I'll be the first to admit that this weekend's Bitcoin (and crypto market) flash crash was a concerning... It opened my eyes to the power China has on Bitcoin mining (or it's total hashrate), and ultimately it's price.
“Hashrate” refers to the total combined computational power that is being used to mine and process transactions on a Proof-of-Work blockchain, such as Bitcoin.
University of Cambridge estimates 65% of Bitcoin mining power is with China. With that kind of power, especially in the hands of China's "socialist consultative democracy", this doesn't seem very decentralized (quite the opposite actually). In fact, as I mentioned, it's quite concerning.
Let's rewind a bit, and discuss what exactly caused the fall in Bitcoin and other cryptocurrencies? Here are the speculations being passed around:
- Market frothiness, especially with Dogecoin's parabolic rise.
- Coinbase's underwhelming direct listing.
- Rumors of the US Treasury investigating money laundering via cryptocurrencies (following Turkey's cryptocurrency ban).
- Decline in the Bitcoin hashrate, due to a blackout in the China's Xinjiang region.
If you couldn't already tell, I'm leaning towards #4, which is most logically backed up with data.
So, how much mining is actually done in Xinjiang, where the power outage took place? From the chart below, you can see it is actually the #1 Bitcoin mining region, controlling 35% of all mining.
Considering we had a 10% slide in the price of BTC from this power outage in one region, I can only imagine what a coordinated outage (or "attack") could do with the other half of China's mining power. There's no denying this is a lot of global power to be had with one country (not being the US, of course).
A coordinated attack would be seemingly feasible, not by seizing thousands of individual miners, but rather taking control of the Chinese mining pools. Chinese mining pools control more than 60% of the Bitcoin network's collective hashrate.
Mining pools are groups of cooperating miners who agree to share block rewards in proportion to their contributed mining hash power.
I'm still a long-term believer in the technology behind cryptocurrencies. But, the ultimate purpose and design of a decentralized blockchain, like Bitcoin, is defeated with an inherent threat of centralization in China.
What are your thoughts? Was this a "threat" or "message" being sent? Should we be concerned?