What is the use of the whirlwind coming from China for Bitcoin?
China’s recent mining crackdown has reduced Bitcoin’s reliance on large-scale mining infrastructure and geographic concentration. In May, China announced that it would be tougher in mining and trading cryptocurrencies to deal with financial risks. The action taken by the world’s most populous country is not new; it merely reinforces its previous stance on the risks digital currencies pose to economic stability in response to recent price volatility.
For the first time, miners become enforcers of the existing rule. Mining hardware remains potentially risky even if it is moved to other locations. This could prove that the transition from the Ethereum blockchain to PoS is a more reliable path to decentralization and offers greater resilience to such risks.
Bitcoin mining is currently based on large, industrial mining farms and is mostly focused on China, which accounts for 65% of the world’s hashrate. The custom hardware manufacturing industry in China has supported this trend, with half of the ASIC devices being distributed to Chinese miners. As a result, the crackdown has disrupted the Bitcoin market significantly.
The hash rate of the Bitcoin network has fallen to a 12-month low and more and more provinces are closing miners. The lack of clarity about what could happen to the seized mining hardware hit the entire network hard. This is a huge loss to the multi-billion dollar industry and Chinese miners.
China’s political stance on Bitcoin is in search of “financial stability and social order” and may stem from geopolitical interests related to the desire to eliminate competitors to the digital currency, reducing carbon emissions and redirecting energy to other industries. The quick crackdown exposed Bitcoin’s reliance on industrial-scale mining farms, hardware and power supply chains – all of which depend on government policies. These are Bitcoin’s most vulnerable weaknesses right now.
Miners are currently looking for regions with cooler climates, cheaper energy, and “crypto-friendly” jurisdictions. This could open healthy competition for policy-friendly venues in other jurisdictions to attract industry players. Wyoming, for example, has laws that are conducive to decentralized autonomous organizations and cryptocurrencies in general. However, it remains unclear whether this hardware exodus will help stay out of the limelight of other political raids.
Have we already decentralized?
Hardware has always been a big hole in decentralized infrastructure. In blockchain-based cryptocurrency networks that run on a proof-of-work (PoW) consensus algorithm such as Bitcoin, the transaction record is usually carried out on a distributed network of computers.
This is very susceptible to structural mining, the centralization of hardware mining in industrial scale factories in certain regions (e.g. China), the “pre-mining” of coins, etc. new ASIC models) or delays in the supply chain .
The concentration of much of the hashing power in one country, depending on expensive hardware setups and subject to regulatory repression, is in contrast to Bitcoin’s “decentralized” ethos as outlined by Satoshi Nakamoto. The original vision of Bitcoin in the white paper was a peer-to-peer system in which the infrastructure could be operated by individuals with general purpose computers in a distributed manner (via CPU mining). Standstill due to a single point of failure attack.
This could also show why the move from Ethereum to PoS consensus is important – and why it has the potential to become more trustworthy and decentralized in the long run. Attacking a PoS network costs more time and money than it costs to rent or buy hardware to attack the PoW blockchain, as an attacker’s coins can be automatically “cut up”.
In addition, running a PoS validator node on a laptop is less cumbersome and easier than extensive hardware mining. If someone can run a node from anywhere with consumer-grade devices, more people will be involved in validating the network, making it more decentralized. Accordingly, it is virtually impossible for regulators to stop people from running Node. In contrast, factories that use large amounts of energy while mining Bitcoin are more vulnerable to government scrutiny.
What’s wrong with the hardware device?
The cryptocurrency mining industry is currently shifting geographically, with miners relocating their hardware to neighboring regions, including Kazakhstan and Russia. Some friendly jurisdictions like Texas (which provides company legal clarity) are trying to attract miners. Machines and equipment are also sold. From them, logistics companies report that tons of mining equipment have been shipped to the United States for sale.
While China’s policies have created some fears, uncertainties, and doubts in the market, they can help remove structural flaws from the network. For this reason, some Bitcoin proponents have welcomed this approach. The goal here is long-term decentralization. However, moving hardware does not mean further decentralizing the network and eliminating regulatory repression vulnerabilities for miners.
Hardware equipment is a difficult problem in distributed networks. Bitcoin’s claim to large-scale infrastructure has made it vulnerable to the politics and politics of countries like China. Even if mining moves elsewhere, it can still be decentralized and legally threatened. In contrast, software-based PoS networks that can run on standard laptops will not have such concerns.
These events show the interdependence of blockchains with nation-state interests and politics. How jurisdictions react to the opportunity to attract hardware mining, along with their approach to moving from blockchains to PoS, will have a significant long-term impact on the structure and risks of blockchain networks.
China’s sweeping ban on cryptocurrency mining has largely put the industry out of action. The consequences are reflected in the decrease in the hashrate. According to the estimate by Adam James, Senior Editor of OKEx Insights, “More than 20 mining organizations are closing and losing money while smaller miners can continue to comply by trading in smaller power plants.”
In relation to this development, many will see negative effects on Bitcoin in the short term.
In fact, the Bitcoin hashrate has dropped nearly 50% in over a month.
Bitcoin hashrate | Source: Ycharts
At the time of writing, the hashrate is 89 EH / s. But what do Bitcoin and miners gain in the long term?
Mike McGlone, Chief Commodity Strategist at Bloomberg said:
#Bitcoin and digitization of money, Finance May Mark #China Fall – Bitcoin headwinds from an increasingly antagonistic China could strengthen the longer-term foundations of emerging currency reserves. pic.twitter.com/YjwCLXDOXS
– Mike McGlone (@ mikemcglone11) June 28, 2021
“Bitcoin and the digitization of money and finance could mark China’s downfall – headwinds for Bitcoin from an increasingly hostile China could strengthen the long-term base of currency reserves.” Young “.
As the hashrate has fallen to an all-time low, the majority of miners have moved to other regions such as North America, Kazakhstan, and others.
Changed hashrate of the pools from May 15th | Source: The Block Research, BTC.com
According to the The block, “Most of China’s bitcoin mining pools have seen their hashrate drop by more than 50% in the past month. For example, AntPool and F2Pool’s hashrates have decreased by 58% and 56%, respectively, over the last month. On the other hand, Foundry USA’s hash rate increased by about 15% over the same period.
When miners move mining operations to the west, they can benefit from two aspects: more accessible green energy and (relatively) welcoming legislature.
Kevin Zhang, vice president of the mining company Foundry speak Interview with CNBC:
“If the hash rate drops further, the difficulty will adjust downwards and miners who are still active in the network will receive more mining rewards than their contribution rate.”
According to AZCoin News