There’s been a lot of talk this week about exchanges in China potentially closing their door. In my opinion, this is the least of our concern. There’s been something even worse hovering over Bitcoin.
But before going in more details on this possible doomsday scenario, let’s see why Bitcoin exchange in China closing are not that big of a deal.
China banned Bitcoin exchanges? You haven’t seen anything.
China is only 13% of the Bitcoin volume
The total volume of Bitcoin traded on Chinese exchange is only about 13%.
Mt Gox was controlling more than 60% of all bitcoin volume when it busted in 2013, which was a real reason to panick. Not only it busted, but it took with it all the bitcoin from it’s users shaking the belief of investors in Bitcoin security.
To have a similar effect, we would need to lose 60% of the trading volume which is not going to happen anytime soon.
Over the counter trading and international exchanges
Chinese can sell their bitcoin over the counter or they can simply sell them on international market, keeping the money outside of china, only making worst what the government of China is trying to stop. i.e capital flight.
The People’s Bank of China (PBOC) would have officialy made it an illicit and underground activity but if money is to be made, there would be nothing easier than exchanging Bitcoin for Cash.
Chinese mining would be less profitable because of the added cost and risk to change bitcoin into yuan but at the current Bitcoin price level, I don’t think that would be much of a problem.
The real danger hovering over Bitcoin
Now the real danger that Bitcoin face currently is the miners. There’s today a real problem of centralization of the bitcoin mining industry.
There’s easily more than 60% of all hashing power securing the Bitcoin network coming from China. Certain source say more than 70%! What if those miners where to be shut down? What if the PBOC were to make it illicit to mine Bitcoin.
A reduction of 60% in security of the network
This is the real doomsday scenario. Imagine all transaction put to a halt until the difficulty adjust 2 weeks later because transaction cannot be processed. Yes, the core team developers could hardfork around it but whoa, what a mess.
Investor would be face with the choice of keeping their assets on a network that would be 60% less secure or to sell. Confidence would go down and the price would probably go through another cold period like we saw in 2014-2016.
Obviously, it would be hard for the chinese government to trackdown and shut down at once all the miners, if not impossible. But this is a scenario today that we must envisage.
We have seen the chinese governement taking a stance against Bitcoin and other cryptocurrency in the past few weeks banning all initial coin Offering (ICO) in China and now taking step to shut down or add heavy regulation on exchanges.
This would be the real apocalypse for Bitcoin. Let me be clear here, Bitcoin would survive, but it would damper the price quite catastrophically.
I want to stress this, if Bitcoin mining where to be made illegal in China, it would probably have the same effect than the Mt Gox fiasco.
How long will Bitcoin be at risk?
A japanese manufacturer GMO will start producing Mining Chips for the Bitcoin network. This is not only a good news, this is instrumental for the decentralization and well being of Bitcoin.
As long as a major part of the hashrate is concentrated in china, Bitcoin is at risk.
John Mcafee started a mining facility in the USA and many other entrepreneurs around the world are following suite. We need to support and encourage those efforts.
Miners are the unsung heroes of the Bitcoin industry. We need more people around the world to get into bitcoin mining. The revolution will not be centralized!