New University Bitcoin Study Shows China’s Power to Destroy or Destabilize Leading Cryptocurrency
We frequently hear that one of the best things about bitcoin is that no single government has the power to destroy bitcoin. A new report, however, suggests otherwise: the country of China singlehandedly has the power to destroy or destabilize bitcoin.
The report comes from researchers at Princeton University and Florida International University. Researchers Ben Kaiser, Mireya Jurado, and Alex Ledger concluded that bitcoin’s biggest threat comes from countries like China, and that the government of China has the power to singlehandedly destroy – or at the very least, destabilize – bitcoin.
The 22-page report is titled, “The Looming Threat of China: Ana Analysis of Chinese Influence on Bitcoin.” You can read the full report here.
“As bitcoin’s popularity has grown over the decade since its creation, it has become an increasingly attractive target for adversaries of all kinds,” begins the research paper. “One of the most powerful potential adversaries is the country of China, which has expressed adversarial positions regarding the cryptocurrency and demonstrated powerful capabilities to influence it.”
The paper goes on to explore how the government of China threatens the security, stability, and viability of bitcoin. China has huge influence over bitcoin, and the Chinese government could potentially use this influence to destroy or destabilize bitcoin.
Why does China have unequaled control over the bitcoin network? The paper mentions that China influences bitcoin through:
- Its dominant position in the bitcoin ecosystem
- Its political and economic control over domestic activity
- Its control over domestic internet infrastructure
The Chinese government has significantly more control over its citizens than say, governments in a western democracy. Because of this power, and because so much of bitcoin is concentrated in China, the government of China wields huge control over the future of bitcoin.
China famously banned bitcoin trading in September 2017, causing markets to plummet worldwide. However, China remains a dominant bitcoin superpower to this day, and the country is home to the majority of bitcoin mining power.
China’s rise to bitcoin dominance back in 2013. Starting in 2013, Chinese bitcoin exchanges grew to dominate bitcoin markets. CNY/BTC trading rose, and these exchanges grew to address the demand.
Researchers also mention another crucial point: the vast majority of bitcoin mining power is concentrated in China, and it’s been that way for quite some time:
“Mining pools managed by individuals in China have constituted over half of the total network hash power since 2015 and currently more hash power is located in China than in any other country.”
Later on, the researchers mention just how much Chinese bitcoin mining power has grown over time:
“From January 2015 to January 2018, Chinese pools grew from accounting for 42% of the total bitcoin network hash power to 77%.”
Researchers admit that the hashpower in Chinese-controlled mining pools doesn’t necessarily come from China. However, it’s true that China “does host more mining facilities than any other country.”
Chinese miners also enjoy a competitive advantage due to their proximity to cheap land (including in Sichuan and Inner Mongolia) and close access to ASIC manufacturers.
“These advantages allow Chinese miners to achieve greater profit margins than their competitors in other countries.”
Because of these advantages it seems likely that China will continue to be a major force on the bitcoin network – at least until China decides to stop bitcoin.
The Chinese Government Has an Ambiguous Stance Towards Crypto
Despite the fact that bitcoin is a huge part of China, the Chinese government has adopted an ambiguous stance towards the world’s largest cryptocurrency.
“Through this time, China’s official position on bitcoin remained ambiguous and regulators proved unwilling to institute tight controls despite expressing concerns over criminal activity, subversion of capital controls, and speculative risk.”
In September 2017, for example, China shut down bitcoin exchanges across the country.
However, China hasn’t been wholly unfriendly towards bitcoin. Many Chinese bitcoin mining farms were able to grow because they received tax incentives and energy and land discounts from provincial governments. Furthermore, Chinese mining farms continue to operate legally within the country, and many of the world’s largest crypto startups are located within the Chinese territory of Hong Kong.
How Much Power Does China Really Have Over Bitcoin?
In a western democracy, China’s wavering stance towards bitcoin might be a big deal. In many countries, the government has a certain degree of power over its citizens. In China, however, the government is closely involved in everyday lives. The internet – even private apps like WeChat – is completely monitored by the Chinese government. The “Great Firewall” of China controls information flows within the country.
Researchers in this latest study also mention a separate tool used by the Chinese government called the “Great Cannon”, which is essentially a DDoS weapon used to take down unwanted websites.
All of this has created a perfect storm:
- Too much of bitcoin’s mining power comes from China
- The Chinese government has too much control over the Chinese people, its businesses, and its activities
Due to both of these issues, the Chinese government has a substantial amount of influence over bitcoin. With a single policy decision, China could destroy or at least destabilize the bitcoin network.
What would happen if China shut down mining farms in the country overnight? It seems unlikely, since Chinese mining farms generate substantial economic activity for the country.
The good news is that bitcoin has been running successfully since January 3, 2009 with no intervention – good or bad – from any governmental organizations. Yes, China could cause a crisis in the bitcoin network, but it seems unlikely they could destroy bitcoin.
You can read the full paper titled, “The Looming Threat of China” here.