{"id":104698,"date":"2021-05-30T02:29:19","date_gmt":"2021-05-29T18:29:19","guid":{"rendered":"https:\/\/www.mediaintel.asia\/?p=396438"},"modified":"2021-05-30T02:29:19","modified_gmt":"2021-05-29T18:29:19","slug":"opinion-bitcoin-holders-have-no-choice-but-to-trust-in-chinese-crypto-miners","status":"publish","type":"post","link":"https:\/\/www.chinalegalblog.com\/en\/2021\/05\/30\/opinion-bitcoin-holders-have-no-choice-but-to-trust-in-chinese-crypto-miners\/","title":{"rendered":"Opinion: Bitcoin holders have no choice but to trust in Chinese crypto miners"},"content":{"rendered":"
\"MediaIntel.Asia\"<\/a><\/div>\n

Finance May 29, 2021 Techy 0 Which of the following two statements bests describes bitcoin mining in China: It represents the actions of individuals acting independently and anonymously, who just...
\nWhich of the following two statements bests describes bitcoin mining in China: It represents the actions of individuals acting independently and anonymously, who just happen to live in China. Even if the Chinese bitcoin miners aren\u2019t explicitly part of a team, the Chinese government is aware of who they are and they could be induced (forced?) to collude with each other.
\nMy question goes to the heart of one of bitcoin\u2019s -3.53% fundamental weaknesses. As you can see from the chart below, two-thirds of the world\u2019s bitcoin mining power is based in China, which is a huge potential vulnerability for the cryptocurrency.
\nThat\u2019s because China potentially could mount what\u2019s known as a majority attack, or a 51% attack, which would sabotage bitcoin\u2019s integrity and possibly cause its price to plunge. As acknowledged on the bitcoin Wiki : \u201cBitcoin\u2019s security model relies on no single coalition of miners controlling more than half the mining power.\u201d
\nWhile Bitcoin has not suffered a 51% attack, that doesn\u2019t mean it couldn\u2019t happen. Such attacks have not infrequently taken place with other cryptocurrencies, according to the MIT Media Lab\u2019s Digital Currency Initiative . One of the biggest occurred in May 2018 with a cryptocurrency known as bitcoin gold, in which $72 million was stolen.
\nThe standard comeback is that bitcoin is so large that a 51% attack would be prohibitively expensive. But, according to Eric Budish, a professor of economics at the University of Chicago, state actors could have a geopolitical or financial terrorism incentive to sabotage bitcoin \u2014 in which case the cost of an attack might be acceptable.
\nA matter of trust
\nIn truth, no one knows whether China could sabotage the bitcoin blockchain. Bitcoin holders just have to trust that they couldn\u2019t or they wouldn\u2019t. There is much irony in this, since bitcoin supporters rally around the cryptocurrency\u2019s alleged foundation on anonymous and decentralized trust. How is believing that China couldn\u2019t or wouldn\u2019t sabotage bitcoin different from trusting the Federal Reserve not to debase the U.S. dollar +0.09% ?
\nIt hardly seems as though bitcoin has really solved the trust problem that fiat currencies infamously face. Trust in China is but one of the ways in which bitcoin\u2019s champions haven\u2019t really sidestepped the trust problem plaguing fiat currencies.
\nMost bitcoin transactions occur through exchanges, such as Binance, Huobi Global and Coinbase Global -4.27% . Such trading inherently relies on trusting those exchanges to do what they say they will. How is that different from trading with Bank of America or Goldman Sachs?
\nMany, perhaps a majority, of those who trade bitcoin don\u2019t truly understand the technical details of how it operates. They therefore are relying on little more than blind trust that bitcoin will work as advertised.
\nDon\u2019t be too sure that you are one of the few who understands bitcoin\u2019s inner workings. I was quite taken in this regard by a comment made earlier this week by Joachim Klement, a trustee of the CFA Institute Research Foundation and the former head of the UBS Wealth Management Strategic Research team and head of equity strategy for UBS Wealth Management.
\nKlement has degrees in theoretical and particle physics, mathematics, economics and finance. And yet, he wrote to clients, \u201cWhenever I try to understand cryptocurrencies I am at a loss. Either, I manage to translate the jargon into something in plain English at which point I often end up with trivial conclusions, or I am unable to translate the jargon and technical terms into something that makes sense.\u201d
\nClaude Erb, a former commodities portfolio manager at TCW Group, draws a parallel between religious conviction and the trust and faith of bitcoin\u2019s devotees. After all, he pointed out in an interview, no one has actually seen the bitcoin blockchain, and yet we have faith that it is all-knowing and benevolent. \u201cIs that all that different from a belief in a \u2018crypto God,\u2019\u201d he asks? \u201cThere are many leaps of faith required.\u201d Erb likens bitcoin\u2019s huge popularity to an \u201cexplosion in trust in a financial God, who may just be the man behind the curtain.\u201d
\nPointing out bitcoin user\u2019s reliance on trust doesn\u2019t mean that fiat currencies don\u2019t also suffer from profound flaws. They do. Similarly, there are huge trust issues with banks and other financial institutions, as we abundantly saw in the Great Financial Crisis.
\nMy point instead is that trust is required whether you use the traditional financial system or cryptocurrency. Be my guest if you want to use bitcoin. But please don\u2019t claim that it doesn\u2019t require as much blind trust as using the U.S. dollar, a bank or an investment firm.
\nMark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected]<\/p>\n

This data comes from MediaIntel.Asia's Media Intelligence and Media Monitoring Platform<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Finance May 29, 2021 Techy 0 Which of the following two statements bests describes bitcoin mining in China: It represents the actions of individuals acting independently and anonymously, who just…
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