happen. Let’s create an agenda and push gold and market it in some area.” It could be as ludicrous as putting gold on the moon or using gold in more industries, whatever. That’s what Bitcoin Foundation is. It was never intended to be the guardian or the gatekeeper of Bitcoin. It was more about people [who] have come together over the years, became members, both personal memberships as well as industry, and they share a common (pause), they try and share a common vision and agenda that they push along by voting with their feet and dollars, and saying “let’s put the foundation in charge, let’s have it go in this direction.” And some of that means talking to regulators, working on technical progress, and paying developers to do things. But by no means is it the only way to advance Bitcoin.
BM: The best argument I have heard against people complaining about the Bitcoin Foundation is that there is nobody forcing the community to support them.
BL: Yeah, it’s like, we know water is decentralized, we know every country around the world has water, rainfall, lakes, oceans and rivers. And what if you and I say hey let’s get together and push for an agenda to have clean water. Let’s try to bring water to the rest of society, let them have clean water. So we create standards for what is clean water, what the pH level should be, what kind of pollutant level. I mean, that’s fine right? We’re not saying everybody has to drink water that’s approved by the Clean Water Association. It’s just that people with a good will want to do something better. And that’s what the Bitcoin Foundation is.
BM: What do you think is the greatest threat to Bitcoin?
BL: Great question, thank you for giving me an opportunity to answer this.
Bitcoin is what people want to make of it. And I think the greatest threat to Bitcoin is apathy. If people, I mean broadly people, humanity, if they give up on Bitcoin then Bitcoin will die. That’s what it comes down to. If we give up, if we as human people, as citizens of the world, if we individually or collectively as a group give up on Bitcoin then Bitcoin will die. Period. And that’s at the most core.
And if you peel back a layer then, and ask what should Bitcoin haters do? To be successful as a Bitcoin hater you should then encourage everyone to give up on Bitcoin. And we’ve seen signs of that. When people spread Fear, Uncertainty, Doubt, when countries and governments and central banks spread FUD about Bitcoin, there’s a clear agenda, there’s a clear goal which is to get others to lose interest and give up on Bitcoin. And that’s the biggest threat.
So going back to what we do at the Bitcoin Foundation, we want to prevent that from happening. We want to prevent people from giving up on Bitcoin even though it’s still in its nascent stage. We want to encourage more adoption and we want to encourage people to see the light at the end of the tunnel that Bitcoin does have a future despite its infancy. And that’s what the foundation is going to do. And even if there is no foundation that’s what Bitcoin people want to do. We want to educate. But it’s about hope as well. Hope, education, and there can be a solution.
BM: When I view that hope aspect it’s part of my (admittedly optimistic) belief that this common technology can bring our culturally diverse societies together into a more unified global culture. Do you share that sentiment?
BL: Absolutely. I fully believe with you that Bitcoin for the first time is an empowering human and technology development where for the first time we allow for people to electronically send money anywhere in the world. From person to person. And what I really mean is from person to person with no intermediary. That is a huge huge step in humanity’s progress. We’re talking about sending real value.
Like you and I are on the phone right now, all we’re doing is we’re sending information, we’re communicating. I know information is valuable but we’re not sending something that’s uniquely valuable. I’m not sending you a crate of bananas. If I could teleport and send you a crate of bananas or a crate of Hershey’s chocolate bars that’s like teleportation, that’s awesome right? But if it’s just information, it’s valuable but you can replicate it, it’s easily copyable. It’s valuable to you but once I give it to you I don’t lose it.
There’s a difference between giving you something where once I give it to you, you have it, I don’t have it. Whereas right now I’m not giving you information I’m copying information to you, I’m distributing information. On the other hand Bitcoin allows me to give you something. So I’m not actually giving you a crate of bananas or a cup of hot chocolate but I’ve giving you something where you can then turn that into a crate of bananas or a cup of hot chocolate. And that’s the first time ever, as I recall.
BM: This is some amazing technology indeed. Why do you think someone like Satoshi would go through all the trouble to make such a revolutionary invention, and then just walk away from it without taking credit?
BL: You know I certainly don’t know the answer, I won’t even pretend to know the answer but…I’m too young to speculate on the full range of answers but it is understandable. To me it’s within the realm of possibility. I can understand why that would happen. Certainly not everyone in the world would do the same thing but I can see why some people would choose to do it this way. And that’s the best answer I can give. I don’t have any other speculation as to why Satoshi, the pseudonym, decided to remain anonymous. People can speculate whether he’s still alive, people can speculate whether he will come out eventually, but we just have to accept it for what it is today.
BM: Your brother Charles Lee once said that he thinks cryptocurrencies are such a powerful concept, that they could one day overturn governments. Do you think some governments have come to this same realization?
BL: I’ll say this, any government who might be at threat of being overturned because of cryptocurrency, those governments are also the ones that are going to be blind to it. Those will be the very same people who will be ignorant and not understand what’s happening until it’s all said and done. In that case, they will not know what to do to counter cryptocurrency. The very governments that have the power to counter and to slow down this movement are not the ones at threat. At least not yet.
These are uncompetitive governments. They’re not thought leaders or industry leaders where they have the wherewithal to stop the advancement of cryptocurrency. It goes back to what you asked me earlier about China. I know you didn’t have China in mind and I don’t have China in mind with this question and answer, but you did ask me if China can ever ban Bitcoin and I didn’t finish my thought which was: by law they can ban it. Any country can ban Bitcoin. Any company or any organization can ban Bitcoin, I can ban Bitcoin in my house. If I’m the head of the household I can ban it in my house. Or the state of Washington can ban Bitcoin in the whole state of Washington. Or the city of Seattle can ban Bitcoin.
