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Governments have finally sat down and realized cryptocurrencies. Cryptocurrencies have been mocked, criticized, and even banned for years, but now they are rushing to get involved, with numerous central banks planning to launch their own digital currencies in the coming months and years.
As for real and decentralized cryptocurrencies, no government or central bank would currently dare to admit plans to buy bitcoin (BTC) as a reserve asset. But if this happens, what could it mean internationally and locally?
According to a variety of analysts, it is unlikely that a single country, including China, will be able to gain a geopolitical advantage as a result of the widespread adoption of bitcoins by governments and central banks. Instead, the expansion of bitcoin could have a series of knock-on effects on national politics, pressuring governments to more responsibly manage their own fiat currencies and possibly even motivating them to nationalize their cryptocurrency mining sectors.
A theoretical threat
If bitcoin ever becomes a reserve asset, the most obvious hypothetical concern that arises is that China, which still houses most of the hash power of the Bitcoin blockchain, somehow gains a considerable amount of influence. politics over the rest of the world. In theory, you can threaten to carry out a 51% attack that, say, reverses a payment (in BTC) made by a government to a nation or organization.
This is theoretically possible, but most analysts say it is highly unlikely.
“First, although the entities [mineras] They are located in China, they are different entities with different owners and probably different reasons for mining. They are also very large and have made a considerable capital investment in Bitcoin mining, ”said Pete Earle, an economist at the American Institute for Economic Research .
Earle added that if the China-based miners were convinced or coaxed into carrying out a 51% attack, “they would immediately destroy much, if not all, of what they had invested.”
He also noted that even in a scenario where the Chinese government had nationalized or gained control of all mining facilities in the country, this still would not substantially increase the chances of an attack.
“If the Chinese government were to sweep away, take over everyone and disrupt the consensus system […] that would likely trigger a total collapse in the value, and therefore the price, of bitcoin. It is an existential risk that must be considered by both miners and Bitcoin holders. “
Other analysts largely agree with this assessment. Also speaking to Cryptonews.com, Sofia Blikstad from Arcane Research He said China is unlikely to be able to use mining to its geopolitical advantage.
“I don’t see a scenario in which China can take advantage of mining. Miners tend to be more loyal to the network than to the state; loyalty is guided by electricity prices and tariffs rather than by political or geographical features, ”he said.
In terms More practical, Lennix Lai, director of financial markets at OKEx, suspects that it would not even be possible for the Chinese state to carry out a 51% attack or something similar for political purposes.
“Even though most of the hashing power comes from China, most of the minefield operators in the country are actually running cloud mining services, a type of proximity hosting that is ultimately brought in. by end users rather than individuals or companies that control all mining rigs. So the power of hash in China is decentralized to some degree and it is practically impossible for a single party or even the government to take control of any mining rig without alerting others, ”he told Cryptonews.com.
This warning extends to any other government or state that may attempt to influence the Bitcoin blockchain. And with China’s dominance of hashpower declining (it fell from 75% to 65% between September 2019 and April 2020), it is also likely that if bitcoin becomes a reserve asset, mining will be more dispersed and distributed. then.
“Even if this happened, most miners would take action against attackers within minutes to protect the network,” Lai added.
Risks and benefits
While it seems unlikely that a single nation will gain an advantage from bitcoin becoming a reserve asset (unless it buys bitcoin early and becomes extraordinarily rich at some point), there could be a variety of other effects.
“Bitcoin could become a sovereign guarantee to support legal tenders like gold if that is the case. Therefore, the mining business would possibly be nationalized. Owning and transacting bitcoin could become quite restrictive for the general public, ”Lai said.
For Sofia Blikstad, the fact that bitcoin becomes an asset or reserve currency could exacerbate wealth inequality, something that would have internal political implications.
“The placement of BTC in Fed [Sistema de la Reserva Federal de Estados Unidos] Reservations could send a signal of selling dollars around the world. As bitcoin continues to gain dominance, the less we want to keep fiat money, which hurts those whose material well-being depends on it, which can fuel social division and populism, ”he said.
On the other hand, Blikstad also suggested that the widespread adoption of bitcoin could have ramifications for monetary policy, to the extent that reducing the relative demand for US dollars (or any other fiat currency) will force it to compete for survival.
“So I think the most likely scenario is that Bitcoin acts as a catalyst to force central banks to manage their fiat currencies in a more responsible way. Bitcoin can help central banks improve currency stability, as an incorruptible value standard, ”he said.
But having said all this, analysts are really skeptical that bitcoin will become an asset / reserve currency to the extent that every major central bank has a significant share in their balance sheets.
As Pete Earle concluded,
“It seems unlikely that governments, and in particular central banks, will have more interest in cryptocurrencies than in gold during the last 50 to 100 years. They are much more likely, as we have seen with the digital yuan, that they will adopt certain features of cryptographic design in a government or central bank digital currency while incorporating the ability to execute conventional and unconventional monetary policy actions. “
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