The Chinese government is making another move to put a stop to what it considers bad behavior. This time, they’re cracking down on industrial Bitcoin mining operations. They’ve become a big problem in Zhejiang province, where the government has shut down all mining operations. They now plan to implement a complete ban on mining by the end of the year, although some believe that might be an overreaction.

The government of China has taken a step in cracking down on Bitcoin mining operations throughout the country. In particular, the central government is targeting companies that are using cheap, unlicensed labor to mine Bitcoin.

China’s announcement that it will ban cryptocurrency exchanges and stop their mining operations has potentially big implications for the mining industry. The mainland’s restrictive crypto policy and its increasingly aggressive enforcement of anti-money-laundering rules have already driven many miners to leave the country, causing a frenzy of speculation that China’s Bitcoin mining operations would be next to close.. Read more about what is mining bitcoin mean and let us know what you think.China crackdown shows industrial Bitcoin mining a problem for decentralization

Bitcoin’s dependence on large-scale mining infrastructure and geographical concentration has been greatly exacerbated by the recent suppression of mining in China. China announced in May that it would tighten measures against cryptocurrency mining and trading in response to financial risks. Government suppression of cryptocurrencies is not new; rather, it is a repeat of previous reports about the risks of digital currencies to economic stability in response to recent price volatility.

For the first time, cryptocurrency miners are being audited for compliance with existing regulations. Mining equipment still poses a potential risk, even if mining activities are moved to other locations. This could be evidence that moving from the Ethereum blockchain to Proof of Sharing (PoS), which can run on user-friendly hardware, is a more robust path to decentralization and more resistant to these risks.

Bitcoin (BTC) mining relies on large crypto-currency industrial mining companies and is largely concentrated in China, which accounts for 65% of global hashrate. The production of specialized equipment in China has supported this trend: every second ASIC miner produced is sold to Chinese miners. This decision has caused a major stir in the bitcoin markets.

The bitcoin network’s hash rate has fallen to its lowest level in 12 months, and more and more provinces are ordering miners to stop working. The uncertainty over the fate of the seized mining equipment has hit the entire network hard. This is a huge loss for China’s miners, who were a multi-billion dollar industry.

China’s stance on bitcoin is focused on financial stability and social order, and may be the result of geopolitical interests related to its desire to eliminate competitors to its own national digital currency, the digital yuan, in addition to its stated goals of reducing carbon emissions and redirecting energy to other industries. This swift action has shown that bitcoin’s reliance on industrial mining companies, blockchain hardware and electricity – all of which are dependent on public policy – could be its Achilles’ heel.

Miners are now looking for countries with cooler climates, cheap energy and cryptocurrency-friendly jurisdictions. This could open up healthy competition for other crypto-friendly policy positions in other jurisdictions to attract industry participants – as we’ve seen in Wyoming, for example, where legislation has been passed supporting decentralized autonomous organizations and crypto in general. However, it is not clear whether the relocation of equipment will help make it inaccessible to political repression.

Are we decentralized yet?

Hardware has always been a major vulnerability in decentralized infrastructures. In blockchain-based cryptocurrency networks that use a consensus-based proof-of-work (PoW) algorithm, such as. B. Bitcoin, the traditional recording of transactions relies on a distributed network of computers.

This is vulnerable to structural exploitation, including the concentration of hardware mining in industrial plants in certain geographic regions (e.g., China), advance mining of cryptocurrencies using improved equipment not yet available in the broader market (e.g., a new ASIC model), or supply chain delays.

The concentration of most of the hashing power in one country, the reliance on expensive hardware, and the vulnerability to repression from the legislature all contradict the decentralized ethos of bitcoin that Satoshi Nakamoto talked about. The original vision of Bitcoin, described in the white paper, was a peer-to-peer system in which the infrastructure could be managed by individuals on general purpose computers in a distributed fashion (via CPU mining), so that the entire network could not be brought down by a single point of failure.

It could also show why Ethereum’s move to consensus PoS is important – and why it has the potential to be more reliable and decentralized in the long run. Attacking a PoS network is more time-consuming and expensive than renting or buying hardware to attack a PoW blockchain, because the attacker’s tokens can be automatically truncated.

Moreover, running a PoS validation node on a laptop is much more discrete than large-scale hardware mining. If anyone from anywhere can manage a node with consumer devices, more people will be able to participate in managing the network, making it more decentralized, and it will be nearly impossible for regulators to keep people from managing nodes. In contrast, the huge, energy-intensive factories used to mine bitcoin are much easier to attack.

What is happening to the device?

The mining industry is in flux, with miners moving equipment to neighboring regions, including Kazakhstan and Russia. Some cryptocurrency-friendly jurisdictions – like Texas, which provides legal clarity for businesses – are looking to attract miners. Equipment is also being sold, with logistics companies reporting that thousands of pounds of mining equipment are being shipped to the United States for sale.

While the Chinese policy has created some fear, uncertainty and doubt in the market, it can help address structural vulnerabilities in the network, so some bitcoin proponents have welcomed the crackdown. The goal of bitcoiners is long-term decentralization. However, moving the devices does not equate to further decentralization of the network and correcting regulatory gaps with respect to minors.

Movement of equipment against vulnerability removal

Hardware is a complex issue in decentralized networks. Because Bitcoin requires large-scale infrastructure, it has become vulnerable to the policies of countries like China. Even if mining is moved elsewhere, it won’t be decentralized, meaning it could be threatened in other jurisdictions, just like PoS networks that rely on software that can run on an ordinary laptop.

Related: Mapping the future: Is Bitcoin’s declining hash rate an opportunity in disguise?

These developments demonstrate the interconnectedness between blockchain and the policies and interests of nation states. How jurisdictions respond to the ability to attract hardware mining and how they treat blockchains that transition to PoS will have important long-term implications for the structure and risks of blockchain networks.

Kelsey Nabben is a researcher at the RMIT Blockchain Innovation Hub and a PhD candidate at the Digital Ethnography Research Centre at RMIT University. She is also a board member of Blockchain Australia.

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