Will China Try To Kill Bitcoin…

The Economic Catastrophe Waiting To Happen– Part II

Will China Try To Kill Bitcoin?

Hosts @ Bad Crypto Podcast

Does China have its sights set on taking down Bitcoin?

Dr. Stephen Leeb, Ph.D.

China is so critical because 65% of Bitcoin mining takes place within their country and they are very skilled at creating cheap energy. This has cornered about 65% of the Bitcoin mining market within China. Oppugnant to this, China will be launching its digital yuan.

Although China houses 65% of the mining of Bitcoin, you can’t buy or sell cryptocurrencies within China unless you do it on foreign exchanges (which aren’t exactly legal). It’s not a big market and China doesn’t want it to be a big market. Let’s face it, China’s not exactly a friend of the United States nor are they an enemy. What’s significant, there’s opportunistic trading motives for China to cooperate with the United States. Although, China’s on guard and intends to have surreptitious ways for dealing with confrontation. Ways of hurting the United States that won’t necessarily start a war but will be catastrophic for the world. Everybody loses in that kind of scenario and Bitcoin could be exactly what they’re looking for.

The Nemesis of Bitcoin: The Double-Spend

There’s a lot of good things you could say about Bitcoin. It’s blockchain is secure and it’s something that cannot be hacked. It also qualifies as a currency in many ways except Bitcoin can be counterfeited under the conditions of what they call a ‘double spend.’ To put it simply, it’s the same thing as taking counterfeit money and spending it wherever you want. A double spend can occur when you create a Bitcoin that is used for multiple spending with the same Bitcoin. It’s counterfeit and has all the characteristics of a counterfeit currency. There’s only one condition that would allow that kind of situation to happen. And that’s a condition where the majority of the Bitcoin miners agreed to do it.

The majority of the Bitcoin miners are sitting in China and the rest of the miners are in China-friendly countries such as Russia or Iran. These are countries that don’t particularly like the dollar either. They could collaborate in doing something that might hurt dollar based currencies. One way to hurt dollar based currencies ironically would be to destroy Bitcoin (which could happen if they created counterfeit Bitcoin.) It would have indirect effects on China but it could have major effects throughout the rest of the global economy.

I’m not insinuating that China’s planning to do this. However if Bitcoin gets in the way of their own digital currency, almost surely they will do something to stomp it out. That’s not a good situation for investors to be in… especially if Bitcoin goes up to $100k. Likewise, if the capitalization of Bitcoin doubles and the market cap rises to $4 trillion, suddenly you have this infrastructure that you’re developing around Bitcoin.

Coinbase recently had a very successful IPO public offering. These things start imploding and it’s very likely that they will. Then you have the making of a real economic catastrophe. At some point, I believe that it will be in China’s best interest to do this. If you are buying Bitcoin right now, you’re under the assumption that China is our friend and they’re not going to try and do something precipitous. It’s not if they decide, it’s when they decide that they don’t want Bitcoin around; they’re going to make a move. They’ve already decided for their own population they don’t want it. When they decide to get rid of Bitcoin, they can do it! As an investor, if you’re comfortable investing under those circumstances, go for it! I’m certainly not comfortable investing in Bitcoin under those conditions and I anticipate that eventually Bitcoin will end up at zero.

How do I come to this conclusion? It highly resembles the Dot.com bubble that we saw in the early 2000s where investors made between five to ten fold on their investment very quickly on stocks from companies that ended up bankrupt.

Hosts @ Bad Crypto Podcast

You’re using a lot of prepositions around why we think that the current economic system is good. For example, the FED is printing fiat currency out of thin air. In reality, there should be zero trust in the US dollar at this point. The Federal Reserve has their presses running 24/7 printing $100 bills at 6 cents a piece. And somehow the U.S. is now over $100 trillion dollars in debt? It’s just unbelievable. Bitcoin and other cryptocurrencies are backed by algorithms. I definitely understand what you’re saying but maybe our difference in opinion is generational. I’m on the same side- I don’t really trust China. Currently, there’s about 18.7 million Bitcoins already out in the wild in circulation. I realize China does have a lot of the Bitcoin miners that account for over half of the remaining now. There’s so many more Bitcoins that are already in circulation that aren’t owned by China. These cryptocurrencies are owned and distributed all across the world which is why I think this point is potentially mute.

Dr. Stephen Leeb, Ph.D.

