America’s relations with China have never been friendly. Both the first and second-largest economies are in a tussle and have clashed over China’s treatment of its neighbors.
This holds true more in the case of Taiwan, which China treats as a breakaway province trying to bring it back. On the flip side, America considers Taiwan as an independent state and is helping it fight the foreign invasion from China.
With the vast oil swathes discovered below the sea, China has started expanding its international boundaries. This has led to fights with the neighboring countries as they also claim a right on the South China Sea. The USA condemns this action of China.
In technology, too, both have their share of conflict with regards to 5G. When Huawei rolled out its 5G network, many claimed it was China’s attempt to spy on other countries. US regulators then lobbied hard to keep the Chinese companies out of their digital space.
China’s expansion of AI capabilities, electric vehicle production, facial recognition technologies, and its superiority over the solar panel market has created a competition between it and America.
One field where this cold war between America and China is heating up is in the blockchain and cryptocurrency industry.
So far, American businesses have established themselves as major players in crypto; we cannot say the same for the US government. America has always adopted a cautious attitude to the field of Bitcoin, Blockchain while China is way ahead.
China’s Dominance Over Bitcoin Mining
Though Bitcoin was supposed to be a global, decentralized network open to all, the picture is very different when we look at the mining community.
In 2020 itself, China controlled almost 80% of the processing power that operates the Bitcoin network. This means that a major segment of the world’s Bitcoin transactions happens through the different machines in China. The reason for that is the cheap electricity and access to the best mining hardware in China.
There are a lot of Bitcoin miners near their Coal or Hydroelectric power plants like Inner Mongolia and the Yunnan province.
This helps the miners to reduce their operating costs drastically as they churn through vast quantities of power to get mining rewards, and, in returns, giving an edge over the other rivals.
However, this advantage could be used by the Chinese state to influence the network in ways that other states cannot do.
Turkish-American computer scientist and the CEO of Ava Labs, Emin Gün Sirer believes that the Chinese state could force the miners to block any transactions from specific wallets if need be.
According to him, the miners could be instructed to act in a particular manner. The Chinese Government could tell them that money at particular addresses should not move, and this forces the miners to exclude certain transactions so they can get the sensor out few users of a blockchain.
This has led to the US trying to combat Chinese miner’s dominance. Core Scientific, a US company, having Bitcoin mining operations in the US, has raised funds to establish mines in out-of-use factories across America.
Now states are drawn into this digital currency world, and those who can exert the maximum influence over the mining communities will benefit.
Ripple co-founder Chris Lander writes that “At least 65 percent of cryptocurrency mining is concentrated in China, which means the Chinese government has the majority needed to wield control over those protocols and can effectively block or reverse transactions.”
He concludes this by saying, “The tech cold war is here — and the US isn’t winning,”
China’s Digital Yuan
Central Bank Digital currencies are a hot topic across various states, especially in China. They have launched the Digital Yuan, which is in the testing phase.
More than a lakh people in China have downloaded the mobile phone app from their central bank, giving them the power to spend this digital cash on merchants, including Starbuck and McDonald’s.
On the other hand, the US is still in the beginning stages of identifying public perception towards its own digital currency version.
However, China’s ambitions for the digital currency, apart from giving access to the citizen’s spending habits, would challenge the US Dollar’s strong position as the World’s reserve currency.
The editorial board of the Financial Times feels that China’s fast development of a Central bank digital currency can upset the global monetary situation.
They also say that the Yuan could bypass the western-operated cross-border payment networks like Swift that the US used to enforce the sanctions.
China’s innovations in this blockchain space are guiding the Asian giant to stay ahead of the rivals. The People’s Bank of China itself has filed more than 80 patents in the field of digital currencies.
It is essential for American and western policymakers to realize how seriously China is taking these digital currencies and blockchain technology. It is critical to becoming aware of what those countries are planning who want dominance in this space.
Also, what can be the implications of these plans on the International monetary and financial system. This holds especially true for the US dollar as it is the world’s hegemonic currency.
The US needs to strengthen its research, increase the ability to innovate, and work together to stop China from taking the topmost position in the Blockchain field and gain industrial advantages in return.
Some people name this as Crypto’s Sputnik moment, which references to the Soviet Union’s efforts to gain a lead in the space race that forced the US policymakers to spend billions of dollars on their country’s space program. People are still wondering if the USA will gain momentum or lose this race to China.
