The exodus of bitcoin miners from China as a result of the Asian giant’s crackdown on cryptocurrency is resulting in an increase of miners in other countries. The US has been at the receiving end of the shift in crypto mining base from China, as most of the miners are finding a new home in the United States, particularly Texas.
Now the US has been named the world’s biggest source of bitcoin mining just two months after China’s crackdown, Financial Times reports.
According to the data published by the Cambridge Centre for Alternative Finance, quoted by the report, China’s share of the global hashrate — the computational power required to create bitcoin — fell from 44 per cent to zero between May and July. The country accounted for three-quarters of the global hashrate in 2019.
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The US share of the global hashrate increased from 17 per cent in April to 35 per in August, while Kazakhstan rose 10 per cent to 18 per cent in the same period.
China clamped down on bitcoin miners over environmental concerns and the huge energy consumption it creates, which resulted in power failure in some Chinese provinces. Hence, the relationship between cryptocurrency miners and Beijing eventually soured irredeemably.
In the subsequent months, China declared everything crypto illegal, ordering financial institutions to desist from carrying out crypto-related transactions.
It was crystal clear, bitcoin miners’ time in China was up, prompting an exodus of miners in search of cheap energy and crypto-friendly politicians – and the US became a darling destination as many crypto mining companies shut down in China.
China’s bitcoin mining ban resulted in the “great mining migration” said Sam Tabar, chief strategy officer at Bit Digital, a New York-based bitcoin miner. The company suspended its operations in China, which it had been winding down since October 2020, after the prohibition, according to FT.
While China’s crackdown on bitcoin miners disrupted the crypto market, prompting massive selloffs that plummeted the market’s value, it did push for even redistribution of hashrate around the world.
Michel Rauchs, digital assets lead at Cambridge tracker, noted that “the effect of the Chinese crackdown is an increased geographic distribution of hashrate across the world”, adding that it could be seen as “a positive development for network security and the decentralised principles of bitcoin”.
Outside China, miners were having a field day as the downturn of the ban increased hashrate, and the displaced Chinese miners scrambled to resettle.
“The China shutdown has been great for the industry and US miners,” said Fred Thiel, chief executive of Marathon Digital Holdings, a Las Vegas-based crypto mining company. “Overnight, fewer players were going after the same finite number of coins,” Thiel added.
On average, 900 bitcoin are mined every day by machines that race to solve complex computational mathematical problems that unlock new digital coins, the report said. Between July and September, Marathon Digital Holdings produced 1,252.4 minted coins, 91 per cent more than the previous quarter, reflecting increase in mining activity as a result of the inactivity of Chinese competitors.
But Thiel said that the competition has intensified as Chinese miners settled in to new locations, notably Kazakhstan. “We’re back to where we were before the shutdown, so I expect the situation to stabilise,” he said.
Apart from Kazakhstan, where cheap energy is driving the inflow of migrating miners, Argentina has become another place of choice. However, the miners have continued to encounter new challenges as they resettle. From concern over bitcoin’s carbon footprint to central banks’ worry about cryptocurrency impact on traditional financial institutions, there has been a flurry of policy proposals to control the activities of the emerging market. Some countries are following the step of China by banning crypto, prohibiting financial institutions from investing or carrying out transactions on behalf of crypto traders.
While majority of governments are very concerned about the use of cryptocurrencies to carry out money laundering, others are largely worried about the amount of energy crypto miners consume, thus pushing laws to address it. The Kazakh government also passed a cryptocurrency mining tax that will come into effect in 2022.
But apart from energy and environmental concerns, China’s Central Bank Digital Currency (CBDC) e-yuan, is another factor behind its decision to kick cryptocurrency out of the country. With many facets of the e-yuan’s trial so far a success, China is readying it for use as soon as possible – its latest target time to debut the trial version being the Winter Olympics next February in Beijing.