I don’t think it’s a mute point at all. First, I’m no fan of the dollar. You cited the title of my book earlier in the interview ‘The Rise of China and The New Age of Gold.’ What China is doing right now it’s a sign of a point of inflection. It’s a signal that things are going to change and move away from the dollar. When you refer to the devaluation of the dollar and why we should have no faith in the U.S. government while the FED is printing infinite amounts of fiat currency… you’re preaching to the choir.

Hosts @ Bad Crypto Podcast

You essentially bashed all cryptocurrencies as the culprit for exorbitant energy consumption and there are many blockchains that don’t use much energy at all. They’re not proof of work, they’re proof of stake, there’s many other different proof capabilities. There’s many different chains- there’s over 10,000 coins. Bitcoin is version 1.0 of cryptocurrency of the next digital money. We all have a smartphone in our pocket and why do I have to deal with a retail bank for a transaction to take place? I don’t want to wait 4 days for my transfer of funds to be available. I want my funds to be available in my bank account within seconds. With cryptocurrency- it’s far too convenient and mass adoption is clearly on its way. There’s going to be attempts for some manipulation underway. Although, I don’t foresee cryptocurrency going away unless an EMP bomb goes off and there’s no internet at all. In that case, it’s probably a good idea to hedge your bets on investing in gold

Dr. Stephen Leeb, Ph.D.

Well said, Travis, and I see your position. Fortunately blockchain is a very good technology. I’m not quarrelling with that. All the transactions that have ever taken place on Bitcoin are recorded on blockchain, which I don’t think is hackable. However, that’s not the problem that Bitcoin investors face. The real problem Bitcoin investors face is that you’re not going to come up to the maximum number of Bitcoins for maybe 15 years.

Hosts @ Bad Crypto Podcast

One hundred years, actually.  

Dr. Stephen Leeb, Ph.D.

Basically, all Bitcoin miners need to do is create one or two counterfeit Bitcoins and game over! All of a sudden, you don’t know what you own. 

Hosts @ Bad Crypto Podcast

But that’s never happened at this point because the blockchain is too distributed.

Dr. Stephen Leeb, Ph.D.

No, it has nothing to do with the blockchain.

Hosts @ Bad Crypto Podcast

Right, but Travis, you’re not hearing what Stephen is saying. China has the majority of the hashpower if they decide to orchestrate and go rogue. Controlling all of that simultaneously, China could create double-spends instantly. That would completely disrupt the system and people would lose confidence in the system.

Dr. Stephen Leeb, Ph.D.

That is exactly right. And the point is that it’s undeniably in China’s interest to do this. Right now, China believes that some form of digital currency blockchain is necessary for economic commerce. They’ve spent almost a decade developing the digital yuan (which they’re on the verge of launching). The Chinese government doesn’t want a cryptocurrency as the world’s reserve currency. They want the digital yuan- which would be virtually impossible to counterfeit because all transactions go through the PBOC or other central banks.

This is a highly important point that I make very clearly in my book: China doesn’t want the yuan to be the reserve currency.

One of the biggest reasons we’ve gone sideways in the United States is that we capitalize on having the world reserve currency. We have not used this power wisely and as a result, we have been recklessly spending money in the United States like drunken sailors. That’s why the FED can print infinite amounts of fiat currency. 

Hosts @ Bad Crypto Podcast

A lot of people don’t recognize the connection with the petrodollar. They have to buy dollars before they can buy fossil fuels and petrochemicals. China and Russia are trying to circumvent that, right?

Dr. Stephen Leeb, Ph.D.

Yes and China’s on their way to circumventing that. A few years ago they initiated an international oil trade in yuan currency. In China the yuan is implicitly backed by gold. Anyone in China can go to an exchange and trade that yuan in for gold- it’s one and the same. It’s true that if China is buying oil from you- essentially you can come to China and trade that yuan for gold. So you have implicit backup of gold with China and if you gravitate toward digital yuan- it will be implicitly backed up by gold. I don’t think they’re quite ready for that right now but I think that Bitcoin might be in the way. If Bitcoin does get in the way of the digital yuan, China will take measures to quash it. The Chinese are a pretty ruthless society. I’m sure they don’t live up to all the propaganda in regard to geopolitics. Although, the Chinese government has displayed enough subtle push-back surrounding cryptocurrencies to prove that if they don’t want Bitcoin, they’ll eliminate it.

