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What influence does China have on bitcoin through mining?

According to a recent research report by Florida International University

and Princeton University, China has a huge influence on the Bitcoin network. Mainly due to its monopolization of hashing power. China currently controls about 74 percent of the Bitcoin network. In theory, they could use this position to trigger an attack that can affect more than 50 percent of the Bitcoin system. Such an event would then trigger a chain reaction that could ultimately destabilize the entire Bitcoin ecosystem.

How did China become such a powerful Bitcoin Mining Power Plant?

Probably the availability of cheap electricity is a major factor in the centralization of hashing power in China. According to a recent report published by Diar, China has significantly lower electricity tariffs of about 4-8 cents per kWh compared to the United States and most Western countries. Electricity prices in the United States currently average 12 cents per kilowatt hour (kWh), while UK figures are around 19 cents per kWh. Here in Germany we have one of the highest electricity prices in Europe with an average of 28 cents per kWh.

The Chinese company Bitmain is a good example of a Bitcoin mining success story. Founded in 2013, years before the meteoric rise of the cryptocurrency industry, it played a significant role in establishing the bitcoin mining industry in China. It now dominates about 30 percent of this sector. Mining pools, and Antpool, account for about 16 percent and 14 percent of the market share, respectively.

Why could the Chinese government attack the Bitcoin network?

There are numerous reasons why the Chinese government wants to attack the Bitcoin network. However, according to some Crypto analysts, one plausible reason would be to strengthen the country’s position as a bitcoin hash power monopoly. In order to gain better control over the cryptocurrency market and to keep foreign players away. According to Zhou Yuzhong, a renowned author who has written several books on the development of digital currencies in China, the Chinese government has taken important measures against numerous cryptocurrency activities over the past two years. including the ban on initial coin offerings (ICOs) and blocking access to offshore cryptocurrency exchanges. But what the central bank really wants is to regain control.”

What could such an attack on the Bitcoin network look like?

China could increase its hashing power monopoly by launching a series of coordinated attacks against competing mining pools controlled by competitors in other countries. According to the Florida-Princeton University report, a “Trojan” attack, in which Chinese “participants” appear as miners in foreign mine pools, would allow the submission of incomplete blocks in such pools. Such a covert operation would not raise suspicions and would result in the mining pool missing out on the rewards. A collectively coordinated attack would force frustrated miners to opt for more profitable mining pools, most likely controlled by the Chinese.

The Chinese government could also carry out de-anonymization vector attacks on the Bitcoin network to remove the anonymization of users. De-anonymization would allow the government to monitor the online activities of users, including their Bitcoin transactions.

All the more reason why miners should look for other pools that are not dominated by China. Even if the fees for the miners are then a little more expensive. After all, the whole thing is supposed to be decentralized and so China would no longer have a decisive influence on bitcoin.