But then the question is, it’s like banning marijuana or cocaine. In the U.S. my understanding is cocaine is not allowed, it’s an illegal drug. But banning it is not to say that there is no single ounce or gram of cocaine within the entire United States border. I’m sure there is, I’m sure there’s cocaine in Washington. I happen to know there’s no cocaine in my home, but banning or not banning cocaine in my home, it’s just words and intent.
BM: It also comes back to what the mission of the government is supposed to be. They are supposed to be trying to implement policies that will be a net positive for society. So it comes down to: Is it a net positive for a country to work with Bitcoin? Are there things countries can gain from having a progressive stance towards this technology?
BL: I think this will change over time. Let me give you two examples. Both China and the U.S. have fallen victims to this. For example the IRS tax guidelines in the United States are not very favorable. It’s really going to suffocate Bitcoin down the road.
On the other hand I’m very hopeful. I’m a U.S. citizen, dual-citizen, along with Hong Kong, China, so I’m still hopeful because I know the IRS is an organization that’s run by people and people are allowed to change their minds and it’s very conceivable. We’ve seen the IRS change taxation rules over time so it’s conceivable and I’m hopeful that the IRS will change their view on how taxation for Bitcoin will be done down the road. It might take a year or three to change or it might take twenty years or thirty years but I think that will happen.
And the same in China. Today Bitcoin is stated to be allowed but I’m hopeful that as a country that wants to succeed and be relevant, where it wants people to develop and the economy to grow, then it would make sense to embrace the best technologies and services. And Bitcoin speaks for itself.
Bitcoin wasn’t born to harm the Federal Reserve or the China PBOC. I would say that the core of Bitcoin is that it’s the world’s first digital asset. And as the world’s first digital asset, why not? Our world is getting digital, why not have digital assets. Prior to Bitcoin everything was physical assets. Commodities or equities or real estate, they all have physical manifestation. But now for the first time in humanity you have a digital asset that people can invest in. And carve out and say “I own this much and you own that much, my country owns this much your country owns that much, my company owns this much your company owns that much.” It’s a measuring stick.
BM: In an old interview you said that “people are sitting on the sidelines in China.” Now, we know there is demand in China for this digital asset. It’s a widely held belief that Chinese demand is what was behind the run up to $1,000+ prices in December of 2013. Do you think that demand will come back anytime soon? Or are they waiting on more clarification from the government?
BL: Let’s clarify a little bit. I’ll use this example, I don’t know how relevant you may see it or maybe you see it as well. You live in Seattle, I lived in Seattle for one summer when I interned at Microsoft and I remember I lived in Redmond. At the time, almost 20 years ago, Bellevue, Redmond, it was still developing. There was still more housing to be built and stuff like that. What I’m trying to say is that when a new town gets developed further out from the so called city center, what happens is the property developers anticipate there to be demand by building these townhouses and residential areas and shopping malls. They pave the roads, demarcate areas for commercial and residential, and so on. So when they build the shopping mall, the shoppers are not there yet. Building the shopping mall in anticipation of: one day this will be a thriving community filled with shoppers where people will go to restaurants and watch movies.
The analogy to Bitcoin is that what happened with the run-up last year is that people in China, the so-called developers, said A-ha! This is an untapped market. There’s a billion people here, they’re all going to go and want to live here and go to these shopping malls and watch movies and buy cars and fill up the car at these gas stations, so let’s lay the groundwork to do all this. But when they do all that, people are still not there yet, they’re waiting for people to come. So what happened December 5th is that “uh-oh…the people are not coming.” Because of this fear, uncertainty, and doubt [was] spread by the government.
Therefore when they don’t come or when they take a break or when they do a six month hiatus, then everyone thinks that was a false alarm and we shouldn’t [have] gone crazy with the shopping malls and the parking lots. And that’s why the price came back down.
When I’m talking about people sitting on the sidelines I’m talking about the end consumers, the ones who were intended to come in, but never did. The people who came are the early people buying up the land, intending to build the shopping malls and the paving the roads.
BM: The infrastructure isn’t there yet for the people on the sidelines to join.
BL: Yeah and I’m not even thinking about payment infrastructure, I’m just talking about whether people feel safe holding Bitcoin as an asset class, as an investment. They’re safe from a technology perspective with correct storage but there’s also the word safe from the legal, governmental perspective. When your average Joe Grandma buys Bitcoin, even if they forget about or don’t understand the so-called technology and safety against hacking, they might want to consider what is my regulatory safety. Am I allowed to hold Bitcoin? Is it legal for me to own Bitcoin?
BM: The general perception can be pretty dismal overall. The first thing that comes to most people’s heads when I talk to them about the subject is something negative they heard on the news about a theft or drugs.
BL: Exactly, that’s exactly it. It takes a lot of education to overcome that initial setback. And that’s what I’m talking about. People in China are no different, that is the reaction I get from the passersby here in China. It’s a setback, with Mt. Gox and the PBOC ruling, so it might be a six month setback, it might be a six year setback until we overcome it collectively as a society, as a country.
BM: Thank you very much for your time, Mr. Lee.
BL: Thank you, it was a pleasure speaking with you.
