Blind patriotism that encourages further centralization in America's mining industry is a regulatory trap.
This opinion editorial is by Shinobi, who is a self-taught teacher in Bitcoin and a tech-oriented Bitcoin podcast host.
There has been a huge migration of Bitcoin hashrate to the United States since the Chinese mining ban. Pro-American Bitcoiners have made many pushes to attract more bitcoin hash rate to the U.S. and to promote favorable regulatory environments for North American miners. This was done on the basis of American property rights' historical strength, which is one of the main reasons why American capital markets and equity markets are so large.
This is a massive mistake and will have a negative impact on Bitcoin long-term. The entire game theory around the security of Bitcoin mining is decentralization/distribution. It has been clear from the beginning that the majority of Bitcoin miners (51%) can be malicious and act in a manner that seriously degrades or completely breaks the security of the whole system. They can orphan blocks of other miners, which prevents them from participating in the Bitcoin system and earning revenue. They can also exclude transactions from parties that they don't want to transact with, orphaning any blocks from miners who process such transactions from the Blockchain. They could refuse to process Lightning channel closings correctly, and they could also prevent sidechain peg ins and outs. They could completely break the censorship resistance and compromise the security of both the base layer and any secondary layer that is built on top to scale the system.
This risk is not limited to miners who decide of their own accord to act maliciously. They must set up their operation somewhere. This means that unless they can operate legally and invisibly off the grid, which is unlikely, they will have to comply with the laws and regulations in the jurisdiction where they set it up. A large proportion of the total network hashrate is located in one jurisdiction, which poses a security threat to the entire network. Consider how much of the current hash rate is running in the United States. How much is it public companies, registered cohosting facilities and easily locatable business owners? The U.S. government can enforce this hash rate with different degrees of difficulty. By varying, I mean that everything but individual home miners could be accomplished in a matter of days.
The December 2021 Cambridge Bitcoin Electricity Consumption Index showed 38% of the network's hash rate being located in the United States. This is only 13% less than the minimum required to disrupt the network. The Bitcoiners shouldn't encourage legislation and action to push this further away from that point. The United States government is the largest empire in the globe, and we are the world's reserve currency. We are already in serious trouble because of political fallout from decades of engaging in a foreign strategy that almost exclusively benefits America at the expense of countless other countries.
Bitcoin poses a new existential threat to this reserve currency and the benefits that the rest of the world depends on it for. It is often said that America is the shining beacon of freedom and will embrace Bitcoin. In some ways, it is, but in others, it is very similar to China's totalitarian state. Because of the danger that Bitcoin poses to the U.S. dollar, the American government is just as motivated to take down or capture Bitcoin as China. The American Empire established the world order, and Bitcoin is a major threat to it. If there is an opportunity to stop this threat, the government will seize it.
These attacks are not a simple intellectual exercise. The government doesn't have any plans or clues. A system called Chain Anchor was created by 2016 MIT. The system's entire purpose is to perform a 51% attack on Bitcoin's censorship resistance.
Take the time to read all that. Consider the FATF regulations, which have been slow to be implemented over the past few years. The Travel Rule. The Travel Rule. Almost all major exchanges in the ecosystem are actively developing protocols that allow them to exchange personal identifying information, or at minimum, commitments to it, when they engage in transactions on behalf of users. This wouldn't be opt-in — it's a mandate. It's worse than the Chain Anchor proposal. European politicians even floated public proposals to expand KYC requirements to noncustodial wallets.
Consider the current dominance ESG narratives with regard to Bitcoin mining. There is talk of (and regulations that enforce it in certain places) preferential treatment for renewable energy-powered mining. These economic incentives are generally in the form tax breaks/subsidies to operations. These non-Bitcoin financial deals and, in the future, outright payments are a form of bribery for miners. They financially incentivize them to behave in a certain way, outside of the Bitcoin protocol.
This is slowly making it more common for miners to act with these protocol-external incentives. These deals are not available to public mining companies without identification. Consumers don't have rack space at co-hosting facilities if they don't KYC. This is how Chain Anchor slowly creeps in.
The only thing left is to set the hash rate necessary to fully enforce whitelisting of Bitcoin and exempt non-compliant miners. Chain Anchor' has effectively turned Bitcoin into a whitelisted, permissioned system. There is no other option than to hope for new miners that can be produced and brought on-line to overthrow this hostile majority. This is difficult considering how centralized ASIC design and production are in reality.
The only other option is to modify the PoW algorithm. It is highly unlikely that this will happen, even in the face a such an attack. This attack calls into question the concept of a neutral system and destroys both the value and the reputation of malicious and innocent miners' investments. Also, once the attack on ASIC production has been proven to be feasible, nothing can stop it being repeated. Honest miners are discouraged from trying again by nuking previous generations of ASICs. What happens if the attack results in another fork? They risk sinking capital once more into hardware investments that are rendered useless by the attack.
I don't believe Bitcoin can recover from such an attack. Either people will take it and make a profit, or they will lose it completely. It is worthless to have a socially coordinated game of whack-amole to keep it working in a censorship-resistant fashion. It dies or it continues to exist as a scarce, neutered asset.
Bitcoin must avoid being in this situation in order to be censorship-resistant. Bitcoiners shouldn't be encouraging hashrate concentration in one jurisdiction and lobbying politicians and industry to make it even easier for miners to do so. This kind of unthinking patriotism or hyperfocus on "Make America Great Again," is not good for Bitcoin. In fact, it can actually be actively dangerous.
Bitcoin must be distributed securely and safely around the globe if it is to succeed. It cannot be concentrated in America, which is why "America is great."
Shinobi contributed this guest post. These opinions are not necessarily those of BTC Inc.
Title: Mining Concentration In America Poses A Major Threat To Bitcoin
Sourced From: bitcoinmagazine.com/business/bitcoin-mining-concentration-in-america
Published Date: Wed, 14 Sep 2022 22:00:00 GMT
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