Haydn Franklin, Monday 2nd March 2020, 5:55 PM CET
Bitcoin & Ethereum

The People’s Republic of China has a complicated relationship with Bitcoin and Ethereum. Before multiple bans were implemented onto blockchain products, China had prominent trading valuations amongst clientele. Included with these bans were the immediate closures of cryptocurrency exchanges, which extended to legally listed ICOs. Even though it’s illegal to access these products in China, that doesn’t mean there aren’t other ways that this Communist Regime influences the global blockchain sector.

One of the defining ways that the People’s Republic of China influences Bitcoin and Ethereum valuations is through extensive computing power. Some of the most advanced computing systems are maintained in China, allowing for thousands of cryptographic equations to be solved in a short period. It’s through these equations that the Bitcoin and Ethereum consensuses are determined, with this mechanism model considered a Proof of Concept.

Solving these equations through this mechanism model is called Bitcoin and Ethereum Mining. This technology can be executed by large-scale corporations or individual traders, with the requirement of fancy equipment needed to ensure that mining tasks are completed without any hiccups. Companies or individual traders engaging with global mining must have “Super Computers” to ensure that equations are consistently solved.

It’s become well-known that the majority of mining ventures for Bitcoin or Ethereum are completed in the People’s Republic of China. It’s estimated that an overwhelming majority of 65% is recorded for global mining ventures. This has become a controversial subject amongst online traders, with a large percentage believing that China has created a conglomerate of miners. It means the government would’ve strategically compiled these equations to have dominating control over the global blockchain market.

Ripples CEO on Chinese Control

Brad Garlinghouse, the chief executive officer and founder of Ripple, recently made a statement regarding these mining ventures. He stated: “You have four miners in China that represent something like 60% plus of the mining capacity. 80% of the mining capacity is based in China for both Bitcoin and Ether. So, in many ways, I think China has been incredibly strategic about how they think about that.”

Multiple financial analysts disapproved of the remarks made by Brad Garlinghouse. They believe that there isn’t any truth to him, stating China has been strategic in their blockchain efforts. However, they are the only nation worldwide to have all there mining efforts spread between five mining pools. These entities are unnamed but are the primary reason why Ethereum and Bitcoin continue to rise in valuation weekly.

When researching for proof to these statements from Brad Garlinghouse, it’s revealed that mining ventures in China are centralized to five outfits. Evidence suggests that these mining firms work together to increase the rate of equations to mined currencies. It’s expected that these five entities are contracted through the Chinese government, meaning a communist regime has priority control over the global digital financial market.

TokenAnalyst’s Published Report

There has been more pressure for investigative firms to provide detailed reports regarding the centralization of Bitcoin and Ethereum Mining. The most recent report comes from TokenAnalyst, who disclosed the following: “In 2020, bitcoin has also become a highly centralized system that places an increasing amount of trust in a small number of large entities.”

These large entities were listed through this report. It included Btc.com, AntPool, Btc.top, ViaBTC, and F2Pool. All five of these blockchain-based companies are located in the People’s Republic of China or have strong affiliations to that region. It should be noted that these five entities are operated under one substantial corporation named BitDeer. They’ve sold mined Bitcoin and Ethereum for prolong periods, having control over 50% over the market for more than 10+ years.

The report officially stated: “BitDeer announced a partnership with chip manufacturer BitMain…who, by agreeing to collaborate, have a powerful way to ensure a conspiracy of major mining pools uses their AntMiner line of products at a time when they appeared to be struggling. Because of the level of co-operation and trust required to operate this mining model between the mining pools, BitMain and BitDeer blur the line between distinct entities.”

Ethereum Mining

When you start researching the mining strategies implemented for Ethereum, it becomes challenging to locate any sufficient evidence on public forums. This indicates that Ethereum Mining has become more centralized in China than Bitcoin. The question for financial analysts has now become why? With the answer coming down to cost. The Co-Founder of DeCred, Jake Piatt, provided his explanation to reporters. He stated: “The pattern has been that most miners are located in China because of economies of scale present within China and South East Asia. Its where most of the GPUs and ASICs in use are fabricated.”

Ethereum and Tron

Those statements from Jake Piatt continued with: “Since both Bitcoin and Ethereum have pure Proof-of-Work consensus systems, they are subject to the indirect centralization that results from the fabrication process for GPUs and ASICs. Only a handful of facilities around the world can manufacture GPUs and ASICs, which drives centralization of the operation of the ICs being fabricated.”

