China’s crackdown shows that industrial Bitcoin mining is a problem of decentralization

Bitcoin’s reliance on large-scale mining infrastructure and geographic concentration has been greatly eased by China’s recent mining crackdown. In May, China announced that it would Take a hard line on cryptocurrency mining and trading To deal with financial risks. The country’s crackdown on cryptocurrencies is not new, but reiterated its previous position on the risks of digital currencies to economic stability in response to recent price fluctuations.

For the first time, cryptocurrency miners have become the target of implementing existing guidelines. Even if mining moves to other locations, the mining hardware still has potential risks. This can prove that the Ethereum blockchain’s shift to Proof of Stake (PoS) that can be run on consumer-grade devices is a more reliable way to decentralize and provide greater resistance to such risks.

Bitcoin (Bitcoin) Mining relies on large-scale, industrialized cryptocurrency mining farms, and is mainly concentrated in China, Take up 65% of the global hash rate. The manufacturing of customized hardware in China supports this trend, and one-half of the ASIC mining machines produced are distributed to Chinese mining machines. The crackdown caused major turmoil in the Bitcoin market.

Bitcoin network Hash rate has dropped To the 12-month low, more provinces instructed miners to close. Uncertainty about what might happen to the confiscated mining hardware has severely hit the entire network. For Chinese miners, this is a huge loss for an industry worth billions of dollars.

China’s policy stance on Bitcoin seek “Financial stability and social order” may be the result of geopolitical interests. In addition to its established goals, it also hopes to exclude competitors from its own national digital currency, the digital renminbi. Reduce carbon emissions And shift energy to other industries. The swift strike shows that Bitcoin’s reliance on industrial-scale mines, hardware supply chains, and electricity—all of which depend on government policies—may be its Achilles’ heel.

Miners are now seeking to migrate to cool climates, cheap energy and “crypto-friendly” jurisdictions.This may open up healthy competition for other crypto-friendly policy positions in other jurisdictions to attract industry participants—for example, as we have seen, Wyoming’s acceptance of legislation Friendly to decentralized autonomous organizations with General encryptionHowever, it is not clear whether mobile hardware will make it immune to policy blows.

Are we decentralized?

Hardware has always been the main vulnerability of decentralized infrastructure. In blockchain-based cryptocurrency networks based on the Proof of Work (PoW) consensus algorithm, such as Bitcoin, the generally recognized transaction records rely on distributed computer networks.

This is easily affected by structural development, including hardware mining concentrated in industrial-scale factories in certain regions (such as China), using upgraded hardware (such as new ASICs) that have not yet been provided to the wider market to “pre-mine” cryptocurrencies, Or the supply chain is delayed.

Concentrating most of the hashing power in one country, relying on expensive hardware settings, and being subject to regulatory crackdowns, runs counter to the spirit of Bitcoin “decentralization” outlined by Satoshi Nakamoto. Bitcoin’s original vision in its white paper is a peer-to-peer system in which the infrastructure can be run by individuals in a distributed manner (through CPU mining) on ​​general-purpose computers, so that the entire network cannot be shut down with a single point of failure as the goal.

This may also explain why it is important for Ethereum to switch to PoS consensus – and why it is likely to become more reliable and decentralized in the long run. Attacking a PoS network is more costly in terms of time and money than hiring or purchasing hardware to attack a PoW blockchain, because the attacker’s coins can be automatically “cut”.

In addition, running PoS validator nodes on laptops is far less conspicuous than running large-scale hardware mining operations. If anyone can use consumer-grade equipment to run nodes from anywhere, then more people can participate in the verification network, making it more decentralized, and regulators will find it almost impossible to prevent people from running nodes. In contrast, the huge energy-consuming factories found in Bitcoin mining are more likely to be targeted.

What’s wrong with the hardware?

The mining industry is underway, and miners move their hardware to nearby areas, including Kazakhstan and Russia. Some jurisdictions that are friendly to cryptocurrency, such as Texas, which provides legal clarity for companies, are racing to attract miners.The hardware is also sold, and there is a logistics company report Thousands of pounds of mining machines were shipped to the United States for sale.

Although China’s policy Caused some fear, uncertainty and doubt In the market, it may help eliminate structural vulnerabilities from the network, which is why some Bitcoin supporters welcome the crackdownThe goal of Bitcoiners is long-term decentralization. However, mobile hardware is not equivalent to further decentralizing the network and eliminating the loopholes in the regulatory crackdown on miners.

Moving hardware and eliminating vulnerabilities

Hardware is a difficult problem in decentralized networks. Bitcoin’s demand for large-scale infrastructure makes it vulnerable to the policies and politics of China and other countries. Even if mining moves to other places, it may not be decentralized, which means it may be threatened in other jurisdictions, and PoS networks that rely on software that can run on standard laptops may not.

related: Looking to the future: Is the drop in Bitcoin’s hash rate an opportunity in disguise?

These events proved the interdependence between blockchain and nation-state politics and interests. In the long run, how jurisdictions deal with the opportunity to attract hardware mining and how they deal with blockchains that are transitioning to PoS will have a significant impact on the structure and risks of the blockchain network.

Kelsie Nabben is a researcher and PhD in the RMIT Blockchain Innovation Center. Candidate of RMIT University Digital Ethnography Research Center. She is also a board member of Blockchain Australia.

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