Sinocoin

Outside in is preparing an open letter to the government of the PRC, recommending the creation of a Bitcoin clone. The state-level incentive for such an initiative would be to refashion the global financial order in preparation for the ending of US Dollar status as the world reserve currency. It does not seem difficult to present this as a matter of clear Chinese national interest, with definite spin-off benefits to the country’s political and economic elites, its ordinary savers, and supporters of economic freedom worldwide.

Sinocoin (to use its English name), would be released by the PBoC, and then — like BitCoin — be irretrievably autonomous. The Sinocoin algorithm would be a perfect Bitcoin clone, assuming (realistically) that the PRC government would not be inclined to upgrade it with strengthened user anonymity patches. However, PBoC reserves could be used, in accordance with a publicly announced policy, to sustain a floor valuation for the currency in its initial stages. Limited controls on RMB / Sinocoin exchange might provide a longer range mechanism for the suppression of Sinocoin volatility.

Sinocoin would be a complementary initiative to Bitcoin, designed to avoid the disruptive effects that large-scale Chinese forex interventions would have on the latter currency. Bitcoin / Sinocoin exchange rates would provide a valuable index of Chinese financial integration into the emerging (Modernity 2.0) global economy. Parity is to be considered the ultimate natural equilibrium (with Sinocoin outperforming Bitcoin during its early decades).

If anybody has suggestions to make about the technical, economic, or political implications of such a development, they can be discussed here, and carefully considered prior to drafting the proposal. Unless specifically requested, contributor information will not be willingly passed on to either Chinese or US financial authorities or intelligence services.

June 7, 2013admin 28 Comments »
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28 Responses to this entry

  • spandrell Says:

    Just wait until common Chinese go in a bitcoin buying spree and I get rich first, ok?

    [Reply]

    admin Reply:

    (I realize you’re joking but) Bitcoin is too small to absorb Chinese forex reserves, and actually so small that Sinocoin would be more likely to pull it up than competitively squeeze it.

    [Reply]

    Posted on June 7th, 2013 at 4:11 pm Reply | Quote
  • John Hannon Says:

    Considering all the naughty stuff it could facilitate, maybe Sincoin would be more appropriate.

    [Reply]

    admin Reply:

    Currencies with ‘sink’ in their name don’t inspire confidence.

    [Reply]

    Posted on June 7th, 2013 at 6:25 pm Reply | Quote
  • all your bits belong to the cathedral Says:

    “or intelligence services”

    hello to all our friends at the nsa.

    on topic: bitcoin is not anonymous. the entire transaction history is in the open. anonymity would require an overlay like zerocoin or mixing of some kind. given the nsa hoovers up all the bits they at least have a record of the entire history of bitcoin transactions.

    [Reply]

    admin Reply:

    Yes, undoubtedly so. The only protection from the NSA right now is the hope that they have other things to worry about more.

    [Reply]

    Posted on June 7th, 2013 at 7:10 pm Reply | Quote
  • Nick B. Steves Says:

    Wouldn’t demanding payment from the US in gold be a shortcut? If so, whence Sinocoin? If not, whence Sinocoin? If Sinocoin is preferable to gold, then it is only because it would be (for good or ill) under the political control of a particular sovereign state. But for that purpose, do not the Chinese already have the RMB?

    So I’m trying to wrap my head around the creation of a currency which will either A) do what gold can already do; B) do what the RMB can already do; or C) do what BTC can already do.

    [Reply]

    admin Reply:

    China likes clones, so Sinocoin would be a natural thing for them.
    Hoovering up the global gold market might appear more provocative than releasing Sinocoin, and trigger more unpredictable reactions. Besides slow(ish) gold hoovering is going to be happening anyway, multiple savings vehicles adds flexibility.
    Sinocoin would have greater commercial facility than shunting freighters full of gold around the planet.
    It would also take upward pressure off the RMB, giving the government / PBoC a freer hand in the ongoing currency trade wars. The two currencies could be allowed to go in different directions if this was appropriate.
    Market-oriented types would trust Sinocoin as a USD replacement more than they will ever trust the RMB (maybe this doesn’t matter much)

    [Reply]

    Nick B. Steves Reply:

    Okay but “allowing” currencies to go in “different directions” if this was “appropriate” presumes the existence of… an Allower who gets to judge “appropriate”. I hear you saying, “Wouldn’t it be great if god(s) did _____________________?” But the only interesting question is: Who plays the god(s)? You’re not getting away from state run currencies and everything, yes absolutely everything, which that entails. So I don’t see what problem (for China, for America, for fiscal sanity, for free markets, for non-free markets, for humanity, for anyone) that you’re solving here. You’re just introducing yet another fiat currency, of which the world already has enough.

