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Can bitcoin be weaponized by China?

Bitcoin Strategist, Kraken
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Pierre Rochard

Bitcoin Strategist, Kraken

April 26th, 2021
To understand whether the Chinese Communist Party (CCP) can weaponize Bitcoin, we must first identify what the intended targets of such a weapon would be.
The first target would be the US Dollar as the dominant world reserve currency. The CCP could promote the use of Bitcoin as both a reserve asset and a global 24/7 digital settlement network. The reduction in demand for US Dollars abroad would undermine expansionary US fiscal and monetary policy, and enable US adversaries to avoid financial sanctions.
The second target would be Bitcoin itself. In this scenario, Bitcoin is a trojan horse that is sold into the Western financial system as a store-of-value asset comparable to gold, but inside is CCP-dominated mining hashrate that can be weaponized to disrupt the ledger and devastate Western investors.
We could hypothesize that the combination of these targets would leave one dominant currency standing: a digital yuan under full CCP surveillance and with all seigniorage benefiting the CCP.
With regards to the first target, moving to Bitcoin as the world reserve currency and neutral settlement network would actually benefit US values. The US Dollar as world reserve currency has on net undermined the US economy. The Triffin dilemma has promoted the outsourcing of critical supply chain infrastructure abroad, policymakers have struggled to micromanage domestic industries to mitigate the effect of outsourcing on national security. As for financial sanctions, they have been surprisingly ineffective at promoting US values abroad, and the absence of rule of law as well as due process in the enforcement of sanctions has opened the US to accusations of hypocrisy, retaliation, and circumvention.
With regards to the second target, Bitcoin mining hashrate in China is purely commercial and not a result of CCP geopolitical strategy. The CCP has actually sought to ban Bitcoin exchanges and mining, not promote either.
Furthermore, mining hashrate in China would not be sufficient for meaningfully disrupting the Bitcoin ledger. Miners merely propose blocks to the decentralized peer-to-peer network of nodes. If a miner does not stringently follow the consensus rules, the network of nodes automatically bans them. Node operators use many different implementations and versions of the software to ensure full and consistent cryptographic verification of the ledger rules. At best, miners can inconvenience the network by delaying transaction confirmations. To mitigate this marginal risk, policymakers should support mining in the United States.
Bitcoin adoption advances globalist free market values, not communist or nationalist values. It is dubious from first principles that the CCP has or would ever want to weaponize it, but even if they did the correct response from US policymakers should be to encourage domestic Bitcoin mining, trading, and ownership. For the past decade, many have ignored Bitcoin but it continues to grow because of the freedom it gives to users. Many have tried to attack Bitcoin but failed because it is decentralized and cryptographically secured. Ignoring and attacking Bitcoin are not constructive options, only positive engagement is.
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