You are undoubtedly familiar with the idea of a “Trojan Horse,” an idiom derived from the Trojan War of Homer’s Iliad. A large, hollow, wooden horse is left behind by the Greeks after their supposed failure to take the city of Troy. The Trojans take the horse back inside their city’s walls, and that night, Greek soldiers pour out of the horse to open the city gates and overtake the unprepared and unsuspecting Trojan foes.
Another equine expression, “never look a gift horse in the mouth,” of course simply means that one ought not examine or inspect a gift, any gift, especially if it has been given with good intent. In short, be happy to have received a gift. Simple. The earliest use of this phrase is often attributed to Saint Jerome, the linguist who gave us the Latin version of the Bible, the Vulgate.
Recent announcements coming from China regarding the government’s renewed crackdown on crypto currencies have me wondering how to couch this news. Could China be playing some form of “4D Chess” that we Westerners simply can’t understand? Could the Chinese so want to decouple from the dollar that it is simply going to force its digital yuan onto its population in a quest to turn it into the world’s reserve currency by brute force?
It should be noted that the CCP has made these announcements before, so in some respects, this is nothing new. In fact, this latest crackdown is not based on new laws or regulations coming into effect, but rather, a renewed wave of enforcement. In the past, the farther one’s crypto operation was from Beijing, the more it was left alone. This go around has been different, with mining operations having been shut down across China’s four main mining provinces: Xinjiang, Inner Mongolia, Sichuan, and Yunnan.
In years past, when Bitcoin has been critiqued or criticized, it has often been along the lines of governments potentially banning it, or China coming to own too much of the network. Prior to the recent ban enforcement, Chinese miners did provide somewhere around 70% of Bitcoin’s “hash rate” or computational power. With the renewed crack down, where have the miners gone? Primarily, they have moved to North America (Texas), Eastern Europe, and other Asian countries. In other words, one of the principal reasons to question Bitcoin’s long term sustainability has been solved, almost overnight. The Chinese government has actually forced Bitcoin to become a much more decentralized, a much more global, and a much more resilient network. Yes, this caused serious downward price pressure on Bitcoin, but the short term loss is likely to be long term gain for all Bitcoin and crypto supporters. Are the Chinese aware of the gift they are giving to the world?
The “why” behind China’s motives are not easily discerned. There are some who might even postulate that the CCP has infected mining rigs with some sort of malware, possibly sending trojan horse viruses across the globe with the aim of bringing down the network at some point in the future. To subscribe to this type of theory is to completely ignore the fact that the concern about Chinese miners playing such a large role in Bitcoin’s operational effectiveness was a legitimate concern. Having these miners operate within China did provide the CCP with an avenue to attack Bitcoin. They didn’t need to deploy a complicated virus that might never have worked anyway. They could have incentivized more miners, brought more mining to China, but the CCP is everything that Bitcoin is not: highly centralized and not interested in personal sovereignty. Some say that Bitcoin is “digital gold.” In this case, it’s more like digital kryptonite: something the CCP simply can not get close to.
A much more likely reason for the mining crackdown is China’s capital controls. China imposes onerous capital account controls to prevent wealth from leaving the country and maintain its foreign currency reserve. Because Bitcoin can be used to circumvent capital controls, China is determined to ban it. Whether the CCP can succeed is questionable: China-founded exchanges still dominate the rankings of top cryptocurrency exchanges.
While the Chinese mining crackdown has been bad news for crypto in the short term, the fundamental case for crypto has never been better: countries like El Salvador are declaring it legal tender. Visa and PayPal have partnered to accelerate the adoption of digital payments. And just as an aside, the Bitcoin network just continues to chug right along as half the computers powering the network moved halfway around the world, no small logistical accomplishment. This is a gift horse. Inspect it if you must, but I’m confident you’ll find no trojan horses prancing around.