Blockchain Capital Managing Partner Brock Pierce said in a recent interview that although there are legitimate concerns with the current state of Bitcoin mining, the blockchain-focused venture capitalist indicated China’s stranglehold on the mining process will not last forever.
Pierce was interviewed on the most recent episode of This Week in Startups, where he was asked about the issue of bitcoin mining centralization. The source of the question appeared to be Mike Hearn’s farewell Medium post in which the former Bitcoin developer claimed the Bitcoin payment network is “controlled by China.”
Pierce Would Not Invest in a Chinese Bitcoin Mining Operation
Pierce said bitcoin mining in China is probably not always sanctioned by the Chinese government. In fact, Pierce suspects various mining operations in the country may be going on without the government’s knowledge and behind closed doors.
Pierce said he would not invest in one of these mining operations due to the legal uncertainty surrounding them.
He noted:
“In China, you’ve got a lot of the hydro dams. They offer one to two – we’ll call it two to four megawatt facilities. The problem you have in China is you’re not allowed to buy energy from anyone except for the government, and so when these deals are being done, they’re being done outside of the government, so they’re probably in violation of the law. There’s some risks there about its long-term sustainability. I would not be comfortable investing in one of those operations because there’s a bunch of risk factors there that I don’t know how to quantify.”
In Pierce’s view, the fact that these operations may not have the blessing of the local government could impact their long-term viability as profitable investments.
Bitcoin Mining May Not Scale in China
Pierce said the legal ambiguity surrounding Bitcoin mining in China also means it may not be able to continue to scale with increased Bitcoin adoption over time. Pierce put Bitcoin mining’s scalability in China into question due to his belief that this is not something being financed by the Chinese government:
“The question is: Are they stealing? Are they circumventing? In some cases, are there backdoor deals? And obviously, these sorts of things do happen in that region. There are those risks where, long term, I wonder how scalable it can get because I don’t believe this is like – I don’t believe the Chinese government has decided this is a matter of national security and are financing this. I believe this is a lot of sort of backdoor dealing and guys hustling to make a buck.”
An inability to scale to much larger levels of hashing power would likely mean the rest of the world would eventually catch up to China and retake majority control of the overall network hashrate. Pierce pointed to BitFury and KnCMiner as two companies that could eventually help bring more of the Bitcoin network’s hashing power outside of China.
Not a Long-term Risk
Pierce said the China-related question is this is not an issue that keeps him up at night.
He noted:
“I don’t go, ‘Oh, this is a long-term, legitimate risk.’ … I don’t think China has a monopoly.”
And besides, Pierce noted, there wouldn’t be much to worry about even if the majority of mining continued to take place in China. In his view, Bitcoin’s incentive structure persuades everyone in the system to act properly.
He explained:
“The thing that I rely on more than anything else is more than a contract; it’s an alignment of incentives. How do the the Chinese miners that are investing all this money and hustling to make a buck benefit by destroying Bitcoin? The most important thing that I think we have as an industry is everybody’s interests are aligned that are currently investing in this.”
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, RT’s Keiser Report and many other media outlets. You can follow @kyletorpey on Twitter.