Money and power have always been closely linked. So much so, that it sometimes becomes hard to distinguish one from the other. Power brings forth wealth and wealth can buy power, it’s very rare to see an individual who posses one but not the other. This brings me to my next point: He who controls the supply of money, controls the world. So, it’s no surprise that throughout the known history of humanity, the supply of money was always controlled by a central figure, either the royal court (in the old days), bank, or government.
However, everything changed with the arrival of cryptocurrencies to the scene. There were a few attempts to create a cryptocurrency before Bitcoin, but none of them were decentralized by nature, and ultimately, that’s the reason they failed. Centralization of power was always the norm, and still is, even thought centralization as an expression only started being used in the 1700’s. Bitcoin is more than just technology or money, is a way of empowerment. It’s premise as a movement is to bring down central authority, and the hierarchical power structure inherent to central systems, in order to bring forth a more decentralized system where power is evenly distributed. This is all fine and dandy, but is it really so? Yes and no.
Because bitcoin was designed as a proof of work model, the use of money is truly decentralized, but mining is not. Let’s look at our brothers in the Asian continent and their relationship with cryptos. Because of cheaper electricity costs, mining is mostly done in Asia. Besides the cost efficiency factor, it is also a legally favorable continent, with bitcoin remaining unregulated in most Asian countries. However, things could change in the upcoming years. The Indian and South Korean governments have announced plans for regulation, and in Japan things look promising, bitcoin is already recognized as a legal payment method and the implemented 8% consumption tax on bitcoin transactions was lifted in July. In contrast, the Public Bank of China recently imposed trading fees, causing trading volume to go down drastically on the former trading leader of bitcoin.
But out of all the Asian countries, China is the undisputed giant of cryptocurrencies. Roughly 60% of all bitcoin mining is done in China and out of the five biggest mining pools in the world, four of them are located in the country and are responsible for the majority of blocks mined last year (AntPool, F2Pool, BTCC, BW Pool). And because of China’s negligent environmental policies on pollution, and coal being a very available and cheap power source, mining operations are usually built around or near coal extraction facilities. These massive facilities are the most cost efficient, so much that it’s hard for foreign competition to keep up, and they basically convert carbon into cripto, ruining the environment and quality of air in the process.
The biggest manufacturer of mining equipment is Bitmain, making China the world’s leading manufacturer of mining equipment. And it’s not only bitcoin and ASIC mining, GPU mining is also big there. Genesis’ Engima, the world’s largest Ethereum mining operation, is located in Hong Kong. And after the recent Ethereum price explosion, with other altcoins having some impact as well, there was a mining boom, to the point that created a global GPU shortage.
Indeed the centralization of mining goes against what bitcoin should be. Having too much mining power condensed in one country makes Bitcoin susceptible to price manipulation and leaves the network extremely vulnerable to political changes of a centralized authority. With time, we hope to see Bitcoin mining being spread out throughout the world.