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Comment by chollida1 | Hacker News Reader

I'm not sure if this is good or bad.

On one hand, having the government lay down a set of rules for the exchanges to follow could be seen as a stabilizing force.

On the other hand, it also, in my mind, increases the likely hood that if the government becomes unhappy with the exchanges that all the exchanges will be shutdown at once, which isn't great for bitcoin.

Big question I'd like answered.....

If I hold bitcoin, I'd do some very serious looking into what happens if most of china's exchanges and miners suddenly are brought off line for a couple of weeks.

I'm mostly interested in the secondary effects.

- ie will it lead to mass redemptions at other exchanges?

- which exchanges are fully cashed up? and which are working with fractional cash reserves?

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"If I hold bitcoin, I'd do some very serious looking into what happens if most of china's exchanges and miners suddenly are brought off line for a couple of weeks."

As much as I don't like bitcoin, there is one bit of robustness built-in. If China were to shut down all of the exchanges and farms, the balance of hashing power for the bitcoin network would essentially leave China and be split between the remaining connected exchanges. This would hurt yuan/bitcoin rates, but would probably stabilize rates for the rest of the world economies attempting to utilize it.

If China were to shut down bitcoing mining, my understanding is that the worst case scenario is much more dire. The network only adjusts the 'difficulty' relative to current network hash power every 2,016 blocks. Depending on the severity of the overall hash power reduction, new block discovery might slow down significantly. This would also delay a recalculation of the new difficulty accommodating the reduction in hash power.

The network could be severely throttled for weeks.

How can you actually shut down mining? Maybe they'd make it harder for miners to convert bitcoins to fiat, but that wouldn't stop the mining.

I doubt they actually care about the mining, but they certainly could shut it down if they wanted to. I mean, it's China. It's not exactly difficult to locate the miners either - look for the building using 400 MW that doesn't have any steel or widgets coming out.

But I think the parent's point was that, if the Chinese exchanges were shut down, that could have a big impact on price if the hypothesis is true that most bitcoin activity is evading Chinese capital controls. If the hit was big enough it might push mining into unprofitability. This is all speculation, but not impossible.

First, yes, there are large farms of miners, but that's only some of the mining power. While these mining farms can be targeted and shut down, a significant amount of mining power is actually held in places that wouldn't be easy to locate. Those miners are going to keep mining as the owners have a strong economic incentive to do so, even if their mining pool in China gets shut down. They could, for example, just connect to a pool outside of China.

Also, what would happen to all the mining equipment should a mining farm get shut down? If the shut down is permanent, you can bet the people that own those machines would try to sell those miners as quickly as possible to people outside the country that can run them.

The economic incentives of bitcoin are such that there will be significant resistance to any government attempts at shutting down.

FWIW, the largest Bitcoin mine in the world is more like 10MW, and most are significantly smaller than that.

I do agree though that shutting down the larger Chinese mines wouldn't be too difficult if the government had the will to do it.

> How can you actually shut down mining?

You may not be able to shutdown mining, per se, but if you are the PRC government, you may be able to isolate miners in China from the network (especially if it is important enough to you to accept false positives), which has the same pragmatic effect.

"the worst case scenario"

"The network could be severely throttled for weeks"

That's exactly what would stabilize it instead of it having the wild multi-hundred dollar swing it's experienced essentially since inception. It's the wild hashing power China currently holds right now that's giving it the dominant influence over the currency. Reduce the dominance, spread the risk, stabilize the currency.

This is like a basic lesson that was taught in the TV series "Reboot" with Dot Matrix vs Captain Capacitor - Diversification.

>"I don't like bitcoin...hashing power for the bitcoin network would essentially leave China and be split between the remaining connected exchanges"

Exchanges aren't necessarily the miners. Your first phrase suggests you may not know much about bitcoin, but maybe you have info I am missing. Are all the big exchanges also miners now?

Majority of mining power is in China. If the govt is really cracking down enough to take their exchanges offline, an ancillary effect could be that Chinese miners would get skittish and stop. (Or not, they could well just keep operating in the hopes that the government won't go after them). Hard to say.

Won't guys like this https://www.youtube.com/watch?v=K8kua5B5K3I get affected? If all they can do is mine but not cash out, what happens to the network transaction speed and the overall difficulty?

How is cashing out got anything to do with processing speed?

Thanks for this explanation.

What are you thoughts if China had the goal of making the Yuan/bitcoin rate worth less to increase exports...this sounds like it could be one of many actions they could decide to take.

I find this incredibly interesting.

Historically speaking, that's shooting themselves in the foot. They'll drain their own resources, which is truly our ultimate plan (and why a majority of our resources are currently locked up - our national security depends upon exploiting resources outside of our homeland to maximum efficiency.)

> which exchanges are fully cashed up? and which are working with fractional cash reserves?

If an exchange is running a fractional reserve then they aren't an exchange, they are an insolvent fraud.

And you will only know for sure when they finally stop withdrawals all together... just like MtGox did.

You can know for sure if they fail their cryptographic proof-of-reserve.

Unfortunately, people don't want proof-of-reserve as they flock to exchanges which don't use it, and people always get what they want, good and hard.

It's worth noting that Mt. Gox started with blocking fiat withdrawals first. That was a situation of insolvency; this is the heavy hand of government. Apples and Oranges.

And it is much more limiting to move fiat around than it is to move bitcoin.

If they stoped fiat withdrawal and kept bitcoin withdrawals it would be mostly fine. You would just move the bitcoin to another exchange outside China and do as you please with it.

So it is actually a much bigger deal if a Chinese exchange stops users from moving their bitcoin around. Specially when you are in Europe since you actually stop having any easy means to recover the assets you have there.

Some of us that are in bitcoin for a while still remember how in the end the MtGox bitcoin withdrawals stopped for a week, than that week became a month and then that month became an eternity and the bitcoins deposited there where lost forever to their rightful owners.

https://en.wikipedia.org/wiki/Mt._Gox

> Some of us that are in bitcoin for a while still remember how in the end the MtGox bitcoin withdrawals stopped for a week, than that week became a month and then that month became an eternity and the bitcoins deposited there where lost forever to their rightful owners.

Yes, I've been in Bitcoin since 2011. Before Mt. Gox stopped Bitcoin withdrawals, they stopped fiat (actually a small trickle could leak out). For months, Gox traded at a significant premium (since you could still withdraw Bitcoin during that time)

This situation may be worse, but it has different circumstances and different root causes, so attempting to draw a parallel between the two doesn't provide much value. One was a failed exchange trying desperate measures to attempt survival; the other is a mandated government action.

PBOC doesn't need to stop people from being able to move BTC funds around on the blockchain in a timely / efficient manner-- The miners have done that all by themselves!

Also to address your "rightful owners" claim-- the rightful owner of a bitcoin is the person or company who holds and secures the private key to the wallet that coin is stored in. If you don't have that private key secured you don't own bitcoin, you own some type of bitcoin derivative backed by an exchange.

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