China is creating its own cryptocurrency, which will allow much easier surveillance and control of their population than existing coins. In order to push bitcoin off its throne and replace it with a digital yuan, China could launch a powerful sneak attack on bitcoin.
In order to push bitcoin off its throne and replace it with a digital yuan, China could launch a powerful sneak attack on bitcoin.Tweet
Bitcoin transactions are handled by “miners,” or powerful computers that perform calculations to verify transactions. A report from scholars at Princeton University and Florida International University notes that 74% of this mining power is in groups, or “pools,” managed by China.
That much computing power, also known as hash rate, gives China an unrivaled ability to hack the currency:
One broadly understood security property of Bitcoin is that no single party can control more than 50% of the hash rate, so this statistic is worrying.
Cheap land and energy have helped China dominate bitcoin mining:
These facilities are primarily located in remote areas with inexpensive electricity and cheap land, such as Sichuan province and Inner Mongolia. These advantages allow Chinese miners to achieve greater profit margins than their competitors in other countries; a study in early 2018 found that one bitcoin could be mined in China at 2/3rds the electricity cost of the same operation in the U.S.
One way China could attack bitcoin and its users would be to refuse to deal with certain addresses controlled by dissidents or geopolitical rivals. China could connect IP addresses and e-commerce data with bitcoin wallets in order to crack bitcoin’s anonymity:
With control of at least 51% of the hash rate, Chinese mining pools could simply announce that they will not mine on chains containing transactions from their list of censored addresses.
China could also use a variety of techniques to double-spend coins, which would undermine faith in the bitcoin system as a whole, perhaps paving the way for their own cryptocurrency.
One silver lining is that although nearly 3/4ths of mining capacity is in Chinese-managed pools, this doesn’t mean the computers doing that mining are all physically located in China. Miners can and do join pools managed by groups in other countries. The Communist Party will likely find it much more difficult to control miners abroad.
In all, China’s authoritarian government and massive influence in bitcoin mining represent a real risk to the currency. Crypto enthusiasts should begin preparing responses to possible Chinese attacks before they happen.
Dig into these posts for more on bitcoin :
- How Bitcoin Could Reach $400,000
- Major Financial Firms Start a Bitcoin Lobby
- This New Indicator May Tell You Where Bitcoin Is Headed
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Photo: “President Kagame and President Xi Jinping of China Joint Press Conference | Kigali, 23 July 2018” by Paul Kagame is licensed under CC BY-NC-ND 2.0