China's Bitcoin Miners Begin Exodus amid Government Crackdown
92 | 1/12/2018 8:17:00 AM
Some news reports have started to emerge indicating that China may discourage bitcoin mining operations in the country by curbing their access to electricity. The move, however, may not affect all miners as the People’s Bank of China has only laid down a plan affecting a small subset of all mining companies in a meeting held on January 3, 2018. Part of the plan also involves keeping track of the electricity consumed by such large-scale operations and debating whether they are unfairly affecting power prices in the areas around them. An official in the Xinjiang province told the Wall Street Journal that the Chinese government had sent notices to local agencies and that he would be doing “what the country wants.”
In anticipation of such a restrictive policy being introduced, industry leaders with expansive mining operations have already been looking at other options overseas. Jiang Zhuoer, the founder of China’s third largest bitcoin mining pool, BTC.TOP, revealed in an interview with Bloomberg that the company “chose Canada because of the relatively cheap cost, and the stability of the country and policies”.
According to Wu Jihan, CEO of the Chinese company Bitmain , his company is responsible for the production of around 70 percent of all bitcoin mining rigs currently in use. Bitmain also runs two of China’s largest bitcoin mining pools and is currently moving its regional headquarters to Singapore. It has also managed to set up its operations in the United States and Canada. Based off a report from the Swiss newspaper Handelszeitung, Bitmain has also established a subsidiary in Switzerland, which a company spokesperson said was chosen because it is “one of the most progressive countries…with good legal stability”. Likewise, ViaBTC, the fourth largest pool is also eliminating its dependence on China by starting its mining operations in North America and Iceland.
Philip Gradwell, chief economist at Chinalysis Inc, a blockchain analysis firm, stated in an interview with the Wall Street Journal:
“If China really does switch off all the minters suddenly, there could be a very high level of disruption. It’s very hard to estimate back-of-the-envelope how big an impact would be.”
He also believes that bitcoin could be in trouble, at least for a few weeks, before the network would be able to readjust the rate of mining new coins.
Arthur Hayes, CEO of the Chinese cryptocurrency exchange BitMEX, said:
“I don’t think miners have been sitting on their hands. Some people have already moved their hardware out of China.”
China, being an industrial nation, offers enterprises inexpensive electricity among other utilities. This is an especially important consideration since Digiconomist estimates that the annual power consumption due to bitcoin mining is a staggering 37.8 TWh, surpassing the total consumption of several nations, or 3.5 million average US households. Mining activities are, therefore, only profitable in the event that the electricity available to the parent companies is heavily subsidized. China can offer such discounts on energy prices due to its massive investment in coal and hydropower.
Studies have repeatedly shown that Chinese bitcoin miners account for a rather large percentage of the total bitcoin mining efforts worldwide. In fact, as much as 71 percent of all bitcoin mining pools are based in the country, at least as of mid 2017. The Chinese government’s crackdown on Initial Coin Offerings (ICOs) and cryptocurrency exchanges in September, 2017 may have deterred some of them, but the country is still home to a lion’s share of the mining efforts.
The ASIC (Application Specific Integrated Circuit) hardware used to mine bitcoin and other similar proof-of-work based cryptocurrencies are also almost exclusively manufactured in China, making it readily accessible for mining businesses in bulk quantities. As a whole, the Chinese have a relatively large monopoly over the cryptocurrency mining ecosystem, both in terms of market share and manufacturing.
China’s move to ban bitcoin miners, even selectively so, is likely in response to recent reports indicating the scale and extent of power consumption due to bitcoin mining. As the cryptocurrency ecosystem grows and bitcoin’s usage progressively increases as it has for several years now, the electricity usage is only expected to continue rising with time.
Featured image from Shutterstock.