Throughout 2021, many Bitcoin miners have literally fled China.
Bitcoin miners fleeing China
Until last year, including the first months of 2021, many Bitcoin mining machines were physically located in China, so much so that it was estimated that a very significant percentage of the hashrate was located in the Asian country itself.
However, it must be remembered that the data regarding the hashrate are only estimates, therefore inaccurate and that it is extremely difficult to know precisely where all the machines are located since many miners are actually pools formed by hundreds or thousands of miners who pool their computing power from different parts of the world.
Therefore while we don’t have precise data, it was speculated that about half of the Bitcoin hashrate in some way could be directly linked to China, with an even larger percentage that could be indirectly related to it.
These percentages would seem to have been confirmed by the collapse of Bitcoin hashrate following China’s crackdown on miners.
According to CoinWarz estimates, for example, 191 Ehash/s were reached on May 9 and 69 Ehash/s on June 28.
This reduction was certainly partly due to the drop in the price of Bitcoin, which went from about $58,000 on May 9 to about $34,000 on June 28, since the more the value of BTC decreases, the less convenient it is to keep the mining machines running.
But why has there been a 64% collapse in Bitcoin hashrate in a month and a half since May 9, although it has since recovered somewhat?
In addition to the significant drop in Bitcoin’s price, there is also another reason: many Chinese miners have shut down their machines.
In fact, they have completely suspended their mining activities.
In fact, back in April, the Chinese government had already made it clear that it did not intend to tolerate the huge energy consumption due to mining any longer.
The consumption of Bitcoin mining
Bitcoin mining consumes a lot of electricity, currently estimated at around 152 TWh per year.
Since much of the hashrate was located in China, it means that much of this consumption was done in the Asian country.
Moreover, only some Chinese miners were using renewable sources, such as hydroelectricity, while others were using electricity produced, for example, with coal.
The Chinese government really dislikes decentralized projects like Bitcoin, which it cannot control, and is trying to pave the way for its central bank digital currency. However, this cannot possibly be an alternative to Bitcoin.
Consequences of the Chinese government’s ban
Basically, the Chinese government, starting right in May, issued a sort of ban aimed at those who mined cryptocurrencies.
Given that the power of the Chinese government in the country is considerable since it is a non-democratic nation, many miners have preferred not to go looking for more trouble and have first turned off the machines and then suspended the activity of cryptocurrency mining indefinitely.
It’s not necessarily that the purchase cost of the machines they were using had already been amortized, plus these machines age quickly, so they should be exploited as long as they turn out to be competitive.
The only possible solution was to move elsewhere, so they could continue mining. Suffice it to say that neighboring Kazakhstan can count on huge oil reserves with which it is produced electricity at a low cost.
Others have fled to Canada or the U.S., where there has been a real surge in Bitcoin mining.
Since the beginning of July, according to CoinWarz’s estimates, the hashrate has been growing again, so much so that recently it has even temporarily climbed back above 150 Ehash/s, only to settle back around 130.
The current level is still about 30% lower than the peak on May 9, but in line with the levels at the end of last year. However, from this point of view, the bulk of the losses have already been recovered, and in the event of a further rise in the price of bitcoin, it is possible that we could even return relatively soon to pre-collapse highs.
Some Chinese miners may be continuing to mine since there are still several among the major pools that would appear to be based in China. Still, it is undeniable that the current situation is decidedly different from that of the early months of this year.
Although it is not possible to determine with certainty how many Chinese miners have suspended their operations indefinitely or how many have moved abroad, it is possible to imagine that the situation in China is unlikely to return to what it was in the short term.