    [Reply]

    admin Reply:

    The PBoC is the God of RMB. Sinocoin would be structurally godless. Allowing the two to go in different directions would mean not tracking Sinocoin upwards with the RMB (but allowing the RMB to gracefully slide — which is the only trajectory that fiat-running governments find acceptable).
    So, no, Sinocoin wouldn’t be — and couldn’t be — another fiat currency.
    For China, the problem it would solve is not necessarily one I hugely respect (to say the least), since it is basically mercantilist: preventing RMB appreciation from gutting the Chinese trade balance. But if catering to such pretty-much-inevitable nationalist economic considerations is the only way to end up with a strong, free, international money system, it strikes me as a pact with the devil worth making.

    Posted on June 7th, 2013 at 7:47 pm Reply | Quote
  • Orlandu84 Says:

    My initial reaction is that a Sinocoin would be a great way for China to stay competitive in the Modernity 2.0 economy. I would suggest that the Chinese roll out the currency on a set timetable much like BTC. Week 1 there would be x Sinocoins each worth a minimum of y in RMB. By the end of year one there would be 100x Sinocoins still each worth a minimum of y in RMB.
    Why would linking Sinocoin to RMB be advantageous? It would effectively merge the RMB and Sinocoin money markets. Do you take Sinocoin? Then you also take RMB (or at least would be foolish not to). By allowing merchants to accept either, the ability of merchants to make transactions goes up a lot. Also, since the majority of the population are conditioned to think that currencies come from governments, the Chinese backing the Sinocoin would convince a lot of people to treat Sinocoins (and other digital currencies) as money. Lastly, in effect the Chinese would also be backing the RMB with the Sinocoin as a sort of digital gold. Since the Chinese do not have that much gold in comparison to how much gold exists, their backing their currency with gold is not super advantageous in comparison to other countries. By backing the RMB with the Sinocoin, they would effectively be backing their currency with the Internet. Any government that understands the advantages of that kind of backing would be on very solid ground.

    [Reply]

    admin Reply:

    Yes, I’m with you — just some questions and quibbles.
    Why a rigid role out, rather than the automatic roll-out (based on mining rates) that Bitcoin uses? It would be a mistake to depart from the Bitcoin algorithm, since it would massively sacrifice trust.
    Sinocoin / RMB linkage would be good if limited, and temporary, but a rigid link would destroy most of the benefits of having parallel currencies, and end up slaving the PBoC to Sinocoin fluctuation. That said, I agree this development could be good for the RMB — as long as we recognize that ‘good’ for a large, globalizing, fiat currency doesn’t always mean what you think it should (most governments seem to want to trash them in currency wars, and that wouldn’t be possible with Sinocoin — but Sinocoin would free up an even more recklessly mercantilist RMB policy, if that’s what the powers-that-be wanted).

    [Reply]

    Orlandu84 Reply:

    All I meant by “roll out” is a time table. Most people will never understand how mining BTC’s or Sinocoins would work. They would continue to think that the Chinese government was creating Sinocoins when in reality they were being mined just like BTC. I figure that since governments like time tables and predictable outcomes, you might as well plan on them making one from the beginning. Look at it this way. The “roll out” would allow the bureaucrats to determine how much RMB is supposed to be convertible by government controlled banks at any given time. The “roll out” would not actually create Sinocoins (miners would do that based on the code); instead, the “roll out” would declare how many Sinocoins Chinese banks would redeem at any point and for how many RMB. This would establish a currency safety net of sorts as people became accustomed to using Sinocoins. In effect there would be two currency markets: one controlled by government banks (the one ordinary citizens would most trust) and one controlled by people on in the internet (the one most likely to take business away from USD’s online).

    Eventually, the two markets would start to diverge in their valuation with the internet one likely to value the Sinocoin more than the government (the internet would demand more RMB per Sinocoin as time went on than the government currency exchange). The Chinese government would then have a choice: continue having two very different exchange rates (one official and one unofficial), drop the official exchange rate, or have the official exchange rate become closer to the unofficial.

    Why would the Chinese government ever do that? Well, if the Chinese government is smart it would have been buying Sinocoins from the start and keeping them. In fact, as long as its banks were buying Sinocoins at a lower exchange rate than the internet was (paying fewer RMB per Sinocoin than the going internet exchange rate), then the Chinese government and its banks were making a profit. Once the government has made enough profit off of this dynamic, it can allow the market to determine the exchange rate. More likely, the official exchange rate would always trail the internet exchange rate, but it would narrow as time went on for the same reason as the above – the Chinese government would want to use its new wealth to buy stuff and in order to do that it would need its Sinocoins to be worth as much as possible.

    [Reply]

    Posted on June 7th, 2013 at 9:59 pm Reply | Quote
  • SOBL1 Says:

    Some spin against the charge of trying to create an alternative to the dollar block, the Sinocoin is a method or mechanism for small, underprivileged countries that wish to trade with China but have trade volumes that are too small for bilateral agreements. Sinocoin will empower them to engage in trade with China without the volatility and harmful effects of the FED’s monetary policy. This concept would be great for China as it could adjust internationally outside of a direct relationship with the US dollar.

