US determined not to be shortchanged on Bitcoin
It seems that legislators, governments and big banks don’t really care much for Mark Zuckerberg’s crack at cryptocurrency. The Libra project is losing members of its consortium almost every month. The recent exit of Mastercard, Visa, Paypal and other notables has shone a spotlight on Facebook’s attempt at cryptocurrency that Zuckerberg and his team may not respond well to.
France and Germany have moved to block the new global “stablecoin” cryptocurrency project, while US lawmakers delivered stern warnings to Libra members. The point to note is that despite the power, size and reach of Facebook, government power remains unrivalled.
As the US flexes its muscles around Facebook’s attempt to create a global digital currency through Libra via negotiating and a good slug of transparency, Bitcoin is still flying solo. And herein lies the danger for Bitcoin.
As you may be aware, Bitcoin is the leading cryptocurrency in terms of market capitalisation, ranking around $148 billion (£114bn). To put this into perspective, its nearest rival Ethereum has a market cap of just under $20bn. However, despite being described as a decentralised global digital currency, Bitcoin operations are primarily housed in China.
Bitcoin uses massive amounts of electricity. The “mining” operation to keep it pure, mathematically correct and secure as a currency requires around seven gigawatts. That is equal to 0.21 per cent of the world’s electricity supply. Over a year, Bitcoin requires as much electricity to keep it sustained as a country the size of Switzerland. That is why China has the lead on Bitcoin mining, due to cheap electricity and infrastructure. But, this makes the cryptocurrency susceptible to geopolitical influence. Hence, why the US is now jumping into the mining side.
So what is mining and why is it so important? Bitcoin is ostensibly sophisticated computer code holding mathematical puzzles within it. If, for example, you buy a portion of Bitcoin on a digital platform like Coinbase, this generates a puzzle that is specific to you. This puzzle is then logged on the Bitcoin servers and requires to be worked out. In solving the puzzle or “mining it” the computers that do this need juice to power the massive computations contained within the puzzle.
The reason for the puzzles rather than simply a number, like that on the front of your credit card, is to keep your Bitcoin secure. This protects it from fraudulent activity and logs it in indelible ink, so to speak, on the global blockchain. In short, no one can fiddle with it or access it as the record of your purchase and ownership is locked in perpetuity and burned on the system. Hence the copious amounts of electricity required to make all this happen.
Mining is crucial to Bitcoin. And the US is now waking up to how vital it may be to relocate some of this function to American soil. Of course, the US government is not funding this, wealthy individuals are. Paypal co-founder Peter Thiel recently invested in a renewable energy-centred Bitcoin mining facility called Layer 1 based in San Francisco. In short, his $50 million along with other investors will build wind and solar powered mining centres in Texas. Land is cheap and now the cost of the electricity to power the mining via renewable sources will be also.
By investing, this Bitcoin advocate is sending a clear statement that he believes in the currency and that he is willing play his part in making the US a powerful Bitcoin mining hub, thus addressing the imbalance of current global mining activities. The state of Texas is open to more sites and it seems there is little negative comment emanating from government. Layer 1 has made clear it is intent on stamping “made in the USA” onto Bitcoin.
As ever, with new tech and wealth creation, the US cannot be seen to play second fiddle. Scaling up Bitcoin mining hubs will give the US a big hand in the Bitcoin of the next decade. Jim Duffy MBE, Create Special
Bitcoin operations
are housed in China, making it susceptible to geopolitical influence