China is Kicking Out Bitcoin Miners

Over half of the world’s miners population have lived and worked in China but that may no longer be the case. The Chinese government began a crackdown on Bitcoin miners in May. The move has triggered what has come to be known as ‘The Great Mining Migration’.

China’s issue with miners

Bitcoin mining is an energy-intensive process. It involves the creation of new coins and the maintenance of a log of all digital tokens in existence. This consumes a lot of electrical energy and such energy consumption may have environmental consequences.

Although the data for the global distribution of mining power for 2021 is not yet available, past results have put China at the top of Bitcoin mining. In fact, 65 to 75% of the world’s Bitcoin mining occurred in China. Xinjiang, Inner Mongolia, Sichuan and Yunnan are four provinces that stood out for high mining rates.

China’s concern for climate change is a major reason behind the crackdown. The Chinese government failed to meet its climate target in Xinjiang, Inner Mongolia, Sichuan and Yunnan provinces. Provincial authorities have put the blame on Bitcoin mining in the area. As of May 2021, the miners in Inner Mongolia had just two months to move out of the areas.

China has begun to record a drop in hashrate. This is evidence to suggest mining installations are being switched off countrywide.

The crackdown policy is yet to be centralized in China, but some miners in unaffected areas are already getting out post-haste. De La Torre, vice president of the mining firm, Poolin, has said the company is cutting its losses and leaving China. “We do not want to face every single year, some sort of new ban coming in China,” he said.

Nick Carter, a founding partner of Castle Island Ventures thinks about 50 to 60% of the hashrate of the entire Bitcoin network will exit China.

Where will they go?

Cheap energy is an important incentive for Bitcoin miners to compete favourably. This is because the Bitcoin mining industry is a low margin industry where the only variable cost is usually energy. This troubling development in China has caused a dump in Bitcoin price and traders’ confidence on platforms like Binance and Coinbase, even though the now-public exchange was initially unsupportive of Bitcoin. 

Miners are moving towards the cheapest energy sources they can find outside China. Carter says “Every Western mining host I know has had their phones ringing off the hook.” He went on to say that “Chinese miners or miners that were domiciled in China are looking to Central Asia, Eastern Europe, the U.S. and Northern Europe.”

Texas seems like a developing hotspot for miners. It has the cheapest electricity in the U.S. and a pro-Bitcoin socio-political environment makes it easy to set up shop there. Wyoming has also veered towards being pro-Bitcoin. It is another potential mining hotspot in the United States.

The Musk critique

Elon Musk, criticisms on Bitcoin mining’s environmental impact are not new. Over the years, more than a few critics have bashed Bitcoin mining. They claimed its high energy consumption is bad for the environment. China’s crackdown may drive home Musk’s point of unhealthy Bitcoin mining carbon footprint.

Bitcoin enthusiasts however have countered the environmental damage claim. They believe Bitcoin mining has played a significant role in advancing the cause of renewable energy.

De La Torre has revealed his company intends to expand operations using green energy.  Many other Bitcoin miners may do the same. There are some limitations, however, as both solar and wind energy, though cheap, are scale limited. Therefore, there are concerns on if miners can turn to wind or solar energy, exclusively.

Next six months

For a while, as the Chinese miner diaspora scrambles to find a new home, we can expect to see hashrate go offline and remain so. However, mining profitability across the world will not be adversely affected. Special crypto economies may also begin to develop.