Nation States Considering Bitcoin Mining as National Security

Bitcoin mining, as it pertains to national security, is not well understood despite the criticality of nation states adopting mining. For example, Kazakhstan has started investing hundreds of millions of dollars in cryptocurrency mining, yet they do not allow the mining of Bitcoin. Once nation states realize the geopolitical importance of mining Bitcoin, it will become part of their national security.

This brings an uncomfortable topic to miners who will most likely be required to KYC. With stricter regulations imposed on miners, KYH could become an excellent tool for miners to provide critical national infrastructure.

If a nation state were to put $10 billion into mining equipment, such as thousands of SHA256 ASICs, they will continue to invest in the next generations of equipment to generate more hash power. These ASICs are only useful for mining Proof of Work (PoW) tokens and this equipment is only good to secure this infrastructure.

With lower interest rates and higher amounts of inflation, it is quite inevitable that secure Bitcoin holdings will be added to both national and private treasury reserves. There have already been companies turning over their cash reserves into Bitcoin such as MicroStrategy and Square.

Let that sink in for a moment: private companies moving their cash reserves into Bitcoin.

It’s only a matter of time before nation states start doing the same. This makes it more all the more apparent that nation states will have to consider the security of this infrastructure as a national priority.

These new holders will not be selling for the next foreseeable future. They are making capital investments in a special purpose asset along with equipment whose only purpose is to secure PoW infrastructure like Bitcoin.

If the price of Bitcoin goes down, they will not sell it; instead they will only continue mining and buying more until the price of Bitcoin goes up or the price of running the equipment is less than the marginal cost of electricity or energy. In some cases these entities might keep running the equipment below the marginal price of electricity because their government or nation state that owns the facility might view it as a national interest against other nations. This is simply because Bitcoin is a special, mathematically scarce asset.

Ultimately, Bitcoin and other PoW and even PoS tokens will become critical aspects of the overall national security strategy of nation states. This move will require a KYC strategy and with this comes a national and international standard like Know-Your-Hashrate (KYH) to bring transparency to the most essential service of the industry. KYH improves crypto compliance officers’ risk assessment with more detailed analyses, allows for the assessment of the reputation that mining services have, and brings trust to the miner and crypto community ecosystem. Traditional finance can finally have an open dialogue with government regulators to find common ground within the crypto sphere.