China wants everything: military superiority, economic might, and unparalleled political influence. In pursuit of world dominance, its strategy has been to surround the world from all fronts and squeeze it out of everything. So far, everything seems to be falling into place.
One eye-catching development is in respect to bitcoin. Surging global demand has allowed China to claw back into its pre-eminence in the world economy. The country is home to the biggest bitcoin miners, which place the Communist Party at the heartbeat of this financial revolution.
What China can possibly do with the power it wields is still subject to debate. Perhaps the bitcoin community should take this threat literally.
Nothing without infrastructure
Bitcoin is still in its early optimistic glow, and this star is shining ever-brighter. The arcs of bitcoin’s tumultuous 12-year run, from Bull Run to Busted Bubble’ and back, the optimism about it is growing. It’s now a darling for investors feeding the latest price hike, nearly doubling previous all-time-highs.
Yet, a deeper dig into bitcoin reveals the gamble bitcoin users are making. Bitcoin has no underlying asset supporting its value. Rather, the community of peers determines its value, which largely stems from the platform bitcoin is built upon. In a sense, bitcoin is nothing without infrastructure.
Simply put, bitcoin needs what China has to remain viable. The discovery that Chinese mining pools control as much as 80% of the network hash rate was met with skepticism in bitcoin circles. It is astonishing how much China has gradually grown its influence to become the ultimate authority in the network.
So far, the Chinese government has taken a mostly hands-off approach to bitcoin mining. The biggest miner for the network is the Beijing-based Bitmain, right under the eyelid of President Xi. Bitmain operates two mining pools that collectively account for 30% of all processing power.
Today, roughly 74% of the hash power is generated in China. Perhaps the world should pay China the complement of acknowledging they mean what they say and know what they want: world dominance. Give it to them for their share of the global hash rate of the financial system of the future.
Even though it would be nearly impossible for the Chinese government to interfere in mining pools. However, these mining pool managers find themselves within Chinese borders.
Can China Sway Bitcoin?
Mao Zedong made it his life’s work to destroy capitalists. Deng Xiaoping said anyone could cash in on China’s growing internal market. Now Xi Jinping is making good on his agenda, reflecting a desire for greater Communist Party control.
Ever since taking office, President Xi has overseen a sea of change in how the Communist Party approaches the economy. He imposed a totalitarian system to strengthen the party's control in government and business, especially in technological innovations.
Among its fearsome regulations: regular crackdowns on business engaging in cryptocurrency transactions. In fact, some bitcoin price dips have been attributed to crackdowns by the Chinese government.
Bitcoin was launched with political bona fide. The great irony today is that Chinese companies and individual users dominate their daily activities. These users are not carrying out a libertarian protest or subverting the status quo by processing cryptocurrency transactions.
What do the darkening political climate and growing belligerence towards private enterprise in China mean for bitcoin? Can China sway bitcoin into submission?
The question is what the network can do to fend off any aggression from the Chinese mainland for bitcoin. For China to control the network (a 51% attack), they'll need to devote many resources at a high cost.
True, China does have the money to blow on such an undertaking, but this is highly unlikely. The game theory here only makes protecting the network profitable. The same makes it expensive to orchestrate a network-wide attack.
A Credible Threat to Bitcoin
For anyone looking to trade or hold on to some bitcoin, dealing with China is inescapable. Despite this fact, not even a 51% attack can hand China a means to access your bitcoin holdings. The threat only goes as far as blocking new transaction confirmation, which can be easily detected and corrected.
What can China do with bitcoin dominance? The question is less about economics but more on national security. For China, economic strength through technological innovation is fundamental to government survival and paramount to its goal on the global stage: defang the US of its stature.
For far too long, America has lived on top of the world with no peer competitors. Even as China grew gradually, most people regarded it as a small threat. China is adopting forward-looking measures that the US once implemented to stay ahead of the technology race.
The US is falling out of sync with the world on bitcoin. This fiercely contested battle for bitcoin pre-eminence is increasingly heading in the one direction: China. The pandemic has only accelerated the migration to a cashless society, and China is ready to cash in on it.
With China in the driver seat, the possibility of launching a digital variant to the Yuan for the world is a critical threat to bitcoin. The bitcoin experiment has found secular growth. This is the right time for the Chinese made bitcoin-equivalent.
The push to internationalize the Yuan is underway. The Chinese government strongly believes it can eliminate America’s monetary sovereignty by placing itself in a position to compete with the dollar. They are already further ahead in this development: the future of money. In fact, China looks more and more interested in containing the threat bitcoin poses within its borders than abroad. The country is on the verge of implementing a cashless society. Perhaps someday, everyone will use the Chinese digital currency.
The Future at the Hands of the Chinese
By now, you can tell which issues the Communist Party under President Xi takes seriously and view as crucial to their political and substantive success. For now, attacking or controlling the bitcoin network is too expensive to be on the party’s radar.
In the meantime, the US seems to have finally woken up to the threat of Chinese dominance of bitcoin, which puts them at a disadvantage. Perhaps the US will finally push for friendly regulations to compete with Chinese power.