03 Jul The NY Times on Bitcoins and China
William Gibson, repurposing a Gertrude Stein quip, said about cyberspace “there’s no there, there” capturing the ethos of the internet as a place beyond the physical world of borders and jurisdiction. Bitcoin melded cryptography and networked processing to attempt to make a currency that was not based in or controlled by any state.
But the internet is based on servers and fiber-optic cable and telecom switching stations that are firmly rooted in the physical world. The cloud is made out of metal and plastic and glass. And as for Bitcoin, there increasingly is a there, there. And “there” is China. (For a quick background on Bitcoin, see this video, which explains how Bitcoin builds a payment system that replaces trust and personal allegiance with “mathematical confidence” or this article.)
The New York Times reports how Chinese companies have come to dominate the production of Bitcoins:
In its early conception, Bitcoin was to exist beyond the control of any single government or country. It would be based everywhere and nowhere.
Yet despite the talk of a borderless currency, a handful of Chinese companies have effectively assumed majority control of the Bitcoin network. They have done so through canny investments and vast farms of computer servers dispersed around the country. The American delegation flew to Beijing because that was where much of the Bitcoin power was concentrated…
…But China’s clout is raising worries about Bitcoin’s independence and decentralization, which was supposed to give the technology freedom from the sort of government crackdowns and interventions that are commonplace in the Chinese financial world.
“The concentration in a single jurisdiction does not bode well,” said Emin Gun Sirer, a professor at Cornell and a Bitcoin researcher. “We need to pay attention to these things if we want decentralization to be a meaningful thing.”
What follows is a story considering the possible factors that contributed to Bitcoin’s popularity in China (including attempts to avoid government financial regulators and the popularity of online gambling) which, in turn, incentivized large investments in Bitcoin businesses, leading to the situation where “over 70 percent of the transactions on the Bitcoin network were going through just four Chinese companies…”
And, through it all, there is the question as to whether these and other Chinese companies even want to exercise leadership over Bitcoin at all. There is an interesting question of the psychology of power. The frame of the NY Times story is a meeting that took place in China between US and Chinese corporate leaders. The Americans flew to China because, as the Times put it, “that was where much of the Bitcoin power was concentrated.” They tried to persuade Chinese leadership to make certain changes to Bitcoin but were unable to do so. They also expressed frustration at the reluctance of the Chinese companies to exercise leadership in the industry. But then consider this description by one of the Chinese CEO of the same meeting:
“It was almost like imperialistic Westerners coming to China and telling us what to do… There has been a history on this. The Chinese people have long memories.”
Same room; completely different views of the dynamics of the meeting.
So, before we deploy too much post-modern, post-Westphalian, post-everything analysis to cryptocurrencies like Bitcoin or to the internet more generally, perhaps we need to give jurisdiction, territory, memory, and psychology a second look. There is a there, there.