The world’s two largest economies are carrying out the largest national power competition in history, involving trade to artificial intelligence and other aspects, and the new battlefield, the blockchain field, is also sounding the clarion call for charging.
Tensions in Sino-U.S. Relations
China has been actively seeking to improve its breakthroughs in the field of blockchain and distributed ledgers, hoping to establish a new moat in this field, and most of the world’s bitcoin mining farms are concentrated in China. The recent launch of China’s digital renminbi project is regarded by the industry as the most direct threat to the US dollar.
In recent years, the relationship between the United States and China can be described as “cold and frosty.” The world’s largest and second largest economies have increasingly found that the two sides are in opposition, whether it is from trade to finance, or from artificial intelligence to electronic technology. China and the United States also often encounter diplomatic frictions.
In terms of technology, when it comes to 5G technology, there is a clear competition between the two countries. The launch of Huawei’s 5G network in Europe was claimed by those with intentions to be the Chinese state’s ploy to monitor its competitors. As a result, US regulators stepped in and they lobbied their European allies to oppose Chinese companies’ entry into European digital infrastructure systems.
China’s expanding artificial intelligence capabilities, facial recognition technology, electric vehicle production capabilities, and its dominance of the solar panel market have made the Asian giant’s competition with the United States increasingly fierce, and in many respects, it has surpassed the United States.
The technological cold war between the United States and China is also gradually heating up in a new field, and both sides are vying for the leading position in the blockchain and cryptocurrency industries. U.S. companies have established themselves as a key pillar of the cryptocurrency community, while the U.S. government has always maintained a cautious attitude. And when the United States hesitated to look at the new world of Bitcoin, blockchain, and decentralized ledger technology, China has taken strides to embrace these new technologies and fields.
But what does this mean for the future of blockchain and even the future of finance?
China’s dominance of Bitcoin mining
Although Bitcoin is designed as a decentralized global network, allowing anyone to participate anywhere. But in just over ten years, the situation has not been what Satoshi Nakamoto wanted. At least in terms of mining, centralization is already a certainty.
In 2020, China controls nearly 80% of the processing power of the global bitcoin network, which means that the vast majority of bitcoin transactions in the world are conducted through Chinese-operated mining machines.
what is the reason? Because China has cheap power resources and convenient access to the latest and most advanced mining hardware. Bitcoin miners in China are mainly concentrated near coal or hydroelectric power stations, especially in places such as Inner Mongolia and Yunnan Province. Cheap hydropower has prompted the booming development of China’s Bitcoin mining farms. This allows miners to use large amounts of electricity to obtain mining rewards while still being able to keep their operating costs at a low level, giving them an advantage in competing with rivals in more expensive energy regions. However, China can also use this advantage to exert influence on the entire Bitcoin network, while other countries do not have this ability.
Emin Gün Sirer is a Turkish-American computer scientist and the CEO of a decentralized financial startup Ava Labs. He believes that if the Chinese government wants to, it can force miners to block transactions in specific wallets at any time.
The government of China’s Inner Mongolia announced a proposal that includes regulatory measures aimed at helping the region reduce energy consumption, such as shutting down Bitcoin mining plants. Inner Mongolia will ban Bitcoin mining. What does this mean for the mining industry?
In an interview with The Wall Street Journal, Ava Labs said, “This is a very serious problem. The local government may force these miners to act in a certain way, such as freezing funds in certain addresses, blocking some transactions, or even Control the users on certain blockchains through coercive means.”
With increasing competition for furniture, the United States is also pushing some organizations behind it to try to change China’s leading position in the mining industry. Core Scientific is a Bitcoin mining company established in the United States and has raised hundreds of millions of dollars to establish crypto mining farms in abandoned factories across the United States. Many other companies have also joined its team. Marathon Patent Group, which has mines in Montana and North Dakota, has its stock price up 9 times in early 2021, and Riot Blockchain, a competitor from northern New York, is also enjoying this wave of dividends. Although these companies have increased their market share in Bitcoin mining, they still have a long way to go to shake the status of China’s mining industry. Inner Mongolia is a center of Bitcoin miners, accounting for 8% of the computing power required for the operation of the global blockchain. The computing power of only one province of China is more than the computing power dedicated to blockchain in the United States.
