Virtual Currency a Bit Overpriced for the Real World

A residential project in Shanghai's Pudong New Area is accepting bitcoins from apartment buyers, taking the currency a step closer to acceptance in China.

Domestic online game developer Shanda Interactive Entertainment Ltd, the developer of the property project, announced on Oct 26 that homebuyers can use bitcoins.

Shanda anticipated that the project, in Zhangjiang near a high-tech industrial park, would attract many young, computer-savvy people. It bet that some of these workers would be open to using a totally new kind of currency.

So far, though, no one has taken advantage of this novel form of payment. Perhaps because the cybercurrency has become so costly and hard to obtain, it's more likely to be traded by speculators than spent on real things.

Bitcoin - a distributed, peer-to-peer digital currency - was born in a paper published by Satoshi Nakamoto, which is assumed to be a pseudonym, in November 2008.

The virtual currency, believed to have been inspired by the culture of cyberpunk, has become the most popular among dozens of such imaginary monetary units.

As bitcoins can be "mined" only by solving extremely difficult cryptographic math problems, or bought from other owners, the currency avoids inflation risks.

"Many young people were excited about the innovative way of paying for apartments, and promised to come and buy the next day.

"But no one showed up, maybe because the bitcoin's value has surged recently," said Wang Feilang, vice-president at Shanda Tiandi, a cultural property development arm under the Shanda Group.

Wang noted that in recent weeks, the bitcoin's value versus the Chinese currency has risen from 1,000 yuan (US$164) to a peak of 4,500 yuan as of Wednesday.

Most apartments in the project have an area of 42 to 81 square meters and cost 23,000 yuan to 28,000 yuan per sq m, according to a salesman surnamed Shi.

He said that up to 90 percent of the 400 available apartments have been sold, and a few buyers said they would collect enough bitcoins to pay for the property. But none has done so yet.

Growing rate

The residential project announces a daily exchange rate based on the previous trading day's closing level. For Wednesday, it was a record 4,500 yuan per bitcoin.

"It's a pity that there haven't been any deals made by using bitcoins. I am afraid people are betting on further appreciation of the virtual currency, instead of using them to buy a home," said Wang.

The cybercurrency, which isn't backed by any physical assets, trades 24/7. There are no limits on how much the value can change or how large the transaction volume can be.

The lack of constraints has attracted a growing number of speculators from around the world hoping to profit from its extreme volatility.

"The value of one bitcoin was more than 8,000 yuan on Tuesday," said the chief executive officer of Yibite, who only gave his nickname as Shenyu (literally, "magic fish" in Chinese).

Shenyu runs the digital assets website, and he's also a senior bitcoin miner.

According to Shenyu, in recent months, the Chinese market has moved to center stage in the bitcoin world because of its surging trade volume.

"Since August, more than 100,000 bitcoins were traded every day in China, accounting for up to 40 percent of the global total," said Shenyu.

Another change is that the mainstream traders of bitcoins in China, who have so far been mostly 20-somethings, are being replaced by older and richer investors, said Shenyu.