China is responsible for around 70 percent of Bitcoin blockchain operations in the world, mostly concentrated in the four provinces of Xinjiang, Inner Mongolia, Sichuan and Yunnan. The country is now witnessing an exodus of Bitcoin mining companies and other cryptocurrency miners as the Chinese Communist Party (CCP) cracks down on mining activities in a major way.
In May 2021, China’s State Council vowed to curb bitcoin trading and mining in order to minimize financial risks. The decision was made following global hysteria surrounding Bitcoin and the revival of Chinese speculative trading in cryptocurrencies. Interestingly, the crackdown on crypto mining activities comes at a time when the Chinese central bank is testing its own digital currency.
“Many miners are exiting the business to comply with government policies. Mining machines are selling like scrap metal,” said Mike Huang, who operates a cryptomining farm in the southwest province of Sichuan.
“If the government doesn’t allow it (cryptomining), I just have to quit. You don’t fight the Communist Party in China, do you?” said Liu Hongei, who operates a mining project in China’s Yunnan province.
Miners are responding to the government crackdown by shifting operations to countries like Russia and Kazakhstan just beyond the Chinese border.
Cryptocurrency mining activities fail to comply with Beijing’s goal to achieve carbon neutrality by 2060, owing to the fact that mining involves the extensive use of highly powerful computers, resulting in excessive power consumption.
The exodus of miners from China has already started in Inner Mongolia. The leadership of the province found that climate targets set by Beijing were unable to be met due to high power consumption by cryptocurrency mining farms. Operators were given two months to shut down operations.
The consequence of the exodus of miners from China can be measured through the industry standard “hashrate” value, which represents the combined computing power of miners within the Bitcoin network.
“Given the drop in hashrate, it appears likely that installations are being turned off throughout the country,” Nic Carter, founding partner of Castle Island Ventures, said to CNBC. Carter estimated that 50 to 60 percent of Bitcoin’s overall hashrate will ultimately be displaced from China.
US and international situation
Texas is emerging as the next potential hotspot for miners. The U.S. state has one of the cheapest energy prices in the world, with its use of renewable energy growing day by day. As of 2019, Texas derived 20% of its power from wind.
The area has a deregulated power grid that provides consumers with the chance to choose between different power provider services. Local political leaders are also supportive of cryptocurrency mining activities.
“You are going to see a dramatic shift over the next few months. We have governors like Greg Abbott in Texas who are promoting mining. It is going to become a real industry in the United States, which is going to be incredible,” Brandon Arvanaghi, a former security engineer at crypto exchange Gemini, said to CNBC.
Bitcoin mining is also showing signs of growth in emerging economies. Kazakhstan is an attractive option for miners because its coal mines provide a cheap source of energy. The country is expected to impose a new tax on crypto miners in 2022.
Ukraine has plans in place for a data mining center close to its Zaporizhzhia nuclear plant. El Salvador is yet another country setting itself up to be a mining hub – Bitcoin will be made into legal tender in September this year.
In the meantime, industrialized countries are imposing more restrictions on cryptocurrencies to combat money laundering activities, since criminal entities are using Bitcoin as their preferred mode of payment due to the perceived anonymity provided by the blockchain.