    [Reply]

    admin Reply:

    Yes, absolutely. This seems to me an approximate model for a Bitcoin breakout too (with or without a Sinocoin alternative in operation).

    [Reply]

    spandrell Reply:

    Chinas has a bilateral agreement with Iceland. Not really an issue.

    [Reply]

    Posted on June 8th, 2013 at 12:35 am Reply | Quote
  • Aaron Says:

    Do you think it would be useful to have both English and Mandarin translations of the open letter (not a rhetorical question as producing a good translation could be a significant investment of time)?

    [Reply]

    admin Reply:

    My immediate sense of it is that a Mandarin translation would seem annoyingly intrusive, but I’m open to argument.

    [Reply]

    Aaron Reply:

    You know a good deal more about China so no argument here. I was thinking purely in terms of distribution but hadn’t considered that it may be seen as a bit too forward.

    [Reply]

    admin Reply:

    The whole ‘open letter’ idea is meant somewhat humorously. Generally in China, though, it’s wise to avoid anything that could be interpreted as pamphleteering (an indication of residual civilization in my opinion).

    spandrell Reply:

    You can’t throw a stone without hitting a chinese-english translator in Shanghai. A translation would take 15 minutes.

    [Reply]

    admin Reply:

    Yes.
    [The point is, a chat among foreigners about the Chinese economy is OK, a “message to the Chinese people” from a foreigner about their economy, not so OK. Pointlessly irritating TPTB is not a useful part of the process.]

    [Reply]

    Posted on June 8th, 2013 at 1:02 am Reply | Quote
  • Anomaly UK Says:

    I don’t think that bitcoin has quite been succesful enough on the technical questions that it can be taken as an exact blueprint without modifications.

    The pressing issue is the question of transaction volume, which is connected to block size. The bitcoin system is currently running at about 20% of its maximum transaction volume, which is something like 100 transactions per minute.

    It is assumed in some quarters that a change will be made to the 512kB block size maximum, but that is contrary to the interests of miners, who will benefit from transaction fees if block space becomes scarce and transactions become expensive. A large increase in maximum transaction volume will make it harder to keep up with the block flow — in order to validate a transaction, you need to either have the complete transaction history available and processed, or trust someone else who has it.

    At the very least, the block size question needs to be settled for a new clone.

    A similar issue is the use of the powerful and flexible script language for transaction outputs, which is of questionable value.

    [Reply]

    admin Reply:

    Very interesting, thanks — these issues clearly need drilling into.
    The trouble is, if PBoC technicians re-write the code in any substantial way, the trust factor plummets immediately.

    [Reply]

    James A. Donald Reply:

    When bitcoin was furst proposed, I complained that the proposed architecture did not scale.

    But then, scalability did not matter until after bitcoin was successful, and the architecture could then be changed.

    Now it matters.

    Need an architecture in which not everyone needs to know all transactions, but merely a two hundred and fifty six bit hash of various transactions that he is ignoring.

    [Reply]

    Posted on June 8th, 2013 at 2:04 pm Reply | Quote
  • James A. Donald Says:

    Mercantilism made more sense, or was at least less obviously crazy, when a country running a surplus was accumulating gold. When, instead, you accumulate US dollars, you run into the problem that when someone owes the bank a million dollars, the bank owns him. When he owes the bank a trillion dollars, he owns the bank. And the US owes China a trillion dollars.

    I don’t see any advantage of sinocoin, which would not be better served by doing international trade in bitcoin.

    [Reply]

    admin Reply:

    “I don’t see any advantage of sinocoin, which would not be better served by doing international trade in bitcoin.”
    — technically speaking, that’s sound thinking (SInocoin as a near-perfect Bitcoin clone adds no new identifiable functionality). The problem is political. If the Chinese were to make Bitcoin part of their macro-economic management system, they would dominate it completely, reaping negative political consequences, even if the economics work out OK. It would look like financial imperialism, and manipulation. The BTC price would seem to be set by the PBoC, defeating the whole point of the exercise. Better for them to have something ‘their own’ which they can subject to extreme stress without having to apologize for it, or explain themselves. That leaves a relatively neutral BTC reference price which might be helpful, and allows Sinocoin to reflect Chinese economic realities (absorbing the currency appreciation of a rising power, thus taking upward pressure off the RMB). There are other bits and pieces to all this worth mulling through, of course.

    [Reply]

    Nick B. Steves Reply:

    If the Chinese were to make Bitcoin part of their macro-economic management system, they would have to either accept them as payment for stuff, or sell RMB to buy them. I don’t see how they would dominate them… they were late to the game on gold and therefore cannot buy up all the gold. They are late to the game on BTC and therefore will not be able to buy up all the BTC… It has nothing to do with politics… It has to do with the fact that they would quickly destroy the RMB trying to pay for it. This would make everyone ELSE rich, not the Chinese. I do not deny political realities… but they pale in comparison to the laws of physics.

    [Reply]

    Posted on June 11th, 2013 at 12:57 am Reply | Quote

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