24.10.2021

Banning Bitcoin in the United States and Centralization in China

Michael Green, chief strategist and partner at investment consulting firm Logica Capital, has sounded the alarm over China’s dominance in the bitcoin mining industry. It happened during a debate with a well-known proponent of the main cryptocurrency and investor Anthony Pompliano.

“From the point of view of the United States of America,” Bitcoin remains very “vulnerable” for China, since this country has the largest number of miner capacities. Let’s talk about the situation in more detail.

To begin with, an explanation: the mining of bitcoins and the security of the network of the first cryptocurrency is due to the miners and their computing equipment. Historically, most of the capacity is located in China, because in some regions of this country the cost of electricity is low, in addition, many manufacturers of ASIC miners are located in China.

As CoinShares analysts reported at the end of 2019, the country accounted for 66 percent of the network’s hashrate – that is, computing power.

This feature has become the reason for the emergence of many not entirely justified assumptions that China at any time can stop the Bitcoin network and put an end to the cryptocurrency. At the same time, critics overlook the point that, in the event of serious problems, other members of the community will be able to make changes to the operation of the network and rid it of the attacker.

Michael Green is one of the people who see the danger in the active participation of Chinese people in Bitcoin mining.

How much does it cost to ban Bitcoin?

Green noted that de facto Bitcoin is not a decentralized system. Here is a quote from him, in which he shares his own opinion. The replica is given by Cointelegraph.

The vast majority of mining operations take place in regions like China, Russia and Iran. If we take into account the participation of mining pools, other countries will control over 90 percent of the hash rate. This is not a decentralized system. The current estimate of how much it would cost to shut down the Bitcoin network if, for example, China decides to simply start mining for empty blocks, is around $ 7 billion a year. On a national scale, this is an insignificant amount.

By “empty blocks” we mean blocks of cryptocurrency that will not contain transactions. That is, in fact, users will not be able to carry out transfers and other operations on the Bitcoin network, which in fact will make it useless for them. For manipulations, first of all, you need to have most of the computing power that produces the extraction of blocks – and it is their work in vain that will cost a lot of money.

However, we do not agree with this prospect. Firstly, even the presence of most of the capacity on the network does not guarantee the creation of problems for the network, since the remaining miners will also have the opportunity to find the block and thus interfere with the plans of the attacker. Second, in the event of a problem, developers from other parts of the world will be able to update the protocol and leave the “hackers” outside the cryptocurrency network. This has not yet been done, but such a backup plan exists.

Why are US officials so “afraid” of foreign control over Bitcoin? Everything is simple here: cryptocurrency is the basis of a system that can act as a potential alternative to modern finance with a high level of dollar dominance. According to Green, the US government “cannot outsource the economy,” as it did with the new iPhones. Therefore, it is important for them, if not to control what is happening with the cryptocurrency, then at least not to give control over its mining to the other side. However, this has already happened – and for a long time.

However, Anthony Pompliano was quick to point out some serious flaws in the analyst’s arguments. First of all, now the world is undergoing a “diversification” of miners’ capacities, that is, many of them open their business not only in China, but also in the United States, as well as in other countries. This is known thanks to the huge orders for mining equipment, which are placed by large companies. In addition, the mere fact that a large number of miners are concentrated in some geographic area does not mean that they will be under pressure from the “nearest” government.

At the same time, we note that the Chinese authorities really tried to influence the cryptocurrency. As the founder of the BTCC cryptocurrency exchange, Bobby Lee, said last year, members of the communist party approached him and expressed a desire to reduce the rate of Bitcoin.

At the end of the discussion, Green expressed a very radical idea – the prospect of a complete ban on bitcoin turnover in the United States, since with the participation of cryptocurrency, criminal activity is allegedly financed. Note that the analyst is wrong in this too: it is precisely the dollar that is the most frequently used tool in the hands of representatives of criminals.

We believe that such fears are useless. Decentralized projects like Bitcoin exist thanks to the participation of users from all over the world. China is no exception, and the region does control most of the computing power of the Bitcoin network. However, over the twelve years of BTC’s operation, there have been no full-fledged attacks on cryptocurrency from states, which means it would be strange to wait for this situation to change. In addition, the attack will end only with the loss of funds for the attacker, because in case of unforeseen circumstances, users will be able to rally and get rid of the initiator of the problem.

In addition, Pompliano said that such a policy would not benefit the United States, as the country would simply “shield itself from the financial revolution” that Bitcoin would launch in the future.

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