Bitcoin's Libertarian Dream Ironically Strangled by the Chinese Communist Party's Firewall

Last Wednesday I pointed out that Bitcoin transactions failed to meaningfully grow in 2015; last Friday, a disenchanted Bitcoin insider revealed the inside story in this powerful Medium post. It's pretty ironic, because for years, Bitcoin enthusiasts have insisted it's not a virtual currency the same way Linden Dollars or another MMO currency is. But as it turns out, Bitcoin's growth is being stymied by a problem that's pretty much what's plagued MMOs like World of Warcraft for years -- gold farming from China. Here's why:

[T]he block chain is controlled by Chinese miners, just two of whom control more than 50% of the hash power. At a recent conference over 95% of hashing power was controlled by a handful of guys sitting on a single stage. The miners are not allowing the block chain to grow.

Why is that such a problem? Ironically enough for a currency that is so appealing to libertarians -- because of well, the Chinese Communist Party:

[T]he Chinese internet is so broken by their government’s firewall that moving data across the border barely works at all, with speeds routinely worse than what mobile phones provide. Imagine an entire country connected to the rest of the world by cheap hotel wifi, and you’ve got the picture. Right now, the Chinese miners are able to — just about — maintain their connection to the global internet and claim the 25 BTC reward ($11,000) that each block they create gives them. But if the Bitcoin network got more popular, they fear taking part would get too difficult and they’d lose their income stream. This gives them a perverse financial incentive to actually try and stop Bitcoin becoming popular.

There's a lot more involved, but that's the core of the issue. So to sum up: A virtual currency which promised to free us from government oversight and oppression is being successfully strangled in its crib by one of the world's most oppressive regimes. Without hardly even trying. Atlas shrugged? More like Atlas, slugged.

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Comments

[Tim Button]

More like whiny ragequitting. https://medium.com/@bramcohen/whiny-ragequitting-cab164b1e88#.a1nqsefei

[Wagner James Au]

Yeah I read that. Cohen would be a lot more convincing if he directly addressed the Chinese gold farmer/Communist firewall problem.

[Pussycat Catnap]

What is meant by the phrase "block chain"?

That's one that has just managed to escape my vocabulary so I'm struggling to understand what you're writing about here.

[patchouli woollahra]

The Blockchain is essentially a cryptographically-backed journalling system that basically doubles as a transactional handling and recording system. This actually provides a semi-private record of what transactions occur within the cryptocurrency that uses the said blockchain (albeit based on arcane wallet IDs that are usually impossible to tie to specific users or groups without knowledge from other aspects)

FMI, here's a very basic primer on BitCoin's operation: https://bitcoin.org/en/how-it-works . The full details are extremely arcane, just leave it at "it really works... until it suddenly doesn't in China" for the moment.

[Desmond Shang]

This seems more like a case of mistaken identity than anything else. Essentially, too many people presumed that bitcoin was going to become something far different than what it really is. It's not some wondrous global gift to mankind. It is, however, a really good way to do illicit transactions, and it's also a phenomenal vehicle for all manner of fraud and financial schemes. Silk Road. Mt Gox. Plus other plenty of other small exchanges that disappeared overnight.

The Chinese aren't killing bitcoin, nor are the miners. The reason bitcoin doesn't live up to the dream, is because bitcoin's technical definition allowed this scenario to develop. Buyer beware, indeed. When a 'necessary upgrade' goes directly against the interests and technical capabilities of the party required to upgrade, it's not an upgrade at all (for them) is it?

Consider any merchant surviving with their online business, being asked to wipe themselves out for the good of hordes of anonymous other people. Is that a libertarian thing to ask of anyone? Clearly not! It sure does smell like governance, though. But wait, we have other alternative currencies (99.9% of them in fact) which are governed, to various ends.

There may be some future flavour of cryptocurrency that solves these problems, but rest assured that currency will be ruthlessly gamed, attacked, and abused by legions of the worst criminals on earth. That happens now with regular money, but there won't be any FDIC to insure your bank account against a failed bank, or a VISA or MC to call to report fraud. And better hope there's absolutely no exploits, ever, on your smartphone or computer because the stakes will be very high.