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China has embarked on a pro-blockchain push and is making moves towards creating state sanctioned cryptocurrency and blockchain solutions a reality in the country.

Last week, Chinese President Xi Jinping made a speech about wanting to invest more into blockchain and cryptocurrency technology. The Standing Committee of the 13th National People’s Congress then backed this speech with a new law that while not mentioning cryptocurrency directly, “encourages and supports the research and application of the science and technology in cryptography and protects the intellectual property rights in cryptography”.

Additionally, the Chinese Communist Party’s Propaganda Office also recently implemented “The Heart of the Chain” so party members can record their pledge to the communist party on the blockchain as an ‘”initial heart”. Further, Twitter rumors show that Chinese officials announced their state cryptocurrency, DCEP, which has been in the works for years.

Centralizing cryptocurrency around China

Cryptocurrency is not new to China as the country has had a flurry of activity that they cracked down on during the 2017 price surge, however recent developments may further centralize the industry around the country. The announcement of Facebook’s Libra reportedly accelerated China’s focus on developing its own cryptocurrency. However, the government wants to ensure that their state sanctioned cryptocurrency only has “controllable anonymity” and that the state can see whatever it wants to see relative to a person’s transactions. It can be argued that a state cryptocurrency in China would even allow less privacy than current methods since Chinese can only “officially” monitor money flowing through the banking system and have to work with private companies to monitor mobile payments that never leave apps such as Alipay and WeChat Pay. Cryptocurrency created by the Chinese government would most likely ensure that the government can easily view the history of as many addresses as possible and link them to a personal identity.

Additionally, there is growing risk in even the open-source cryptocurrency sector, especially for Bitcoin, that growing mining centralization within China may risk the security of the network due to potential geopolitical actions. Half of Bitcoin’s mining hashrate comes from just 4 mining pools and “[a]s of June 2018, over 80% of Bitcoin mining is performed by six mining pools, and five of those six pools are managed by individuals or organizations located in China”, according to research from Princeton University and Florida International University. This heavy centralization of critical network infrastructure within a single and oftentimes hostile jurisdiction, combined with the fact that Bitcoin has a low difficulty adjustment at every 2,016 blocks, can cause further disruptions to the chain beyond just a lower hashrate that increases security vulnerabilities. As recently seen in the Bitcoin Cash mining issue, the network swung from producing blocks too rapidly to going hours without producing a single block.

Dash mitigates centralization risks

While still claiming a majority of its mining infrastructure within the country, Dash may be more resistant to the heavy influence China has on cryptocurrency than many competitors. Dash employs both miners and masternodes to secure the network thanks to ChainLocks, which leverages the masternode network to lock in the first seen block on the network, preventing it from being reversed, even in the event of an attempted 51% mining attack. Additionally, Dash’s infrastructure is spread more evenly around the world, with a slight majority of mining power in China while the large majority of masternodes, while owned and operated from all over the world, hosted in western Europe and North America. This significantly reduces the risk of a single jurisdiction, or a collection of allied powers, temporarily disrupting the network by compelling mining pool operators or masternode hosting providers to act against their best interests. Finally, Dash’s Dark Gravity Wave adjusts the mining difficulty every block, better ensuring that Dash is less vulnerable to disruption from rapid changes in hashrate, and therefore the various geopolitical occurrences that may lead to hashrate changes.