Opinion: Bitcoin [BTC] has seen one of its worst weeks this year, as the price tanked almost 30% from the mid-$6000s to the low $4000s mark. Many have speculated the drop in price to be due to a decrease in the hashpower of the Bitcoin chain, as this is being delegated to the BCH chain, where Bitmain has been pushing the dominance of their Bitcoin ABC implementation.
While this presents another move in the price, which does not seem to matter in the long term due to the impending adoption of Bitcoin as a currency and/or institutionalization, it opens up a more serious issue. This presents a problem that many Bitcoin maximalists have been skirting for a long time.
Bitcoin’s true power:
BTC was created as a “peer-to-peer electronic cash system”, and was designed to be trustless and permissionless. While it has since evolved to serve a purpose as a store-of-value and has lost its permissionless aspect due to the emergence of centralized exchanges, it is no longer trustless. Bitcoin aimed to be decentralized due to its peer-to-peer nature and the one CPU-one vote model originally proposed by Satoshi Nakamoto. This has then been twisted beyond its most stretched definition, with the Bitcoin network not only evolving beyond utilizing CPUs for mining but also creating centralized cartels that have taken the form of mining pools.
The absolute vision of cartelizing and centralizing Bitcoin thus becomes its biggest enemy. Not its rising electricity costs, which comes up to 61.4 TeraWatt hours per year, not infighting and forking among its various offshoots, but centralization. The one true power of Bitcoin has effectively been stripped away from it.
Centralization and Bitcoin’s overlord:
The mining power of Bitcoin is centralized in the Chinese and Russian regions, owing to their reduced electricity costs. Moreover, the creation and general mass adoption of Application Specific Integrated Circuits has increased the mining difficulty on the BTC chain to a point where CPUs or GPUs cannot be utilized effectively for mining. In the battlefield of miners, the one who holds the most power is also the one who creates the weapons.
Bitmain stands undisputed as the market king in the ASICs space, capturing over 70% of the market share and deploying large amounts of hashpower to the chain. They have also been accused of operating secret mining facilities, utilizing AsicBoost without the knowledge to find blocks faster, and outright lies as to their declared hashpower.
They also operate the largest Bitcoin mining pool known as AntPool and another pool known as BTC.com. Moreover, they are direct investors in another pool known as ViaBTC, along with speculated collusion with the BTC.top and Bitcoin.com pools. In June, this combination of pools effectively put them over 51% network control.
The threat, and the consequences:
The effect of Bitmain’s control over the chain is seen now, when they delegated hashpower, causing it to decrease and pulling the difficulty down with it. Jihan Wu, the CEO of Bitmain, stated before the fork:
“I have no intention to start a hash war with CSW, because if I do (by relocating hash power from btc mining to bch mining), btc price will dump below yearly support; it may even breach $5000. But since CSW is relentless, I am all in to fight till death!”
This has since then caused a decrease in the market cap of Bitcoin to the tune of $21 billion. Global, decentralized, trustless and sound money does not lose 1/5th of its total value over an inconsequential hash war.
In this time of capitulation and absolute chaos reigning supreme, one coin has been the most resistant to heavy price drops and loss of sentiment. In fact, it has increased its hold on the market, as it has begun to cement its position as a hedge for those observing losses from Bitcoin. It has more proponents claiming it is centralized, and that it is likely to dump at any time. It has been called an unregistered security and a scam.
The coin in question is XRP, which has shown its power against centralization by maintaining a lower loss percentage than almost all other coins in the market. More than experiencing losses, the coin has bounced back multiple times over the week.
Even as Ripple, the company that is set to utilize XRP, owns over 50 billion XRP, all of the tokens are locked up in escrow accounts that cannot be broken until the time frame on the expires. It also does not utilize the wasteful and non-eco-friendly Proof-of-Work algorithm that Bitcoin utilizes.
It instead relies on a Consensus algorithm which also does not provide incentives for validators. Incentivization of mining or similar algorithms will lead to centralization, as actors will wish to get their hands on as much of the network’s power as possible.
Money has also flowed into XRP, cementing its place as the #2 cryptocurrency in the market in the midst of the bear’s run. Ethereum [ETH] has since faded, with its market capitalization far behind that of XRP.
The rise of XRP to prominence might be indicative of the general movement of the market in the future. If a group of centralized actors is able to effectively control the fate of an $80 billion market, this will make institutional investors think twice before investing in the #1 cryptocurrency, something that has already begun to be seen with the delay of Bakkt. The consequences of this drop might be felt for a long time to come.
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