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Industrial BTC mining is a problem for decentralization

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BTC depends on extensive mining infrastructure. China’s recent interventions in this infrastructure have highlighted the problem, which has been there for some time. The country’s intervention against cryptocurrencies is not new, but rather a tougher repetition of previous positions.

Achilles heel

BTC mining is dependent on large industrial mining farms and is largely concentrated in China, which accounts for 65% of the global hash rate. Custom hardware production in China has supported this trend, with every second ASIC produced being distributed to Chinese miners. This restriction has caused considerable confusion in the BTC markets.

The speed of the BTC hash has dropped to a 12-month low, and other provinces have ordered miners to close down. Uncertainty about what could happen to seized mining hardware has hit the entire network hard. This is a huge loss for what was a multibillion-dollar industry for Chinese miners.

China’s political stance on BTC seeks “financial stability and social order” and is probably the result of geopolitical interests linked to the desire to eliminate competition from its own national digital currency, the digital yuan, alongside declared goals of reducing carbon emissions and redirecting energy. A quick hit showed that BTC’s dependence on industrial-scale mining farms, hardware and electricity supply chains could be its Achilles heel.

Decentralization failed

Hardware has always been a major vulnerability of decentralized infrastructure. In blockchain-based crypto networks that run on a consensus proof-of-work (PoW) algorithm, such as BTC, the commonly agreed transaction log is based on a distributed network of computers.

This is vulnerable to structural abuses, including the concentration of mining in industrial plants in certain geographical areas (eg China), “pre-harvesting” of cryptocurrencies using upgraded hardware not yet available on the wider market (eg new ASIC models), or delays. in the supply chain.

Most of the hashing force concentrated in one country, dependent on expensive hardware assemblies and subject to regulatory intervention, contradicts the “decentralized” ethos of BTC outlined by Satoshi Nakamoto. BTC’s original vision was a peer-to-peer system in which the infrastructure could be run by individuals on a universal computer in a distributed manner (via CPU extraction), so it would not be possible to shut down the entire network by focusing on a single point of failure.

What’s up with the hardware?

Mining is on the move and miners are moving their hardware to surrounding areas, including Kazakhstan and Russia. Some cryptocurrency-friendly jurisdictions compete to attract miners. Hardware is also on sale.

Although Chinese policy has created some fear, uncertainty and doubt in the market, it can help remove the structural vulnerability of the network, which is why some BTC supporters have welcomed the intervention. The goal of BTC supporters is long-term decentralization. However, relocating hardware is not the same as further decentralizing the network and removing vulnerabilities to regulatory intervention.

Hardware is a difficult problem in decentralized networks. BTC’s demand for extensive infrastructure has made it vulnerable to policies and measures. Even if mining moves elsewhere, it may not be decentralized, which means that it could be endangered in other jurisdictions.

Conclusion

Although you may not like China’s approach, it is true that the greed of Chinese miners has shown us that concentrated mining is indeed a problem. Sooner or later, restrictions and bans would come, mainly due to the CBDC being in the pilot phase.

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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.
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