China continues to hurt Bitcoin (CCC:BTC-USD) prices after their central bank issued a notice that it will vet its clients to ensure they aren’t trading or mining crypto. The Bitcoin network will be affected in the near-term, but the effects of China’s actions on the network, in the grand scheme of things, are negligible.
This has all happened before. China does something that affects the Bitcoin network, causing the price to drop and the hashrate to plummet.
The Hashrate Dropped, for Now
The hashrate, by the way, is essentially the combined processing power of the everyone participating in the network to verify transactions.
And, because China continues to crack down on crypto, the number of mining rigs keeps dropping.
But the network will only slow down until Bitcoin’s network can adjust itself to accommodate having fewer active participants — “Bitcoin is programmed to adjust its difficulty level every 2,016 blocks, or roughly every two weeks, to ensure that new blocks are mined at a stable rate.
The key takeaway from this is that this slowdown is temporary. Over time, the network will self-correct itself. The creator of Bitcoin knew the network size would fluctuate over time and coded this functionality into the blockchain.
The network’s power level has dropped, and the network’s speed has consequently decreased. But everything will speed up soon enough.
This momentary hashrate decrease doesn’t matter.
Bitcoin Will Become More Decentralized
And if anything, BTC mining machines will relocate from China to elsewhere in the world. This could be a good thing for the Bitcoin network.
As of June of this year, China’s Bitcoin mining machines accounted for 65 percent of the global hash rate.
Redistributing a portion of this computing power to other locations is good in terms of keeping the Bitcoin network decentralized. Already, one Chinese logistics firm has stated they will be relocating three tons of Bitcoin mining equipment to the U.S.
We expect more mining rigs to make their way out of China in the future.
As this happens, the hashrate will work its way back up to where it was pre-drop, the network will in turn adjust to accommodate the newly re-added miners and the network will trudge onward.
Bitcoin mining rigs moving elsewhere could also likely mean good things for Bitcoin’s green future.
For one, the House of Representatives in the U.S. just passed a bill requiring publicly listed companies to disclose their environmental impact. This will “force” companies to adopt cleaner energy sources if they want to maintain a favorable appearance with much of the public.
Bitcoin Will Be Fine in the Long Run
China’s repeated attacks on Bitcoin and crypto in general continue to cause short-term pain.
But, owing to blockchain technology’s decentralized nature, no single country can bring a network down in the longer term. And in this case, firms in China shutting down or moving their machines elsewhere increases Bitcoin’s level of decentralization.
In time, the hashrate will readjust and the network will return to “normal.”
China cracking down on crypto has temporary, albeit painful short-term effects on the Bitcoin network.
In the words of famous sci-fi author Douglas Adams, “don’t panic.”
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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s the theme of his premiere technology-focused service, Innovation Investor. To see Luke’s entire lineup of innovative cutting-edge stocks, become a subscriber of Innovation Investor today.