You're thinking too small on the impact--China doesn't need to double spend bitcoins. What they could do is cause a loss of confidence in Bitcoin overnight and collapse the price.
How is that even remotely strategically good for China......?
These miners are probably making USD or some other foreign fiat at the end of the day which adds to the supply of foreign reserves without needing to use trade... And if they're siphoning power to get around currency exchange limits moving wealth abroad then a traditional crackdown to confiscate their equipment would be much more effective (you can't exactly "hide" a mining operation).
Frankly China, with so much mining output, benefits more from seeing crypto moon than crash...
(Also "collapsing the price" is something that can be done (and may have actually even already been done in the past) with far far less effort than an attack...
(As one example, articles pointing out that "China can do 51% attacks" are much more effective in crashing crypto prices... maybe keep an eye out for those
The minors are not making USD for foreign reserves to be honest, they are mostly a way to transfer wealth out of the country (buying equipments and electricity and sell bitcoins abroad or not selling it at all). That's why China has banned its bank to do crypto related transactions and exchanges mostly. However, it is hard to enforce. You can find many exchange use Bank Transfer, AliPay and WeChat pay.
Owning Bitcoins are legal in China. Who knows once the digital RMB is out.
Every time a miner exchanges crypto for RMB (like with Alipay or WeChat), China overall benefits a bit. Because Chinese banks (as you correctly stated) are not allowed to hold crypto and exchanges are illegal, what really happens is the crypto gets exchanged for foreign fiat (like USD) where exchanges are legal, which then gets exchanged for RMB, building up foreign reserves.
In the past, a lot of miners were "foreign investors" (likely other Chinese "nationals" rather than citizens) who lived abroad and would keep the exchanged fiat in foreign bank accounts, which _is_ harmful as they pay for electricity with RMB but get to keep USD. In recent years, a lot of local mining outfits are appearing, and because they ultimately need to spend RMB, the government has no problem with turning a blind eye to them.
What you are saying in second paragraph is not true. Mainly because if you mine BTC in China, you buy equipments and energy using RMB. After mining, you have BTC. If you sell BTC for USD, most likely those USD will not come into China. Bring USDs to China is not as easy as you think, there is also a quota for it (50k per year). If you sell BTC for RMB, there is no transaction to USD at all.
Yes, it is illegal for Chinese banks to do transaction for cryptos, but it is still legal to transfer money to others in exchange for crypto (p2p). WeChat, Bank Transfer and AliPay all being available in exchange. Holding crypto is not illegal in China, also mining is not illegal.
I believe there are still a lot shady business going on for those buying cryptos with RMB. It is quite easy for Chinese to buy/sell crypto at the moment.
Actually the same happens in stock market. When Chinese companies go for IPO in the US, they will typically keep the fund in US, rather than bring them back to China to make it easier to do business in dollars without restriction of Chinese financial system.
But it is individuals, not governments, who mine Bitcoin. In fact, the people who mine Bitcoin don’t like governments very much, and wouldn’t cooperate with a government-imposed Sybil attack that would devalue their state-independent store of wealth, any more than they would cooperate with said government going to war with a country they’ve exported all their investments to. Such people would actively seek to use their wealth to oppose such a government.
If a government moved to confiscate all mining operations and run them itself to perform such an attack, the fight such people put up against that would be so obvious that it would be incredibly easy for parties external to the situation (Bitcoin devs + Node operators outside of China) to stop any ensuing Sybil attack. They’d just blacklist Chinese IPs from the network statically in the client code—effectively hard-forking the other 49% of the network in advance so it doesn’t later become confused.
> But it is individuals, not governments, who mine Bitcoin.
Bitcoin mining has outgrown this stage. It's more like companies, now.
> the people who mine Bitcoin don’t like governments very much, and wouldn’t cooperate with a government-imposed Sybil attack...
Early Bitcoin proponents don't like governments much. Chinese miners are another story. They see a business opportunity and have no interest in losing social credit points or, worse, going to a labor camp.
Because the government cannot afford the resources to untangle it all, and the rich can afford the lawyers to exploit all the loopholes, and cover the tracks after little white-collar crime "indiscretions". Who funds the lawmakers who make the tax laws? Ah...
Cryptocurrencies are absolutely taxable — at least in the USA. It’s a gigantic pain in the ass that I feel every April. I don’t know why the USA makes taxes so painfully difficult and complex but that’s another topic and something they can improve on.
A crash would save energy for China and everyone else. Miner revenue from block rewards is proportional to market price. The cost of electricity can’t exceed that or it will be unprofitable for miners.
How is it good for China to destroy Bitcoin?
This question does not recognize China has over a billion people.
The Chinese government has shut down Bitcoin transactions in China before because it goes counter to their centralized economic control. If uppity insurgents or billionaires who they wish to punish (e.g. Jack Ma) are heavily invested in Bitcoin, they may want to crash it. Alternatively, it may be seen as a way of people to launder money outside of China and their control. Maybe just want to throw other financial markets into chaos.
Why would the miners cooperate? I can think of 7.62 reasons why.
China stands to gain the most from bitcoin mooning at the expense of other countries' currencies. Every yuan exchanged for bitcoin siphons value out of the chinese monetary network and into the global cryptocurrency network. Ideally, if china secured a large portion of bitcoin and then ceased all bitcoin trading within their borders, they could allow other countries to foot the bill of economic instability while the net value of their assets increase.
Bitcoin is an economic weapons created by the chinese government.
