Reports & Analysis

Recent restrictions in China have shown that extraction is a barrier to decentralization


Following the mass exodus of miners from China due to the government’s severe restrictions on the area, many experts said that proof-of-work mining facilities were vulnerable to legislators’ actions.

to the the report The Bitcoin Telegraph, the Bitcoin network, relies heavily on large mining infrastructure around the world; On the other hand, many of these infrastructures already exist in China, and the country’s recent restrictions on digital currencies have greatly reduced the bitcoin hash rate. China announced in May that it was stepping up its crackdown on digital currency mining and trading. At the time, the country cited financial threats as the reason for its decision. It is worth noting that China’s tough approach to this area is nothing new and can be described as a repetition of its previous actions. China has previously stated that digital currencies threaten financial stability; Because their prices fluctuate a lot.

For the first time in history, miners are required to implement existing strategies. Mining hardware is still under threat, and it will continue to be threatened if they leave China. This shows that Ethereum’s method of changing its consensus protocol from proof of work to proof of stock is one of the best approaches in this field and it can be considered as a more reliable method of decentralization. On the other hand, this procedure eliminates the dangers that Bitcoin faces today.

Recent restrictions in China have shown that extraction is a barrier to decentralization

As we said, bitcoins rely on the hash rate of large mining facilities. Meanwhile, before the restrictions, about 65% of bitcoin hashes were generated in China. Mining equipment companies also helped strengthen and support the digital currency mining wave in China. Estimates show that out of every 2 ISICs produced, one reaches the Chinese miners. China’s restrictions have not been limited to mining, but have also severely affected the bitcoin market.

The bitcoin network hash rate has reached its lowest level in a year, with officials from two Chinese provinces urging miners to turn off their devices. Uncertainties about what will happen to the recorded devices have also had far-reaching effects on the market. The bitcoin mining industry was once a multi-billion dollar industry, and recent events have caused a great deal of damage to its operators.

China’s policy towards bitcoin has been formulated with the aim of “financial stability” and “public order” and is mainly related to the geopolitical goals of eliminating its national digital currency competitors (digital yuan). China, on the other hand, is looking to reduce its carbon footprint and wants to focus its energy on other industries. Recent developments in China show that Bitcoin’s reliance on industrial farms, supply of related hardware, and electricity, all of which depend on government policy, is the Achilles heel of this digital currency.

Miners are now trying to migrate to other parts of the world that have cold climates and where cheap electricity is available. Easy rules in the field of digital currencies and the extraction of these currencies are other features that miners pay attention to when choosing their preferred jurisdiction. The state of Wyoming in the United States is one of these places. Wyoming is known as one of the states that loves digital currencies. It remains to be seen whether relocation can free Bitcoin from political constraints.

How far are we from true decentralization?

Hardware has always been considered as one of the vulnerabilities in decentralized infrastructure. In proof-of-work Blockchain networks, a copy of the transaction log, known to miners as a valid copy, is stored on the computers of all nodes.

Such systems are vulnerable to certain techniques and conditions. For example, some of them are vulnerable to the concentration of hardware in a geographical area (such as China). Some newer models of ISIC devices or upgraded models are not available to the public and can only be used by a limited number of people. Other challenges include delays in supply chains.

The fact that most of a digital currency’s network processing power is concentrated in one country, relies on expensive hardware, and is vulnerable to policies and legislation, runs counter to the bitcoin decentralization goal mentioned by Satoshi Nakamoto in the digital currency’s white paper. . In the early version of Bitcoin White Paper, this digital currency was described as a peer-to-peer system whose infrastructure consisted of ordinary computers on a decentralized platform. In Bitcoin white paper, the network was provided by relying on the processing power of CPUs, so there was not a single weakness to disable the system.

It may be said that this highlights the importance of changing Ethereum’s approach to stock proof. On the other hand, it makes us aware of Ethereum’s potential for decentralization in the long run. Attacking a stock-based network is more costly and time-consuming than buying the processing power to attack a blockchain; Because in the stock proof protocol, it is possible that the attacking assets will also be destroyed.

On the other hand, setting up a stock-validating node on a laptop is much easier and more likely than becoming a minor node in proof-of-network networks. If everyone can set up a node on their regular laptop, then it can be said that more people will have the opportunity to participate in the network; This will eventually lead to more decentralization, and lawmakers will have little chance of preventing these nodes from being implemented. In the meantime, it should not be forgotten that large bitcoin mining facilities have become an easy target for governments to impose their restrictions on due to their high energy consumption.

What’s wrong with hardware?

Recent restrictions in China have shown that extraction is a barrier to decentralization

The extraction of digital currencies in China is being extended to countries such as Russia and Kazakhstan, which is why bitcoin mining is continuing as before. Meanwhile, some areas, such as Texas, are seeking to attract miners by enacting clear rules in this area. Some are looking to sell their mining hardware. Statistics from transport companies show that thousands of pounds of extraction equipment have been sent to the UK for sale.

Although China has created fear, uncertainty and ambiguity in the market, it may also help address the vulnerabilities of the Bitcoin network; That’s why some Bitcoin supporters have supported the restrictions. Meanwhile, the goal of bitcoin holders is decentralization in the long run; But it cannot be said that transferring mining hardware means increasing network decentralization and eliminating vulnerabilities in relation to government policies and restrictions.

Transfer equipment or eliminate vulnerabilities

In decentralized networks, hardware is a big problem. Bitcoin’s need for extensive infrastructure has made it vulnerable to the policies of countries such as China. Even if bitcoin mining is transferred to another country, it is still not decentralized compared to when everyone can run the mining software on their own laptop.

This reflects the interdependence of the Blockchain and government interests and policies; The jurisdictions seek to take advantage of the opportunities created and want to attract miners, while the blockchain influence their policies. Governments’ approach to stock proof can have a major impact on the future and risks of these networks in the long run.

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