This past Tuesday, Plug and Play‘s weekly Bitcoin Meetup enjoyed its anniversary after meeting weekly since 2013 at our HQ facility. Our resident Bitcoin expert Scott Robinson took over the event a summer ago after Roger Ver (the “Bitcoin Jesus”) passed the oldest meetup in an effort to foster an ongoing discussion about emerging trends and challenges surrounding the development of crypto-currency. Since then, the event has been a huge success featuring an amazing cast of guest-speakers that have facilitated consistent engagement from the Bitcoin community.
For the most recent meet up we were lucky enough to host Yifu Guo, the man behind the first ASIC-based Bitcoin miners. Yifu first found out about Bitcoin through an RSS feed in 2011, and since then he has established himself as a major player in the space. Yifu’s company, Avalon, is credited with successfully producing the first ASIC based Bitcoin miners, which sold for up to $20,000 each at auction. He attributes his initial success to poor competition, reasoning that he was simply one of the first people to take advantage of the financial potential that crypto-currency has to offer.
However, according to Yifu, Bitcoin’s amateur hour has passed. “I was really lucky because my competitor was terrible and I was the first one to launch. But because of this I knew, after us it would be nations, states, and professionals.” He realized that this heightened level of interest would change the dynamic of the bitcoin scene drastically. With more government and professional interest, bitcoin mining will become significantly less distributed. Yifu believes that this could be a major problem, arguing that “in order to keep bitcoin the way that we know and love it, mining has to be as geographically distributed as possible.” He maintains that mining needs to remain decentralized in order to keep governments from rendering the platform financially infeasible.
Yifu’s prediction is based on what he witnessed first-hand while on a visit to China. Inner Mongolia is a region of China where there is a massive coal mining operation that produces 80% of the country’s total power. The plants there were producing an excess of power that was not being put to use, and this opportunity was recognized by a Chinese entrepreneur. According to Yifu, “this person went to the local government and essentially said ‘hey, you have all this power you’re not using. Why don’t we use it to mine bitcoins that you can convert to whatever asset you want?’” The government hastily accepted, and the largest known bitcoin mining operation in the world was started.
The problem that Yifu wants to solve surrounds the issue of individual players, such as the Chinese entrepreneur just mentioned, attempting to harness as much mining power as possible to drive everyone else out. If bitcoin mining becomes centralized, the very nature of the protocol becomes defunct and bitcoin will likely no longer be viable.
As it was presented by Yifu, the situation is best exemplified by a recent downtrend in the distribution of bitcoin nodes. At the present time, there are around 7,000 nodes currently up and running where there were 25,000 last year. In order to solve the problem, Yifu argues that we need to provide incentive for people to run nodes. He emphasizes: “if the US does not reach 25, 30% of the bitcoin market by the end of the year, it will actually become financially infeasible to compete with Asia.”
With the problem clearly outlined, the question remains as to what we can do to stop this seemingly inevitable decentralization. Yifu wants to try to put a bitcoin mining chip in every single home appliance as a potential way to help the platform stay distributed, but he believes it will not be enough. The ball is in our court, and American citizens need to take action if they want to preserve the future of crypto-currency.
To find out more about the Silicon Valley Bitcoin Meetup taking place every Tuesday at Plug and Play headquarters, check out our website.