Note from the Publisher: We continue to aim to educate our audience, which is primarily comprised of RIAs, hedge funds, investment bankers and VCs about some of the more subtle points of fintech, but in our HOPEFULLY easy to understand, plain English vernacular. One area of fiintech we cover frequently is cryptocurrencies, since we believe these will have a profound impact on economics, if not now, then in the future. Bitcoin mining, where coders extract bitcoin for substantiating the underlying blockchain, has become an increasingly competitive sport, and success is based on cheap hardware and cheap electricity. For that reason, the majority of new bitcoin being mined right now is coming from rural Chinese facilities, who have access to cheap electricity from power plants built in rural communities who have massive excess capacity. The concern that this is raising is that if the majority of new bitcoin being mined comes from one country, could that compromise the original “fairness” intent of bitcoin in the future, if that country can then overwrite code and put into effect new rules around bitcoin? Very interesting read.
“The concentration of bitcoin mining power in China continues to raise concern in the bitcoin community. A recently produced TechCrunch video, based on Nathaniel Popper’s book, “Digital Gold,” offers an overview of bitcoin mining, including footage from inside of a Chinese mine. Several prominent bitcoin executives offer their views about the issue.
When bitcoin began, miners were the “fanatics” who had fallen in love with bitcoin, noted Popper. But over time, mining has become a specialized profession available to those who have the ability to set up mining centers.
“That’s become something of a problem because the design of the bitcoin software gives decision-making power to the miners,” he said. “These miners around the world have a sort of voting power over the bitcoin software and what bitcoin itself looks like.”…..
As the bitcoin price rises, it incentivizes a miner to activate their mining equipment, said Dave Carlson, founder of Megabigpower Bitcoin and Ether Mining Company, which is in the United States. Miners produce less bitcoin over time, he said, but the value of each bitcoin rises.
Popper said the industry has reached a point where the determining factors in who can profitably mine bitcoin is access to cheap computer hardware, and access to cheap electricity. “Right now, the place where those two things are easiest to find are China,” he said, noting that two thirds to three quarters of all bitcoins mined come from mining installations around China.”