China is the main centre for Bitcoin mining, but how much influence does the country really have on the Bitcoin network?
According to Ripple CEO, Brad Garlinghouse, ‘There are 4 miners in China that represent 60%+ of mining capacity’ for Bitcoin.
A slight oversight there, because it’s not 4 miners, it’s 4 distributed mining pools. But, how much influence does the Beijing really have on the Bitcoin network, and should we be concerned?
Is China’s Mining Domination Really an Issue for The Bitcoin Network?
Bitcoin mining is “officially prohibited” in China, and the government quietly stated that they wanted to rid Bitcoin miners from the country. But that was almost two years ago, and mining is still thriving there, especially in the more remote provinces like Sichuan.
Most of the Bitcoin hash power comes from the four biggest mining pools: Antpool, F2pool, Poolin and BTC.com. They’re all based in China, and they produce about 65% of the BTC hash power. And even if Brad Garlinghouse’s oversight is off the mark, the fact that about two-thirds of the mining hash power is under one jurisdiction, might be a cause for concern for some.
However, it’s been this way for many years, and surely if the Chinese government could take control of Bitcoin, it would have done by now. But why do mining pools choose China specifically?
Related Reading: 5 Profitable Altcoins To Mine in 2020
Why Do Mining Companies Choose China?
The biggest manufacturer of Bitcoin ASICs mining rigs, Bitmain are based in China and they’re also produced in China. Although other parts of the world are intending to manufacture powerful ASICs mining rigs, they will be playing catch up for a while yet.
Because Bitmain has dominated ASICs manufacturing, the company has been known to “look after itself” before distributing the rigs worldwide.
Bitmain also control BTC.com and Antpool mining pools, and although their influence is waning, it did give them a heads up in the earlier years of the Bitcoin mining industry.
With cooler climates, cheaper electricity and labour costs in China, it seems like the logical place for any company wanting to make a profitable Bitcoin mining facility.
Mining firms are strategically choosing their location, too. According to a CoinShares report, miners in China’s Sichuan region make up 54% of the Bitcoin network’s global hashrate.
The climate in Sichuan is cooler and wetter, and the hydroelectric generators there produce more energy than needed, so the local government welcome the miners. However, it becomes an issue for the province during the dry season, as there isn’t as much power, but the miners still gobble up their same share.
Can China’s Mining Domination Lead To A 51% Attack?
Centralization of mining can lead to 51% Attacks. A 51% Attack is when a group of miners work together to take more than 50% of the network’s hash power. They could use the hash power to control the network and rewrite transactions on the network.
So with over 65% of the hashrate coming from China, is a 51% Attack likely? I don’t think so. The Chinese government doesn’t control the mining pools or farms. And it wants the innovation there and of course the revenue it’s creating, so why would it chase them away by trying to take control?
If mining pools were to work together to coordinate such an attack, their white hat miners, who have joined the pool, could easily switch allegiance and help power the hashrate in favour of the network.
The mining pools are incentivised by two things: securing the Bitcoin network and making a profit from their investment, so it’s not in their interests to manipulate the Bitcoin network. So, if a 51% Attack was to occur, all the money invested by the mining companies would effectively be wiped out, because Bitcoin would lose its value immediately.
Although most of the Bitcoin mining hashrate comes from China, it’s really centralized. The mining pools are decentralized and the miners who join them can switch allegiance quite easily.
Bitmain and other mining giants have their own best interests at heart, and the main thing that secures their interests is a strong and secure Bitcoin network.
Although, I hope more mining farms continue to pop up in other parts of the world, the fact that 65% of the hashrate appears to come from China shouldn’t concern anyone interested in Bitcoin.
Author: Tommy Limpitlaw