Crypto’s Cold War: U.S. and China’s Battle for Blockchain Supremacy

In brief

• China has been actively looking to increase its capabilities in the blockchain and distributed ledger space.
• Most of the world’s bitcoin mines are concentrated in China.
• The rollout of China’s digital yuan project is being viewed by some as a long-term threat to the US dollar.

America’s relationship with China could be best described as “frosty”. The first and second-largest economies in the world have increasingly found themselves at loggerheads; from trade to finance, artificial intelligence to telecoms. 

China and the US have also clashed diplomatically over China’s handling of its neighbors, in particular, Taiwan.

China sees the island nation as a breakaway province that should be brought back into the country’s sphere of influence, whereas America recognizes Taiwan as an independent state and has helped the island arm itself against foreign aggression – namely China.

More recently, those opinions have been extended to the disputed Spratly Islands, a group of uninhabited islands in the South China Sea. 

As the result of vast swathes of oil being discovered beneath the sea, China has been actively expanding its international boundaries by putting military bases on the islands. This has led to a series of skirmishes with neighboring countries also laying claim to the South China Sea. The US has condemned the action.  

In technology, there is a significant rivalry between the two countries when it comes to 5G. The rollout of Huawei’s 5G network – which some claimed was a ploy by the Chinese state to spy on its rivals –  in Europe was met with pressure from US regulators who lobbied to keep Chinese companies out of American allies’ digital infrastructure. 

China’s expanding AI capabilities, facial recognition technologies, electric vehicle production, and its domination of the solar panel market have all brought the Asian giant into increasing competition with America, and in some cases, surging past it. 

One area of America and China’s technological Cold War that’s been heating up recently is around who will dominate the blockchain and cryptocurrency industry. 

American businesses have established themselves as key pillars of the crypto community, the same can’t be said of the US government. While America has pursued a cautious approach to the world of Bitcoin, blockchain, and decentralized ledger technology, China has raced ahead. 

But what does this mean for the future of blockchain, and indeed the future of finance? 

China’s dominance over Bitcoin mining 

While Bitcoin was designed to be a decentralized, global network that allows anyone, anywhere to take part, in just over a decade, the picture, at least when looking at the mining community, couldn’t be more different. 

In 2020, China controlled nearly 80% of the global processing power that runs the Bitcoin network – meaning the majority of the world’s Bitcoin transactions are routed through machines in the country. 

The reason? Cheap electricity and access to the latest and greatest in mining hardware. 

Bitcoin miners in China are found in high concentrations near coal or hydroelectric power plants, in particular places like Inner Mongolia and the Yunnan province. 

This allows the miners to keep their operating costs to a minimum as they churn through vast amounts of power in search of mining rewards, giving them an edge over rivals in more expensive energy regions. This advantage however, could be used by the Chinese state to exert influence over the network in ways other states cannot. 

Emin Gün Sirer, a Turkish-American computer scientist and CEO of Ava Labs, a decentralized finance startup, believes the Chinese state could compel miners to block transactions from certain wallets if it chose to.  

(Read more)