Cryptocurrencies will be very resilient, and this will not happen by accident

The Chinese government is doing everything it can to ensure that bitcoin and other cryptocurrencies disappear from Chinese financial systems and economies. Fan Yifei, deputy governor of the People's Bank of China (PBoC), described the cryptocurrencies as "speculative tools" that jeopardize global economic and social stability, while PBoC confirmed that financial institutions and payment system institutions operating are not allowed to provide cryptocurrency trading services, "directly or indirectly".

China has ousted miners from the country as half of the world's bitcoin miners went dark in July after Beijing called for a crackdown on bitcoin mining and trade. This is the biggest government attack on Bitcoin that has ever taken place and may be a very good test of the resilience of cryptocurrencies.

If it were any other product, where half of its production capacity would be forced to leave a country in a short time, it would cause huge malfunctions in the product while it would have a huge impact on the production chain of this product. 

But cryptocurrency is a distinct product. It continues to operate safely and smoothly, even in conditions such as the loss of half of its miners. This is possible due to the architecture that has been designed. Which guarantees that every 10 minutes a new block is always created. A block that includes thousands of transactions from traders around the world and updates the database (ledger). 

The clever design of cryptocurrencies can ultimately be an important secret to their success. His genius is that he adjusts the degree of difficulty of mining by giving the appropriate incentives as defined by game theory. Thus, the encryption protocol automatically increases the mining difficulty so that the creation of new cryptocurrencies and the transaction time are validated at a predetermined time of approximately 10 minutes, while the algorithm is programmed to automatically adjust the difficulty level every 2,016 blocks or about every two weeks.

This means that if the price of Bitcoin falls to the point where the cost of production is higher than the selling price, then the protocol will automatically reduce the difficulty of mining so that the creation of new Bitcoins and transaction verification time does not slow down, below the predetermined time. Thus, regardless of the number of miners, no matter how high or low the price of Bitcoin, the amount produced remains stable.

Nevertheless, the expulsion of the miners from the Chinese has consequences. Many were forced to sell their cryptocurrencies either to finance relocation costs or to cover their expenses, as the inflow of money from mining stopped abruptly. If we consider that half of the Bitcoin produced in the last month, that is, about 13,500 would go to Chinese miners, we conclude that with the average price of Bitcoin at $ 35,000 there was a loss of revenue of about half a billion dollars for the Chinese miners.

Until the miners who used China to mine cryptocurrencies start operating mining machines in other parts of the world, miners in the rest of the world, given the process explained above, will enjoy easy profits. As they are less, without adding computing power and therefore without spending more electricity, they receive more Bitcoin. This is rather seen as an unexpected gift from the Chinese government ultimately for the benefit of the miners operating in countries all over the world.

Given the easier mining of cryptocurrencies, the price of cryptocurrencies may be dragged to lower levels. But this is not going to last forever. It is estimated that it will take 6 to 9 months for the infrastructure of the buildings in which the cryptocurrency mining machines will be installed and will be able to operate again, after their removal from China. Which however should be mining machines that need to be technologically upgraded. 

Relocation and technological upgrades mean that mining costs will rise. But when the cost of mining rises, it is a matter of time before the price of cryptocurrencies goes up, since who wants to mine something that can sell it below its mining cost?

The balance between mining costs and price is crucial in terms of the future price of cryptocurrencies. But perhaps even more crucial is the fact that cryptocurrencies are proving resilient in dealing with authoritarian decisions, and it would probably be right to take its design as an effective model for dealing with similar phenomena in other areas of decision-making and activity.