HOLY COW! Someone in the crypto space who actually looks into what's going on.
As someone who remembers Microstrategy's rise and (i thought) fall and had to use the product, well done. As for Musk: regardless of what you think of his accomplishments, he's a nut. In the reverse-of-howard-hughes model.
But, you are the CryptoWhale and all that applies. I would love to hear your comments on the following:
THE MAIN PROBLEM
The People’s Republic of China (PRC) controls more than 2/3 of transaction validation/mining of most PoW cryptocurrencies. PoW blockchains are non-scalable and slow to the point that the overwhelming majority of transaction activity occurs off-chain in the form of Coinbase, Huobi, Binance and a stack of others. So, if you remove 2/3’s of the processing capacity, these venues would do what they do now: give you an instant transaction but one that would have no reality on the chain(s).
There is no such capacity up and running or available in reserve anywhere on earth to replace what China controls. Transactions will simply not happen or some will, at best, be queued the only place they can be, these exchanges.
As it stands now, depending on where that transaction originated and went, it can at best be around 8 minutes before it is true on the chain(s). And, again, can and does frequently take way longer.
If the CPC (Communist Party China/Xi jinping) decided to shut down most or all mining on its territory and by companies headquartered in the PRC, that would effectively shutdown all PoW crypto. I say effectively, because the relatively small amount of crypto which is block-validated/mined outside China/Chinese control would have no way of making up for a 2/3’s loss in anything but months. And, maybe not at all if the supply of ASICs and rigs (95%+ produced by China) was also stopped or even just slowed by the CPC.
And then there’s BloxRoute. This enables even the rate at which transaction replication across the chain is concentrated and accelerated (currently) almost exclusively in China. You can look up BloxRoute and what they do. But they have one enormous and concentrated set of customers: Chinese miners. It’s quite clever tech and I’ve met and spoken with Kuzmanovic, CEO, when we were both in China back in 2019. It’s a private networking infrastructure that accelerates transaction replication across chains. Really brilliant work. It would still take a massive (and otherwise completely implausible expansion) increase in mining operations in some other place, but having this would accelerate the restoration of “reasonable” transaction rates faster if used by all the (non-existent) fallback miners.
So, this is the technical reality. If you can supply any facts that suggest this is not what happens if the CPC makes the choices described, I would love to hear them. And, for all fact-based empiricists out there in crypto world (the few, it does seem to me), then I would really like to hear how they think this would play out.
THE POLITICAL PART
And then, the political/financial reality. Is this possible/likely…and WHY?
This is where, of course, things really matter. The fact that China is motivated to push crypto, yet outlaw it at home for all its citizens, is one that they have made no effort to hide: creating doubt and mistrust in Western Liberal Democracy (WLD). The practical foundation (skip whether you’re a fan or not) is the dollar reserve economy (DRE) and its institutional infrastructure.
I assume you are familiar with China’s Belt-and-Road initiative. Massive projects are financed and largely carried out by Chinese in countries where resources and infrastructure (railroads, roads, ship ports, airports, etc.) are important to put beyond the reach of the power of WLD/DRE. This means both the democratic/human rights project and its support from the DRE. This is done by issuing loans to these countries in huge amounts of Renminbi. Which most of them by and large cannot afford, yet currently have to convert to dollar to be able to repay. At the same time, China is moving fast to create the Digital Yuan/Digital Renminbi. And they have stated clearly that this will be used to denominate these loans already issued and future ones. And the rest is a lengthy explanation of how economics of this will work. I’m happy to take up the details of that with you if you are interested. But I assume you understand much of this well enough.
But how would Crypto fit into this plan? FUD. As I have pointed out before, the more crypto that finds itself into mainstream WLD finance, the more vulnerable the system becomes to the effect a shrinkage/shutdown of Crypto mining would produce. I probably don’t need to fill you in on the detail of this, but one thing I would point out: When a large enough number of corporate, institutional, hedge fund, and individuals are invested in Crypto (as is becoming the case) directly or indirectly, the more vulnerable both the “buy side” and “sell side” financial institutions (JPMorganChase, Citibank, GoldmanSach, BankOfAmericaMerrillLynch, MorganStanley, Citadel, BlackRock, etc.) together become. And, like it or not, they are the core of our financial system. Removing the technical platform of crypto would easily trigger a panic that could rock this system and … of course… create doubt and a loss of trust in the whole system. You don’t need actual failure, just enough.
ENERGY CONSUMPTION ISSUE
Despite still a lot of denial in the space, yes, crypto is terrible from a carbon footprint standpoint. And, I believe, it is at this point in time massively worse than that of “physical banks”, etc.
Taking this from CoinMarketCap.com, the global crypto market cap is $2.36T.
Just the U.S. banking system ALONE is $17.9T.
And when you consider that a banking system is made up of a huge number of different products (payments, loans, financial instruments, a massive variety of services both physical and digital) that serve ECONOMIES, not just a bunch of traders/speculators/small-time investors and a tiny bit of payments, hopefully it is easy to understand that there is no way to compare these.
BASIC FACTS
At least 65% of BTC is mined in China…it’s the same or more for other PoW coins
https://asiatimes.com/2020/05/bitcoin-hash-rate-65-is-concentrated-in-china/https://cbeci.org/mining_maphttps://www.statista.com/statistics/1200477/bitcoin-mining-by-country/https://news.bitcoin.com/65-of-global-bitcoin-hashrate-concentrated-in-china/https://www.forbes.com/sites/youngjoseph/2019/12/12/new-report-shows-china-dominates-bitcoin-mining-is-this-a-sign-of-worry/?sh=7114ebdb42e1https://www.buybitcoinworldwide.com/mining/china/https://decrypt.co/27879/you-can-now-watch-bitcoin-being-mined-around-the-worldhttps://www.investopedia.com/news/bitcoin-wont-win-worldwide-adoption-because-china-controls-it-ripple-ceo/
Chinese citizens and the law
Regarding the law in China, you have to read closely and understand. The short of it is (as I state in my writing) Chinese citizens are prohibited from buying/selling/having an account on an exchange, but are permitted still to “own” crypto:
https://www.mondaq.com/china/fin-tech/944330/regulation-of-cryptocurrency-in-china
Rig Manufacturers:
NOTE: AMD and Bitfury have a tiny fraction of the market. All ICs in the Chinese rigs are Chinese designed and manufactured.
Chinese - ASICminer Co.
Chinese - Baikal Miner
Chinese - BitMain Technologies Holding Co.
Chinese - Canaan Inc.
Chinese - Cynosure Technologies Co. Ltd.
Chinese - Halong Mining
Chinese - INNOSILICON Technology Ltd.
Chinese - Shenzhen MicroBT Electronics Technology Co. Ltd.
Chinese - EBANG
Dutch (sort of) - Bitfury Group Ltd.
American - Advanced Micro Devices Inc.
