An Analysis of Chinese Influence on Bitcoin

CrowdConscious

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The Cryptoverse

8 min readOct 16, 2018

Chris Coney’s ‘The Cryptoverse’ crypto podcast curation by CrowdConscious.

On Today’s Episode of The Cryptoverse…

Chris dives into his top 6 news stories for the day!

Please feel free to provide feedback in the comments or clap for/share the article if you found it insightful or have suggestions on how to improve the news coverage.

Enjoy!

Watch The Cryptoverse right here in the article!

Episode Transcript, Notes & Links

Apparently The Tron Virtual Machine Just Went Live

I say apparently because a bunch of people were talking about it on social media, but I checked the official Tron channels, their Medium account etc but they weren’t making a big song and dance about it themselves.

The mainnet was already live but the virtual machine opens up app deployment.

My take on Tron is that is has one big competitive advantage since it bought out BitTorrent.

https://www.bittorrent.com

BitTorrent is a technology that has been around since the early 2000’s.

Now a blockchain is a decentralised database that cannot be censored, but apps also need decentralised file storage that cannot be censored.

ethereum doesn’t really have that. Not as part of the system design.

The developer has to do the work of figuring out how to integrate any of the available file storage systems like IPFS.

EOS was supposed to have eosio storage, making use of IPFS to give app developers a true ‘cloud like’ app platform but right now EOSIO storage is nowhere to be seen.

Meanwhile TRON have a long established technology in BitTorrent that allows anyone to download the BitTorrent software and become part of the file storage swarm.

This is what they call Project Atlas:

https://www.bittorrent.com/project-atlas/

If you want to keep an eye on this you can sign up to their email list.

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Continuing With The Show!

While some people don’t like the structure of EOS and it’s 21 block producers, here’s one of the big benefits of such a structure

https://eosauthority.com/blog/moving_the_last_unregistered_tokens_to_the_EOS_Mainnet

Despite the year long token distribution process almost 20,000 Ethereum account holders failed to follow the instructions and generate a pair of EOS keys.

Well one of the big benefits of block producers in EOS being known is that they can collaborate openly.

In this case a group of block producers have created a process by which these 20,000 accounts can get access to their unregistered EOS tokens.

So if you need to claim your unregistered EOS tokens visit the links in the video description and follow the instructions.

Here’s an example of why governments may be forced to adopt a cryptocurrency like Bitcoin

https://bitsonline.com/russian-official-proposes-crypto-arms/

As we have been discussing lately, President Maduro of Venezuela is pushing the Petro as a national cryptocurrency in order to get around US sanctions

The problem they have with the Petro is that the Venezuelan government control it and are therefore going to have a problem getting other governments to trust it.

To state it plainly, governments may behave in similar ways, but they absolutely do not trust each other.

So this article reports that the Gosduma Committee of Economic Strategy, has initiated a proposal to abandon the use of the U.S. dollar in domestic arms deals.

It says the Vice Chairman wants to show the Americans that sanctions are not effective with dealing with Russia.

Here’s the key point, it says Russia wasn’t entirely happy to be paid in Venezuela’s Petro for a shipment of truck parts. This Vice Chairman also said nations might not clamor for a Russian crypto either.

See, governments don’t trust each other, so by the same token, they will not trust a government controlled cryptocurrency.

What they seek is a neutral currency for international trade.

To my mind, Bitcoin is the ideal choice and can be used right now, even with it’s currency capacity.

International trade deals are perfect since they are large transactions that can wait an hour for 6 block confirmations, and the monetary value of the transactions is so large that even transaction fees in the hundreds of dollars wouldn’t matter.

I would argue that Russia would be willing to pay more for a cryptocurrency transaction if it helps them get around sanctions.

What I think would likely happen though is that once the US government sees Bitcoin being used to bypass their sanctions, they are going to come down on it like a ton of bricks.

The thing is though, that won’t help. All the US can do is limit the use of Bitcoin by its own citizens.

If Brazil, Russian, India and China start paying each other in Bitcoin, there’s almost nothing they will be able to do about it.

So while I’m not happy about arms deals in general, the fact of the matter is that they are going to continue for the time being.

And if we can leverage that existing force to get Bitcoin to become an international trade currency, longer term that will lead to the reduction government’s ability to wage wars.

To put it politely, you can’t make an omelette without breaking a few eggs.

On the mission to free humanity from tyranny, I’m willing to do certain things that you may not personally approve of.

I’ll say no more about that, if you want to know more you can read The Art Of War by Sun Tzu.

A new research paper is out providing an analysis of Chinese influence on Bitcoin

https://arxiv.org/pdf/1810.02466.pdf

So the first thing to note is that over 70% of Bitcoin mining power is controlled by just 6 mining pools.

Most people think Bitcoin uses proof-of-work, it doesn’t. It’s supposed to but it doesn’t.

Bitcoin has become a ‘delegated’ proof of work system.

The way it works is that you have your Antminer S9 in your garden shed but rather than mining on your own, which is like trying to win the lottery, you join a syndicate (aka a mining pool).

It makes sense to join the biggest mining pool so you get more chance of a shared mining reward and a steadier income.

So you delegate your mining power to your chosen pool and they manage everything.

This is centralization born out of economies of scale.

The problem is when those pools are largely based in China and the Chinese government decide to put pressure on the mining pools.

If you wanted to compromise the Bitcoin network, you are better off compromising the 6 biggest mining pools to gain control of 70% of the mining network.

This is why I like the EOS model, because instead of 6 mining pools it has 21 block producers.

To gain control of the EOS network you would need to compromise 15 of them.

Another problem caused by mining being centralised in China is the heavy regulation the Chinese government place on the internet.

The great firewall of China that filters all Chinese internet traffic puts a drag on bandwidth and in the past has incentivised Chinese miners mine empty blocks.

An empty block means it’s the smallest possible file size, the miner still gets the block reward, but no transactions are included or confirmed in the block.

These Chinese government government has also affected Bitcoin mining by manipulation of energy prices, which has a direct impact.

Individually these problems may be solvable, but it addresses the symptom not the cause.

The balance this argument out, I’d like to offer this insight.

If Bitcoin mining reflected the distribution of global population, you would expect China to have the most Bitcoin miners since it’s the world’s most populous country.

That was my first thought in defense of what’s in this research paper, however my defense falls apart when you find that China accounts for only 19% of the world’s population.

So basically, China is way over-represented in Bitcoin mining when we look at it through the lens of population distribution.

You may find that a dumb way to look at it, but I’m just practicing the art of mental flexibility rather than jumping to hard conclusions.

Canadian Bank Freezes $28M Belonging to Cryptocurrency Exchange

https://www.cryptoglobe.com/latest/2018/10/canadian-bank-freezes-28m-belonging-to-cryptocurrency-exchange/

Here’s another example of something we have been talking about this week, banks using their power to mess with cryptocurrency businesses.

Like I said in at least 1 video this week, this creates a huge incentive to ditch the use of fiat currencies and instead adopt the use of stablecoins.