The Chinese Communist Party (CCP) has cracked down on Bitcoin miners all over the country, causing most to shut down their operations. Many miners have moved their equipment to North America, Kazakhstan, Russia, Paraguay and Argentina. The result has been a near 50% drop in hash power across the network, but Bitcoin keeps functioning as designed and intended. The Honey Badger doesn’t care.
Some of the other news items this week are:
1. South African Reserve Bank claims that sending Bitcoin to foreign exchanges is a breach of capital controls.
Late last week, the South African Reserve Bank was reported as saying that Bitcoin sent to foreign exchanges and decentralized exchanges, are deemed as forex transactions, subject to capital controls. Currently, the picture is unclear. Was this conjecture on the behalf of the journalist in question, or has the Reserve Bank made a proclamation on the issue? Either way, this is nothing more than opinion at this point in time. Words uttered by the Reserve Bank are not law, despite the events unfolding at Nkandla this week, we do still have a parliament and a constitution.
As per a spokesperson of the SARB: “With the application of current exchange control policy, individuals are not prohibited from withdrawing their crypto assets held on a South African-domiciled crypto asset trading platform to a private wallet,” a spokesperson for the SARB said. “However, transferring the crypto assets from the self-hosted or private wallet to an offshore-based wallet — whether hosted or unhosted, or operated by a business entity such as a foreign-domiciled crypto asset trading platform or an individual — would constitute a contravention of Exchange Control Regulation 10(1)(c).”
While this seems to be a very ham-fisted approach by the SARB, it does illustrate the absurdity of capital controls in the 21st century. Bitcoin makes it easier than ever before for the common man on the street to transact globally, regulations are playing catch up. Does this make a criminal of the average tax-payer? Time will tell.
Read the full article here.
2. MTI liquidators release another 8000 BTC
Disgraced ponzi scheme, Mirror Trading International was placed under final liquidation by the Cape High Court this week. Liquidators managed to track down an additional 8000 Bitcoin (R4 Billion) from a Belize-based forex trader who was facilitating the trades. This is an obscene amount of money, but only roughly a third of the total amount that was lost in the scheme. This should serve as a stark example of “Not your keys, not your coins”. The only reason that the head honcho’s of MTI were able to make off with such a large amount of Bitcoin was because investors entrusted their Bitcoin to MTI as a custodian. Never leave your Bitcoin in the custody of somebody else, is the moral of this story.
While we are very happy that those who suffered losses after investing in MTI are able to recoup some of their investment, this also serves as a stark reminder of the plethora of scams that abound in the wild.
Read more here.
3. Will an African country be next to adopt Bitcoin?
After El Salvador adopted Bitcoin as legal tender, numerous other lawmakers in several countries around the globe have been signalling their interest in Bitcoin. Politicians from Paraguay, Panama and Argentina have all added laser eyes to their Twitter profiles (for whatever that is worth) and some bills are in the pipeline to come before their various law-making bodies. Interestingly though, Tanzania has signaled strongly that they are interested in Bitcoin, after the president instructed the reserve bank to investigate the possibility of making Bitcoin legal tender.
Africa has the highest peer to peer trading volume of Bitcoin of any continent on earth, illustrating that Bitcoin adoption is already flourishing in Africa. Nigeria is leading the charge in this regard. Africa has long been saddled with colonial legacies in terms of their financial infrastructure, far after independence was attained. The Central African Franc is just one example. Could we see an African country breaking free of this mold and boldly embracing the freedom that Bitcoin brings?
Chinese crackdown causes massive miner exodus, leading to 50% drop in hash power across the network
The Chinese Communist Party has recently clamped down on Bitcoin miners across the entire country. Effectively, they have expelled the vast majority of all Bitcoin mining hash power from the Middle Kingdom. While this may seem catastrophic for Bitcoin, it really isn’t at all and may well be a very good thing for decentralization.
Let’s rewind back a few steps first though, to understand how China managed to acquire so much of the Bitcoin mining hash power to start with. China, for those who don’t know, is a communist, centrally-planned state. This means that all economic decisions are planned centrally, by various committees of communist apparatchiks.
As a result, industrial, commercial and residential development is planned years in advance, along with all the requisite infrastructure such as water, sanitation and electricity. The end result is that power generation infrastructure is built out with massive excess capacity in order to meet the expectations of the future population and economic growth, leaving a vast electricity surplus in some regions and in some seasons.
