miningvice1

Should You Trust This Secretive Chinese Bitcoin Mine?

A video from Vice’s Motherboard depicts a “secretive” Bitcoin mine in China. Should we be concerned? Far from it.

This fascinating video from Vice's Motherboard has been making the rounds: The video has inspired some pointed questions along the line of "does this make you feel that Bitcoin is a safe currency?" That question, specifically, came from my mom by email over the weekend. Generally excited for Coin Center's formation and my new job, I think she is a bit concerned about what her only son may or may not be getting into. This was my response, and I think it's a good one for people who are new to and naturally skeptical of Bitcoin:

Yes, this makes me trust Bitcoin. These people are competing to validate transactions. They only win 1-3% of the time. There is an entire market with thousands of others just like them. Everyone in that market is trying to do a better job validating transactions. Compare that to Bank of America. All of their transactions are validated internally. Who knows whether they are doing a good job, or arbitrarily censoring some transactions? There are no internal market forces pushing Bank of America to do a good job, short of periodic external audits by shareholders or regulators.

For example, I can, using just my computer and an Internet connection, look at a block of Bitcoin transactions that was validated by this group in China. I can see every transfer they approved within that block (a 10 minute period of time roughly). I can see whether they granted themselves the appropriate reward for faithfully recording transactions. It's all public data on the Bitcoin network. Try calling up bank of America or the Visa card network and asking for a ledger of all transactions in a 10 minute period. They would call you crazy and refuse to show it. Try asking Wells Fargo if they are skimming an appropriately sized reward for their services off the top of every transaction. They won't tell you. Banks don't even keep full reserves for the liabilities they hold on their books. We have to trust them not to manufacture too much currency out of thin air. When they screw up we get a "global financial crisis."

If that mine in China made up more new bitcoins than the math of the network is set to allow, it would be public knowledge instantly and their participation in the network would be rejected.

I see good reason to trust that network. In some ways I trust it more than I trust the big banks. And someday I expect that sentiment to be the norm.

My mom's reasonable reply?
Okay......it makes sense but who is really checking all of these transactions?
And that is a tough one, because it's all automatic and it relies on some pretty complicated computer science. Here was my best shot.
The network is cumulatively checking. It's all done with math. Attempts to counterfeit are like attempts to tell a group of people that 2+2=3.
So how did I do? Here's my mom's response:
It is making a little more sense to me. Each time I read about it, I learn a bit more.
And that's also how I feel. Cryptography, networks, artificial scarcity by design? It's an amazing, confusing, and rich frontier. I also learn something new everyday here at Coin Center. And, in the spirit of discovery, Vice's video should not generate an excess of suspicion, it should make us celebrate these amazing people, who may be living in rural China but are, nonetheless, digitally homesteading a real and very exciting frontier. For more on how mining works and why it's important, check out our mining backgrounder.
Based in Washington, D.C., Coin Center is the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum. Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permisionless blockchain technologies.