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The Great Wall of Bitcoin

China’s recent war on bitcoin is getting wall-to-wall coverage at the moment throughout the world. This is hardly surprising as China accounts for 71% of global mining hash power.

By comparison, the United States is a relative minnow:

  • USA – 1%

  • Venezuela – 2%

  • Iceland – 2%

  • Georgia – 2%

  • India – 4%

  • China – 71%

These figures were taken from blocked.info’s network hash rate chart. The keen-eyed can see that there is 15% missing from these figures. It is notoriously hard to get exact figures on the bitcoin ecosystem.

The assumption is that the majority of the missing percentage is controlled by China, although countries like Canada, Great Britain, France and of course Russia are part of that 15% gap. Speculation within the cryptocurrency circles is that some of the larger mining pools quietly run subsidiary pools to disguise the true hash rate of their operations.

China is a notoriously secretive country. Bitcoin miners are known to have been set up in remote areas to take advantage of the excess of cheap coal available to generate the vast amounts of electricity needed to run the mining servers. Because of the lax environmental regulations in these remote areas, it is possible to buy far more coal for your buck, than it is in more sensitive areas like Beijing and Shanghai.

These places also have the advantage of being secluded, making it difficult to keep track of how many operations are in existence, and what they do.

The recent crackdown on the bitcoin exchanges is a direct result of the Chinese government attempting to regulate the miners. The mining operations are useless unless the bitcoin can be exchanged. Hitting these exchanges is both a clever and at the same time, cynical move, by the Chinese government.

The major bitcoin mining pools such as AntPool, F2Pool/DiscusFish, BTCC and BW Pool, are fairly transparent in their dealings. It is the smaller players that create problems.

Of the five largest bitcoin mining pools worldwide – China accounts for four – Bitfury, based in the former Russian state of Georgia is the other.

The major mining pools combine their hash rates so the pool can find blocks more easily. The block is then split between the miners and their hash rate is calculated into this split.

This pooled mining means that rather than hitting the jackpot or failing miserably, the participants earn less, but are more likely to score hits. The odds of a small solo miner having the “firepower” to find a block alone is very low.

Estimated global hash rate distribution
Estimated global hash rate distribution

The miner’s extreme use of cheap energy in rural areas drains the grid of power, leaving industries and essential services such as hospitals and government agencies with blackouts and supply shortages. This may be a reason for the recent bans.

Because of the costs involved in setting up servers and hardware, these smaller miners are also the least efficient, leading them to take shortcuts to save money.

Finding, and stopping the smaller miners may well be the agenda here.

Bear in mind that China is exceptional in many ways. As a Communist country, it is centrally controlled, and planned by a Central Committee, the CPC.

As such, the whole idea of bitcoin is counter to the beliefs of the controlling party. This is not the first battle with China bitcoin has had to fight nor will it be the last.

Are they pulling the plug on bitcoin forever or are they pausing, is it all moving too quickly for them?

China has a huge influence over the cryptocurrency industry but it is not the only player out there. In the fluid and dynamic world of the internet, the vacuum left will soon be filled somehow, with other countries, that have less stringent and rigid regulations stepping in to replace Chinese miners.

Given that scenario, is it likely that the Chinese government would want to permanently lose out on the biggest shake-up to hit the world of finance since the invention of currency itself?

Now there’s a question…

Noble Gold specializes in IRAs and 401(k) rollovers through precious metals and cryptocurrencies investments.

This article was originally posted on FX Empire

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