The variation in supply is due to the fact that China has developed large amounts of hydro electricity in the southern regions of the country, which produce massive amounts of power in the rainy season and far less in the dry season. Furthermore, these power supplies are far from where the bulk of consumption occurs, which is predominantly on the eastern coast line. Power, like any other resource, incurs a cost to transport. As such, moving electricity thousands of kilometres to the east, results in losses, reducing the viability of moving the power at all. Thus the situation that has developed, is that China has more stranded electricity than what it knows what to do with, primarily as an artefact of their penchant for central planning.
Enter the Bitcoin miners. Those intrepid individuals who choose to support the security of the Bitcoin network by mining, can only do so if they have abundant, cheap and reliable power available to them. Power consumption is what proof of work is based on, after all. China has massive surplus power reserves, all of which are going to waste, when not consumed for industrial, commercial or residential purposes. Bitcoin miners flocked to China in the mid twenty-teens to capitalize on this cheap and abundant power, acting as a backstop to inefficient central planning and government largesse.
The reality of the situation is that Bitcoin miners in China have been picking up the slack of inefficient government waste for nearly a decade, turning electricity that would otherwise literally have been wasted as heat, into one of the most valuable commodities on earth. We owe Chinese Bitcoin miners a standing ovation for the service that they have provided to Bitcoin. They have secured the network for years and paved the way for the industrialization of Bitcoin mining.
The question remains, why has China expelled the Bitcoin miners? Most plausible, is that Bitcoin is freedom money. It cannot be controlled and as such, it is irreconcilable with communist dogma, which seeks to control every single aspect of the life of the people within the borders of China. It poses an existential threat to the CCP and must be crushed, or removed (much like Facebook and YouTube).
Bitcoin has become too much of a liability to the CCP. Alas, the era of Chinese Bitcoin mining has come to an end, but with every death comes rebirth, and the rebirth in this scenario is one of greater decentralization. Nearly 50% of global hash power was concentrated around the cheap hydro and coal power plants of China, and this hash rate must find a new home. Thus the great decentralization of mining has truly begun.
Hash power is moving to Kazakhstan, Russia, Norway, Sweden, Paraguay, El Salvador, Argentina, Texas, Canada and even Africa. Anywhere that stranded and wasted energy exists, Bitcoin miners will find it. Bitcoin mining is the energy buyer of last resort, and in a world where vast amounts of produced energy is wasted through transmission and supply/demand imbalances, miners will move to capitalize on these inefficiencies. The notion that Bitcoin mining is bad for the environment is asinine. It consumes energy that would otherwise be wasted, improving the efficiency of the entire system, and provides the security for a monetary network that is the alternative to fiat central banking.
So the Chinese mining exodus may have reduced the global hash rate by 50%, but the Bitcoin network chugs on, without interruption. This is only made possible by the Difficulty Adjustment algorithm programmed into the Bitcoin protocol. What this algorithm does is adjust upward or downward the difficulty factor of mining new Bitcoins so as to keep the average block time around ten minutes. It does so every 2016 blocks, which equates to around two weeks. Thus when 50% of mining hash power goes offline in a short period of time, the difficulty adjustment algorithm adjusts difficulty downwards, so that the remaining miners can still find new Bitcoins roughly every ten minutes.
The end result is that transactions are still able to be sent on the network and still take roughly the same amount of time to clear, regardless of how much mining power is securing the network. To put it another way, if half of the banks on earth were all shut down in a short period of time, would the global banking system still function without a hitch? We doubt it. The Bitcoin network achieved all this without the input of a single regulator, politician or civil servant, proving once again that a monetary system can function without the input of bureaucrats or the central banking priesthood.
Bitvice Podcasts and Media
Last week we interviewed Handre van Heerden to discuss all flavours of Bitcoin FUD (Fear, Uncertainty and Doubt) that are pushed in the corporate press. Bitcoin is used exclusively by criminals, Bitcoin will boil the oceans, Bitcoin will just be banned by governments, Bitcoin can’t scale to compete with Visa and Mastercard, etc. It was a great discussion, and we had a fun time going through all the FUD arguments. If you have some reservations about Bitcoin, then this is a great episode to listen to.
This week we will be interviewing Roman Cabanac, host of Morning Shot to discuss anarchism in South Africa and the role that the individual can play in taking control of their lives and community in the vacuum left by the collapsing state. It’s going to be a cracker.
By The Horns is a podcast about Bitcoin in the South African context. You can follow our discussions via video on YouTube or via the audio version on Spotify, Google Podcasts or Apple Podcasts. If you are listening on a different podcast app, here is our RSS feed.
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That’s it for this week. It’s been a wild ride, but as long as the blocks keep rolling, Bitcoin is still alive. No petty tyrant or communist dictator can change that.