Ripple’s co-founder Chris Larsen wrote in a review article, “As more countries are involved in the world of digital currencies, those countries that can exert the greatest influence on Bitcoin and other mining communities will have an absolute advantage. At least 65 % Of cryptocurrency mining is concentrated in China, which means that the Chinese government has absolute control over the entire network and can prevent or reverse transactions at any time. The technological cold war has already existed, and the United States has not won this time. And this is not the case. The only area that China hopes to dominate.”
At present, the mainstream acceptance of Bitcoin is getting higher and higher, but the trust in the digital currency is still a difficult problem that cannot be avoided. Many uncertainties have always blocked the world’s most popular cryptocurrency-Bitcoin at the legal level To be recognized. Although the United States has not positively recognized Bitcoin, this has not hindered the popularity of Bitcoin on a global scale. China’s lead in cryptocurrency may have opened a technological gap with the United States.
Parianne Boring, chairman of the American Digital Chamber of Commerce, wrote, “Now China and the United States are entering a new phase of the Cold War. The “space race” between the Soviet Union and Russia has now been transformed into the lifeblood of establishing and controlling the future digital economy and blockchain cyberspace. Competition.”
China’s digital renminbi
CBDC has become a hot topic in several countries in the world, especially China. China’s digital renminbi is in the advanced testing stage. More than 100,000 people in China have downloaded a mobile app from the central bank, enabling them to consume small amounts of digital cash distributed by the government at some of the pilot outlets. At the same time, the United States is still in the early stages of exploring public perceptions of the dollar as a digital currency. However, China’s CBDC is not just to change the currency usage habits of citizens, but to ultimately challenge the preliminary preparations for the US dollar as the world’s reserve currency.
The “Financial Times” editorial department stated, “China’s rapid development of CBDC is very likely to re-create the world monetary order. It can bypass the current mainstream cross-border payment network (alluding to the US “financial nuclear bomb” Swift), thereby circumventing international finance. Sanctions.”
Alex Tapscott, one of the authors of the book “Blockchain Revolution,” said, “China is on the verge of launching its own digital currency, and at least on this issue, the United States is dragging the first echelon. These two centers The vision of the bank’s digital currency runs counter to. The United States wants to protect the US dollar as the global reserve currency and maintain its hegemony. China wants to export its economic model to the rest of the world.”
China’s innovation in the field of blockchain is also helping the Asian giant to stay ahead of its competitors. The People’s Bank of China alone has applied for more than 80 patents related to digital currency. Some experts and scholars in the United States have sounded the alarm about the widening gap between the two countries.
The Digital Chamber of Commerce warned the U.S. government in an article last year, “For policymakers in the U.S. and the West, it’s vital to understand the importance of digital currency and blockchain technology in China and other countries. What we need to realize is that the influence of China and other leading countries in the crypto field on the international currency and financial system, and more precisely, the influence on the US dollar as the world’s hegemonic currency and the US’s international superiority already exists.”
But these warnings may be too late. In the year before the Digital Chamber of Commerce report, Xi Jinping, President of the People’s Republic of China, told China’s most powerful political institution the importance of gaining an advantage in blockchain for the country’s future success. “It is necessary to strengthen basic research, improve original innovation capabilities, and strive to make China lead in the emerging field of blockchain, occupy the commanding heights of innovation, and gain new industrial advantages.”
Some people call this the Sputnik moment of the new Cold War (the beginning of the Cold War), but in this “crypto-cold war”, will the United States be left behind, or will it suddenly wake up and catch up? We will wait and see.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.