The associated cost with mining in China is also lower because of electricity costs, which are some of the cheapest worldwide. The more energy that Bitcoin or Ethereum miners have access to, the more equations are solved in this region. Considering that multiple provinces in the People’s Republic of China have an influx of stored energy, it’s a big reason why the costs are low, and the percentage of completed equations are extensive.

CoinTelegraph explained this influx of energy. Representatives from this exchange stated: “Bitcoin mining companies are officially prohibited but are tolerated in the Sichuan province during the wet seasons when hydropower stations generate more electricity than is required, utilizing the excess energy thanks to East Asia’s plum rain.”

Centralization Concerns

Traders are wondering if they should be concerned with the fact that 50% of global mining is occurring in one country. The answer is yes, with geopolitical concerns from the Chinese government always looming over the blockchain market. They could terminate their mining ventures at any moment, with this already happening following the coronavirus. The other concern is that a well-professed hacker could coordinate an attack on these five entities through BitDeer. There’s the potential that half of all mined Bitcoins and Ethereum could be erased or held for ransom. It’s why financial regulators worldwide have worked towards increasing their respective mining operations, hoping to dethrone China. It should be noted that through 2018, China maintained 60% control of global mining operations. Throughout the last fifteen months, that percentage has dropped by a valuation often.

The CryptoVantage Education Firm provided their insights on the Chinese Mining Markets. Representatives stated: “This fact is not as alarming as people make it out to be, though, for the following reasons. China is not directly in control of all of those computers. It is not the case that China has a harness or a method of driving these computers. So, the network is not under the threat of a 51% attack, like many people like to think.”

CryptoVantage wasn’t the only exchange to express their views on this market. Smart Valor also made public statements, with their CEO, Olga Feldmeier stating: “To be honest, I used to be worried about two years ago, I was checking the numbers to see which pool is connected to which pool and if they would ever reach 51%, I was wondering would I lose all my Bitcoins?’”

Her statements continued with: “But the way the Bitcoin network functions, there are certain incentives in the system. All those miners, at the end of the day, their business depends upon this network being alive and working. If they collide and kill it, there will be no future avenues and no future business for them.”

Consensus Alterations for Chinese Centralization

Executives in the blockchain industry are beginning to demand an alteration of Centralized China. Many of them believe that China is gaining more control over this space, with countless analysts arguing these claims with reliable facts. One of those who have argued against the increasing Chinese Centralization is Jake Piatt. He stated: “Bitcoin is roughly as centralized now as it was years ago when I showed up to space in early 2013. A few ASICs manufacturers make all the miners, several Chinese outfits dominate the network hash rate, and several developers dominate the core software development process,” just as they did seven years ago.

Jake Piatt continued his statements, speaking about another Proofs-of-Concept that could be implemented into Ethereum and Bitcoin mining. Piatt stated. “A notable change with centralization in Bitcoin is that there used to be a narrative that Proof-of-Work (PoW) had sovereignty in the network, and this has since been replaced with the narrative that only developers and full node operators have sovereignty. The only way to make mining fairer (and more decentralized) is to use Proof-of-Stake.”

Jake Piatt finished his statements to reporters by mentioning: “The trouble with simple PoS consensus systems is that they reward people for doing very little and become an entitlement system. They also have stability issues because there is nothing at stake when choosing a particular block to mine on. This is what led us to blend PoW and PoS in DeCred. PoW is meritocratic and irreversible. PoS is feudal and reversible. If you combine the two (PoW/PoS), you get a system that is part feudal, part meritocratic and irreversible. When PoW launches with Bitcoin, it was fairer than anything else out there, but that was quickly gamed. Now PoW is the least fair, followed by PoS, followed by hybrid PoW-PoS models.”

Author: Haydn Franklin

Hayden joined whichbroker.com in March 2019. He previously held positions at leading US facing financial news outlets. Hayden's focus is primarily Crypto and Forex news at whichbroker.com, however he is also whicbrokers long form content specialist leading him to write longer posts with an investigative angle. Hayden gradutated from the University of Chicago. Haydn Franklin can be contacted at [email protected], View all posts by Haydn Franklin

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