Princeton University released a report on October 5th revealing China’s substantial influence on Bitcoin through public policy and private mining activities.
Titled The Looming Threat of China: An Analysis of Chinese Influence on Bitcoin, it argues that the nation has strong motivations to control Bitcoin activity as well as the capabilities to do so.
“One of the most powerful potential adversaries is the country of China, which has expressed adversarial positions regarding cryptocurrency and demonstrated powerful capabilities to influence it.”
The authors found that many Bitcoin blocks published in China are empty, which is unusual. Blocks fill with transactions although occasional empty blocks occur during mining.
The paper suggests that China’s Great Firewall may be incentivising miners to purposely keep blocks empty as its low bandwidth creates a bottleneck in connections.
This situation is characteristic of the complex relationship between Bitcoin and China. Chinese mining companies are the biggest producers of bitcoin in the world. But while enormous Bitcoin network activity occurs in China, the government has yet to give its blessing.
In September 2017, the CCP announced a ban on ICOs and placed stringent regulations on token sales. And more recently the government put a halt to all bitcoin transactions, fearing the commodity’s high volatility.
Bitcoin and China: A Complicated Relationship
China’s Communist Party (CCP) is wary of Bitcoin’s decentralised and unregulated nature.
In many respects, Bitcoin is the antithesis to modern Chinese society and government. The former symbolises libertarian ideals of freedom and independence, and the latter embodies communalism and centralisation.
It isn’t hard to find proof of this clash — recent Chinese policy has demonised Bitcoin, while crypto forums denigrate the authoritarian state.
But it isn’t all bad news.
Eric Zhao, the man behind the CNLedger Twitter account, said that “officials are starting to treat crypto projects more like a neutral endeavour towards technology and innovation” in an interview with Quartz Media.
Zhao is leading a push to raise awareness of Bitcoin and other cryptocurrencies in China. CNLedger’s Twitter account posts examples of bitcoin use in everyday life.
Next time people tell you bitcoin is banned in China, show him this pic. pic.twitter.com/MC3Q2yzBcx
— cnLedger (@cnLedger) February 8, 2018
Should You Worry?
The Princeton University report speaks of China as a future threat. But has the nation already taken over the bitcoin market?
Technically, it’s impossible. So long as cryptocurrencies remain banned, there is no way the Chinese government will be able to gain a foothold in the market.
Nonetheless, the Princeton report is fuelling fears of Chinese supremacy in online forums and threads. On Reddit, user Michapman2 felt the report was underestimating the influence China already holds in the crypto community.
“[The Chinese] aren’t a looming threat to the industry — they are the crypto industry.”
In this case, the crypto market has been conflated with crypto mining activity. Chinese groups do oversee most bitcoin mining, thanks to the nation’s low electricity prices.
According to the authors’ research, Chinese mining groups Antpool, BTCC, and Bitfury alone produce more than two-thirds of new bitcoins on the network today.
But these coins are not kept stateside. Connected with exchanges in Taiwan, Hong Kong and Singapore, the mined coins integrate into exchange reserves and circulate worldwide.
The Princeton University report highlights major fears in the crypto community but also paves the way for constructive discussion. And as bitcoin adoption increases, these are the conversations we need to be having.