Bitcoin has been taking the hits. It started in May when Elon Musk announce that Tesla would not accept bitcoin anymore, because of its environmental impact, followed by China which broadened its crackdown on Chinese mining farms. Chinese miners represent more than half of the global hash rate, but recently the Chinese government became very aggressive, banning more than 90% of all bitcoin miners in the country, forcing them to shut down. Authorities in the province of Sichuan ordered the closure of 26 miners last week. Miners can wait and see what happens, whether regulators will let them resume operations or just bite the bullet and relocate elsewhere. Most of them are already relocating. As you can imagine this has caused the price of bitcoin to tumble, with some making predictions that it could drop as low as $24k. Looking back at the last fifteen months, bitcoin rose from $5,000 in March 2020 to nearly $64,000 by April 2021, with its price hovering around a little over $33,000 as i write this. Two things are certain. Bitcoin will come back much stronger, just like it has in the past, and China is a made a monumental mistake. The move by the Chinese government to pass up on an open monetary system is a strategic misstep. Sun Tzu’s quote: “The opportunity of defeating the enemy is provided by the enemy himself,” holds true in this case. China just put the United States back in the driver’s seat in the fight for trade and tech global domination.
Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet.
Find out why Kryptonio is the safest and simplest crypto wallet.
China has always been hostile to cryptocurrencies. In 2013, it started on a positive note, saying that bitcoin was a virtual commodity and that individuals were allowed to freely buy and sell it, but a year later the PBOC banned banks and payment companies from providing bitcoin-related services. In the fall of 2017, China banned Initial Coin Offerings (ICOs) to protect investors from financial risk. This past May, Chinese regulators expanded the scope of previous bans, tightening restrictions, by halting financial institutions and payment companies from providing services related to cryptocurrencies.
Now Chinese regulators are in the process of removing cryptocurrency mining all together from the country. China has led bitcoin mining with some estimates putting the Chinese hash rate as high as 75%. This year, bitcoin’s hash rate was on a tear, hitting 168,000 petahashes per second (PH/s) in mid-May. Since it has dropped by 40%, to nearly 86,000 PH/s on June 23. Most Chinese bitcoin mining pools like AntPool and F2Pool have witnessed a drop of more than 50% in their hash rate.
Last week, a number of companies involved in cryptocurrency mining began halting operations in China. Cryptocurrency exchange Huobi suspended miner hosting services as well as some trading services, while, cryptocurrency miner HashCow, which owns the world’s largest mining farms, said it would stop selling machines to clients in China.
Fortunately, bitcoin was inherently designed to tackle a drop or rise in its hash rate. It does this by implementing a concept called “the mining difficulty”, which determines how difficult it should be for miners to complete finding a hash. As more hash rate falls off the network, the difficulty will adjust downwards, and the hash rate that remains active on the network will receive more for their proportional share of the mining rewards.
Despite China’s latest crackdown on bitcoin mining and crypto services, China is bullish on crypto, but only if it can control it. China is focused on their brand of crypto, a closed authorization system, which is very different from the open and decentralized protocols that are the basis of cryptocurrencies. The People’s Bank of China has yet to do a nationwide rollout of the digital yuan, developed since 2014, but is instead focusing on trials in the form of lotteries around the country. In early June, China announced that it would be conducting a lottery to hand out 40 million renminbi ($6.2 million) of its digital currency to citizens in Beijing.
Michael Saylor, Microstrategy’s CEO, in a recent interview on Bloomberg, said that China is making trillion-dollar mistake.
I shared my views today with @emilychangtv on the China's trillion dollar mistake, the impact of the China Exodus on #Bitcoin markets and mining, @MicroStrategy's Bitcoin strategy and our capital structure, as well as why I am so optimistic about the future of digital property. https://t.co/TdmVnqA1tK
— Michael Saylor (@michael_saylor) June 25, 2021
China had more than 50% market share of bitcoin, generating $10 billion a year from an industry that’s growing 100% year over year. Given bitcoin’s explosive growth, this could turn our to be a trillion-dollar mistake for China.
Even though bitcoin’s price may have dropped in the short-term, China’s stance on bitcoin and cryptocurrencies is a positive thing. A high concentration of mining activity in one country threatens the entire network. With the majority of hash rate was situated in China, there was always the risk that Chinese authorities would round up the local bitcoin miners and mount a 51% attack on the cryptocurrency, without having to spend a single dollar trying to build up hash rate organically. The fact is that Chinese authorities have helped to ensure the longevity of Bitcoin by reinstituting decentralization. China’s decision to ban mining inadvertently made this scenario less of a concern.
History has shown that open systems always prevail. When the United States unleashes the power of its innovative, dynamic private sector, with the government setting the rules rather than building the products, it usually wins. Contrary to China’s centralized digital currency, the US now has the opportunity to embrace an open monetary system and lead in the innovation, regulation and implementation of blockchain-based digital assets, banking, payments and insurance.
Fostering and supporting innovation can only unleash economic development. In the 1990s, the US supported the development of the Internet, propelling innovation, economic growth and job creation. China’s stance on bitcoin has dealt the US back in the game. We are at the dawn of a decentralized revolution, thats going to be ten times bigger than the Internet.
Whoever leads this race and determines the outcome of its infrastructure and operation, will dominate on multiple levels, including global trade and financial technology.
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