Bitcoin’s present and future in China
On the first day of 2017, the U.S. dollar exchange rate of bitcoin passed the threshold of $1,000. Bitcoin, the value of which more than doubled in 2016, was one of the best investments of the year and the best-performing currency, which can be explained by fear of capital controls in China. However, the price of bitcoin plunged quickly back into the $800 range. Analyzing the likely causes of this rapid rise and fall gives insight into the dominant role that Chinese power-users play in the Bitcoin ecosystem.
In a video interview with Bloomberg\'s Tom Mackenzie on "Bloomberg Markets,” recorded at the recent UBS Greater China Conference in Shanghai, Forde discussed the price of bitcoin, mining and the future of blockchain technology. Forde noted that the price of bitcoin is an important factor not only for speculative investors but also as it incentivizes the “miners” to protect the blockchain.
A technical explanation is in order here: Bitcoin “miners” are those users who keep a copy of the blockchain — the distributed ledger that records all bitcoin transactions that are made — and run the official Bitcoin software to validate transactions, which protects the blockchain and safeguards its security. In exchange, miners are compensated with bitcoin. Today, mining is a very computing- and power-intensive operation. Some home users with expensive equipment can mine bitcoin at a profit, but most of bitcoin mining is done at huge mining server farms.
Forde noted that more that 50 percent of global bitcoin mining is done in China, especially in areas where power is cheap. It’s also worth noting that relatively low labor costs in China permit mass-producing specialized hardware for mining farms. As a result, Chinese power users dominate not only bitcoin trading and mining, but also mining hardware production.
It’s important to emphasize that decentralized bitcoin mining adds to the security of the blockchain. In fact, if malicious agents could acquire control of more than 50 percent of the global mining pool, they could control and compromise the blockchain. Therefore, says Forde, “as governments and large corporations start to adopt the Bitcoin blockchain infrastructure around the world, they will have to think through the concentration of bitcoin mining that is happening in China, and maybe they will have to put up speed in doing bitcoin mining in their countries, to start to decentralize even further and increase the security.
Forde elaborated on the basics and applications of blockchain technology, and the active interest of governments and corporations. In view of the growing importance of blockchain technology, allowing a single country to gain control of the Bitcoin system could be catastrophic.
By Giulio Prisco