China is the world’s powerhouse for Bitcoin Mining- at least 71% (71% is known of, but it could be even more) of the world’s Bitcoin mining takes place in China. This is even despite all the new Chinese regulations against crypto.
Compared to China’s 71% of Bitcoin mining, the USA only controls 1%.
China has the biggest mining pools in the world. According to hash-rates, the biggest mining pools in the world are AntPool, F2Pool, BTCC, and BW Pool. They are all located in China.
China also produces the majority of the world’s mining equipment – almost any Bitcoin or any crypto mining equipment will come from China.
However, new regualtions from the Chinese government have put a threat onto Bitcoin mining in China and
Why has Bitcoin mining been so big in China?
Bitcoin mining uses a LOT of electricity. To give an idea, Bitcoin miners in China use roughly 4 gigawatts of energy on Bitcoin mining. This is equal to the production level of three large nuclear reactors. Electricity is very cheap in China. The cost of electricity in Germany is 35 cents/kWh. In China, this amount is 8 cents/kWh. Electricity is often subsidized by the state, with many of the original Bitcoin mining factories even getting nearly free electricity, or it is supplied in such volumes by hydro-electric factories that the production cost of electricity in China is also minimal.
The main reason for the cheap electricity is that China prioritises financial progress over taking care of the environment. Granted, China now has the world’s largest supply of solar panels, they also produce the most dirty energy from coal and other non-renewable resources, at the expense of the air quality and environment. One of the main reasons for the excessive amounts of smog in major Chinese cities including Beijing is the burning of coal day and night to produce electricity.
Even with the cheap electricity, energy is still 60-70% of the cost of Bitcoin mining, with other expenditures including the equipment and staff.
Bitcoin miners in China are able to take advantage of this energy for a fraction of the cost that it would be available in in any other country.
China also offers cheap labour, and as it is the producer of the vast majority of all the world’s mining equipment, offers cheaper access to parts.
With the increasing difficulty in mining Bitcoin (because of the algorithms it was coded on, Bitcoin uses more and more energy every year to mine) and because of the now falling value of Bitcoin, and the worldwide increases in the cost of electricity, many of the other Bitcoin miners have been rendered unprofitable. I.e. there isn’t enough profit in mining Bitcoin in many countries to make it worthwhile – as the cost of the energy needed to mine a Bitcoin might be almost the same, or in some countries, higher, than the current value of a Bitcoin.
The thing is, even with the coal and a capacity to produce 2.77 billion kW per hour, miners in China are using more electricity than the government is happy with and they are now trying to limit the amount of energy available to Bitcoin mining.\\
As you are probably aware, the government of China does not like cryptocurrencies and are trying to make them heavily regulated. There have been several rumors of China banning Bitcoin and shutting down local exchanges. There are also rumors about China banning crypto mining. As of now, these are still just rumors. However, according to multiple reports (*), China is about to end all mining operations in a couple months. But this will not be a ban: The government will increase the price of electricity and apply additional taxes to Bitcoin mining farms. Simply put, mining a crypto-currency won’t be profitable anymore. For this reason, the owners of these farms plan on relocating to another country that is still “friendly” to miners, such as Canada.
What is the future of Bitcoin mining in China?
China are planning to limit the amount of energy available to Bitcoin mining, but the biggest risk comes from potential regulations. The Chinese government have been known to make some rash decisions that have proven detrimental to the country – and as a result many of the leading exchanges and crypto companies that were formerly based in China, have now moved out to Singapore and other friendlier jurisdictions.
Bitmain, the largest mining group running the two largest mining pools, are moving out of China, setting up regional headquarters in Singapore and moving operations to Canada and the USA. Btc.Top, the third largest pool, are working on opening a mining factory in Canada and ViaBTC, the fourth largest, are opening operations in Iceland and the USA.
Canada is becoming the most popular new destination for Bitcoin mining, due to its relatively affordable energy prices, cool climate (useful for crypto mining as it means less energy is needed for cooling) and stable politics.
To sum it up, mining is still legal in China and it will (probably) still be in the future. But it won’t be as profitable anymore, and the regulatory risks to large mining operations are slowly outweighing the benefits of continuing to be based in China.
How does this affect Bitcoin?
If there is a large reduction in crypto mining from China, this would slow down the hashrate of Bitcoin.
There is already a concern of the global dependence of Bitcoin mining on China, and how a sudden government clampdown or new regulations could put a sudden stop to Bitcoin mining.
This would reduce not only the production of new Bitcoins, but would also affect the ability of the Bitcoin network to process transactions, as miners are also needed to process the confirmations for every time a Bitcoin transaction is sent. This could have a drastic effect on the Bitcoin network resulting in high transaction fees and long delays.
Recently, there was a flood in Sichuan in China (the main region in China for Bitcoin mining), which cauased flood damage to several Bitcoin mining factories. This led to a sudden drop in hashrate for Bitcoin mining that day, affecting the worldwide Bitcoin network.
This just shows how vulnerable the Bitcoin network is to small events that affect the functioning of just a few factories. A serious regulatory clampdown from the Chinese Government could through the smooth functioning of the Bitcoin network into jeopardy for a while.