Here’s a prime example of China’s covert push-back tactics when it comes to something they’re attempting to thwart. When Elon Musk bought $1.5 billion in Bitcoin- the news went viral worldwide. It was no coincidence that a few days later, he was called before the Chinese Authorities in regard to ‘safety issues’ concerning the production of Tesla vehicles. To bring this full circle, have you heard any more news about Elon Musk buying copious amounts of Bitcoin? It doesn’t take a far stretch of the imagination to presume the meeting regarding ‘safety issues’ for Tesla was a stealthy move for the Chinese Authorities to deliver a furtive message.

Let me put it this way- I can’t predict what the Chinese are going to do. However when you invest in Bitcoin, you own a currency that could be made virtually worthless in a heartbeat. Bitcoin miners could really tear up the foundations of the system. Perhaps the consequences wouldn’t be as bad as anticipated but let’s face it- you’re playing with fire. I don’t want to see that happen to Bitcoin investors because it could have an effect that reverberates throughout the entire global economy.

Hosts @ Bad Crypto Podcast

It’s certainly a doomsday scenario and I understand the case you’re making. And I can actually appreciate where you’re coming from. To present my case, I would like to refer to the Bitcoin mining hashrate chart for 2020.

Hashrate is a measure of the computational power per second used when mining.

More simply, it is the speed of mining. It is measured in units of hash/second, meaning how many calculations per second can be performed.

Here’s a current list of Bitcoin Mining Distribution (circa late 2021)

  • 65% China
  • 7.5% United States
  • 7% Russia
  • 6% Kazakhstan
  • 5% Malaysia
  • 4% Iran
  • 3% European Union
  • 1% Canada
  • 1% Venezuela
  • 1% Paraguay
  • 0.5% Iceland

Certainly a catastrophic event in Bitcoin would affect other cryptos; it wouldn’t disrupt those other chains. You’re talking specifically about an attack on the Bitcoin blockchain with a coordinated double spend. Stephen, let’s have you be the contrarian your contrary for a moment. Under what circumstances do you think China would find it advantageous to not attempt to kill Bitcoin and continue as one of the leading miners?

Dr. Stephen Leeb, Ph.D.

Basically there’s one circumstance that I could foresee China allowing Bitcoin to exist congruent with the digital yuan. If the Chinese government had the ability to execute ultimate control over the types of Bitcoin transactions taking place within their country- governing over how the digital currency was used. This would require a tremendous amount of regulation coming through China in regard to setting the parameters. And China would certainly be in a position to do so. 

If the market cap of Bitcoin doubles to $4 trillion dollars- China might not want Bitcoin to disappear all at once because we live in a very interconnected world. The only way we can get through our immediate future (economically speaking) is to create a world for our progeny. I’m referring to the next 50 years or however long it takes to come into full cooperation with other countries.

So, it may not be in China’s interest to destroy Bitcoin right away. If they decide to lift the ban for Chinese citizens to own Bitcoin- it’s a sure fire bet that China’s rules are going to govern it. With that said, why else would a country ban the owning of Bitcoin? There’s no exchanges within China that are allowed to trade it. Yet ironically enough, China allows some of their top computer programmers to solve these extraordinarily complex algorithms required to mine Bitcoin. The algorithms could be made much harder, although this would in turn only create more unnecessary energy consumption. These algorithms are equivalent to finding factors of astronomical proportions which are amongst the most difficult things that computers have to do. It can sometimes require computers working in stream.

For example, if you take a number with 30 digits- it could take a computer five years of computation to find the answer. Just for fun… do a Google search for the highest prime number that’s ever been discovered. Then take a number that’s ten times higher and it would take a hundred years of computation to discover. Mathematicians have the power to create a problem riddling that no miner could ever solve. Maybe that would be the way to eradicate Bitcoin mining. The potential for creating counterfeit Bitcoin via mining would become less of a threat if there were much higher regulations. That kind of scenario is something China could live with and that is arbitrarily close to what a final solution would look like.

If the distance between the actual solution can be found in any meaningful time frame, they will make it nearly impossible to find a solution and almost impossible to mine additional Bitcoin. That scenario combined with other regulations that allow it to assure Bitcoin in no way interferes with other digital currencies. Central Bank digital currencies that are backed by gold… might work.

Stay Tuned For The Release Of Part III: The Economic Disaster Waiting To Happen

Investing In Bitcoin Is A Horrible Idea

Ignore Investing In Gold At Your Own Peril