The falling hash rate of Bitcoin, as a result of China shutting down Bitcoin mining operations throughout the country, is only a near term snafu. Even though the short-term price of Bitcoin has suffered, Bitcoin will emerge more geographically decentralized as a result of these shutdowns.
As you can see in the chart below, the hash rate for mining Bitcoin has been dropping dramatically. As more miners in China are forced to go offline, the amount of hash power contributing to the network is declining.
The reduced hash power on the network will lead to longer block times. You can see this in the below chart as the average block time is now over fourteen minutes. But this will balance itself out. Mining will become less difficult based on the Bitcoin protocol, and the block time will get back to normal; however, the Bitcoin network is indeed currently running slower. And because of this, transaction fees are likely to increase until more miners come online, or block time normalizes back to about 10 minutes per block. For an in-depth analysis of hash functions and block times, check out Blockchain Explained.
On the surface, less support for the network is seemingly destructive. But consider this: the concentration of mining power in China opens up the possibility of a 51% attack by the nation. A 51% attack is the way a single power or miner gains control over the blockchain. By refusing to mine on the main chain agreed upon through consensus by the miners—the attacker instead mines on an invalid chain intentionally. This forks the blockchain. The attacker is then able to build an entirely new chain based on untrue data. Bitcoin was designed so that 51% attacks are extremely difficult, as you would have to control 51% of the network to conduct it.
Back in May, about 75% of Bitcoin was mined in China—making a 51% attack by the Chinese government a real possibility. But with China’s miners shutting down operations, the total percentage of Bitcoin mined in China will decline drastically—hence making such a 51% attack improbable.
In a democracy—a coordinated 51% attack is much more improbable. Even if a democratic nation state held more than 51% percent of the mining power within its borders, the miners in a free nation would just refuse to comply with the order—unlike China, miners in democratic societies are protected by constitutional rights and are free to make their own choices over personal property.
Thus, by having Bitcoin mining diversified among multifarious countries, preferably democratic nations, the geographic balance of power shifts in a positive way. China could never use its authoritative power to force the miners within its borders to initiate the aforementioned 51% attack.
Would a 51% attack by the Chinese government kill Bitcoin?
It would not. It would just be a transfer of power. Likely, the price would suffer in the short term and the Bitcoin chain would split into two, but the miners outside of China would continue to mine on their end of the newly forked chain. Bitcoin would certainly survive, though its hash power would be temporarily reduced. Ultimately, it would be a great big hiccup in the grand evolution of Bitcoin, but Bitcoin would emerge more geographically diverse in this scenario as well.
So long as no single authoritarian government has greater than half the mining hash power within its borders, and so long as Bitcoin is geographically disbursed among many countries, the threat of a 51% attack by a nation will become a thing of the past. In fact, because the Chinese government booted their miners offline, sovereign nations that may be considering adopting Bitcoin as currency now have a more geographically diverse Bitcoin. As it has been said by Michael Saylor, “What doesn’t kill Bitcoin makes it stronger”—Bitcoin will rise up from the latest hash crash more geographically balanced, more secure, and thus more in sync with the decentralized values of the cypherpunks.
Long Bitcoin.
