China’s relationship with Bitcoin has long been complicated.
Prior to the set of sweeping bans that the government place on the industry in late 2017, the country stood as the nation with the highest BTC trading volume in the world; since the bans–which shut down domestic cryptocurrency exchanges and ended domestic ICOs, among other things–the country has still played a crucial role on the Bitcoin network in the form of hash power.
“Hash power” is the amount of computing power that is needed to solve cryptographic equations on the Bitcoin network. These equations stand as the basis for Bitcoin’s consensus mechanism–software that securely adds and confirms transactions onto Bitcoin’s ledger. Bitcoin’s consensus mechanism model is known as “Proof of Work.”
The process of solving these equations and adding the transactions onto the ledger is called mining–it is executed by individuals and companies that have roomfuls of elaborate and expensive equipment entirely devoted to solving these equations. In exchange for the cost of energy and equipment that these “miners spend to set up their “rigs”, they receive “block rewards” in the form of Bitcoins.
BTC’s mining power is centralized in China–but is that really an issue?
It is a well-known fact that the majority of hash power on the Bitcoin network is produced in China, and has been for quite some time. In December 2019, CoinShares Research reported that indeed, as much as 65 percent of BTC’s hash power resides in China.
However, earlier this month, Brad Garlinghouse, Ripple’s chief executive officer, made a rather controversial remark said CNN–one that seemed to imply that some force located within the country–either a conglomerate of miners, or perhaps even the government itself–had strategically supported the building of the BTC mining industry in China so that the nation would somehow be in charge of Bitcoin’s blockchain.
“China… they really, through mining power control the Bitcoin blockchain,” Garlinghouse commented. “You have four miners in China that represent something like 60% plus of the mining capacity,” he continued.
Garlinghouse also mentioned that mining power on the Ethereum (ETH) network, which supports the second-largest cryptocurrency by market cap, is centralized in China. “80 percent of the mining capacity is based in China for both Bitcoin and Ether.”
“So, in many ways, I think China has been incredibly strategic about how they think about that,” he said.
A number of critics fired back on Twitter, target Garlinghouse’s use of the word “miners” instead of the phrase “mining pools”, which may have been more accurate. Read More...