The Urgent Need for Regulatory Action in Chinese Crypto Mining Industry: A Call to Protect US National Interests

The Rise of Chinese Bitcoin Mining Threatens US National Security

Cryptocurrencies are quickly becoming a crucial part of the US financial landscape, with the value of Bitcoin (BTC) surging thanks to the introduction of exchange-traded funds (ETFs) that have opened up access to a wide range of new investors. While this is generally good news, the rise of Bitcoin also brings with it the need for improved regulatory safeguards, similar to other emerging technologies like AI. In a globally connected world where national security interests are constantly at the forefront due to every new disruptive technology, threats around critical network and infrastructure vulnerabilities require urgent attention.

The ongoing threat posed by China is at the center of these discussions. The US has responded to perceived technology threats from Chinese companies like Huawei, TikTok, and Chinese EV firms with decisive actions. The risk within cryptocurrencies is even more alarming as Bitcoin miners represent a potential silent, sentient hardware layer integrated directly into US electricity and telecom infrastructure.

Given the scope of this threat, it is more than time for regulators to act and ensure that Chinese crypto mining technologies have zero chance to cripple critical US utility and economic systems.

Bitcoin mining is the process by which new Bitcoins are introduced into circulation and secures the network by validating and confirming all transactions to the blockchain. Miners compete to solve complex mathematical problems, with the first to solve the problem adding the next block to the blockchain and being rewarded with newly minted Bitcoins and transaction fees.

Requiring significant computational power and energy, Bitcoin mining is carried out by sophisticated mining rigs powered by advanced semiconductors known as ASICs. China dominates the supply of ASICs for Bitcoin mining, providing 98% of today’s chips, primarily from major manufacturers like Bitmain. These chips, produced in China, are manufactured by TSMC using their latest and most advanced manufacturing process (3nm).

The projected growth of the cryptocurrency mining industry raises concerns about US trade policy and competitiveness, as well as the threat it poses to national security. Chinese companies, both state-owned and private, operate under a legal framework that requires them to cooperate with China’s intelligence services when requested, raising the specter of Chinese authorities leveraging their influence within seemingly innocuous crypto mining operations to gather critical information on US domestic affairs.

Furthermore, the complex nature of crypto mining machines creates potential backdoor vulnerabilities. Some experts warn that Chinese-made hardware may contain hidden security backdoors in the firmware or software within the miners, allowing covert data transmission and even remote sabotage of critical infrastructure.

As the US financial system becomes increasingly reliant on Bitcoin and related blockchains, the risks of a major disruption in trading, mining activity, or price destabilization continue to grow. It is estimated that 40% of US adults own crypto in some form, and the Bitcoin mining industry is projected to grow at a 9% CAGR through 2029.

To address these risks, policymakers must take swift, decisive action, including implementing new regulations to better protect US national interests and enforcing existing policies more effectively. This should include implementing stringent cybersecurity protocols and monitoring mechanisms in mining operations, requiring greater supply chain transparency, conducting more rigorous background checks on Bitcoin mining investors, and establishing cooperative international standards to address cross-border security concerns and prevent regulatory arbitrage.

Additionally, the US must invest in and incentivize domestic suppliers to develop innovative semiconductors for Bitcoin mining. The CHIPS Act provides an opportunity to jumpstart this effort, and the private sector should follow suit by prioritizing and investing in this as well. Banning Chinese-manufactured mining hardware in the US and prohibiting Chinese-owned Bitcoin mining operations on US soil are crucial steps to safeguarding national security.

Authoritarian regimes are often threatened by decentralized distribution methods, and the centralized nature of Chinese Bitcoin mining poses a significant risk to the US financial system and economy. It is imperative to take action now to mitigate these risks and ensure a resilient supply chain, promote economic growth, and maintain long-term technological leadership in this rapidly expanding market.