Show Notes
Today on The Negotiation we speak with Jordan Rosenberg to discuss the world of bitcoin and cryptocurrency with regards to China.
Cryptocurrencies were created around 2007 in the aftermath of the Global Financial Crisis. They were noticed very early on in China, a country that had, in fact, been at the forefront of digital currency. China had already been specializing in server farms and hardware production, both of which are required to produce proof of work for Bitcoin.
Bitcoin mining is a very simple business. You have, essentially, four costs: 1) the gear; 2) the place to put the gear; 3) the people to run the gear; 4) electricity. Of these, the most important variable is the cost of electricity.
Speaking on the current state of Bitcoin mining in China, Jordan says that the country’s development plans always call for building in anticipation of demand. To that end, they “overbuilt their electrical capacity”. Those in charge of running these resources are tasked to distribute this electrical capacity. Much of it was plugged into Bitcoin mining, which happens to be extremely energy-intensive. Thus, whoever can provide the lowest electrical cost will dominate the industry. Additionally, all of the leading designers and foundries that actually create the mining hardware are Chinese as well.
According to Peter Thiel, “China loves Blockchain; but it hates Crypto.” Breaking this down, Jordan notes that Blockchain is basically just a distributed database that anybody can look at, and trust that the data they’re looking at is correct. Having technology that permanently stores data chronologically makes for a useful tool. However, China frowns upon the fact that Crypto operates separately from the banking system. In other words, they not only see the potential of the technology but its disruptive potential as well. Crypto, therefore, is heavily regulated and not treated particularly kindly. Blockchain, on the other hand, is openly supported by the government. It is currently used in China mainly for research purposes.
Technically, the Chinese do not need Blockchain as they already have end-to-end digital payments covering every aspect of their life. “Digital payments in China are the only payments in China,” states Jordan. Every single person in China has a smartphone. However, a national Cryptocurrency is currently in development, spurred on due to “the fractured nature of global banking”.
Jordan ends by saying that “Blockchain, much like the internet, can either be a force for great good or a force for great evil. It can greatly empower the vast majority of the people in the world who don’t have a bank account.”
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