China is pushing Bitcoin miners out of the country. It’s an exodus!
Author — Lokesh Dahiya
More than half of the world’s Bitcoin mining happens in China, well, at least until recently. But now, Beijing wants them out. In May 2021, the Chinese government began a severe crackdown on Bitcoin crypto mining and trading. After failing to meet Beijing’s climate targets, province leaders decided to give Bitcoin miners two months to clear out, explicitly blaming its energy misses on crypto miners. During the crackdown, 26 major Bitcoin mining hubs were forced to shutter in Sichuan province, and during one week in June, more than 70% of the total mining capacity in China went offline. But does Bitcoin mining put such a strain on a country’s electricity consumption? And is this exodus from China solely because of the recent clampdown?
The Cambridge Centre for Alternative Finance (CCAF) estimated the worldwide annualized power consumption by the Bitcoin network to be 129 terawatt-hours (TWh), as on March 18, 2021. That’s more consumption than the whole country of Norway. (You can look up the consumption index estimate live here). Chinese authorities say cryptocurrencies not only misappropriate the use of electricity unauthorized but also disrupt economic order and facilitate illegal asset transfers and money laundering. Energy research firm Rystad Energy estimates that if China were to eliminate Bitcoin mining, it would cut CO2 emissions by 57 million tonnes. Another important fact is that the clampdown comes as China’s central bank is testing its own digital currency and is worried about potential competition for the digital yuan.
The shift in global dispersion
The way Bitcoin activity is measured is by looking at the hashrate, an industry term used to describe the computing power of all miners in the Bitcoin network. According to CCAF, the US’s share of the total Bitcoin hashrate increased from a mere 4.6% to 16.8% from September 2019 to April 2021. Meanwhile, China’s share of total Bitcoin mining power declined from 75.5% to 46% in the same period before the clampdown (global mining map). These shifts in percentages, however, do not tell the whole story. From Sept 2019 to April 2021, Bitcoin’s worldwide hashrate nearly doubled, but all of the new hashrate was deployed outside of China. China kept its absolute hashrate at roughly the same level. However, it does suggest that China had become a less attractive location for miners even before the government policy.
Bad for environment
A 2020 report by CCAF found that about 39% of Bitcoin mining electricity consumption comes from renewable sources. Hydroelectric is the most common source. As cryptocurrencies move further into the mainstream, it’s likely that the governments and other regulators will turn their attention to the industry’s carbon footprint. The bulk of the mining happens in four Chinese provinces: Xinjiang, Inner Mongolia, Sichuan and Yunnan. Sichuan and Yunnan’s hydropower make them renewable energy meccas. The country also offers significant energy vectors from wind and solar energy. Xinjiang’s grid, for example, is 35% powered by wind and solar energy inputs. If all the miners do end up leaving China, it will mean that the network’s share of renewable energy-powered mining will drop. Therefore, the question of where these migrant miners end up could prove critical to Bitcoin’s future.
Next six months
Miners in China are looking to Central Asia, Eastern Europe, the U.S. and Northern Europe. One likely destination is China’s next-door neighbor, Kazakhstan, which has jumped to third place in its share of global hash rate, behind China and the U.S. The country’s coal mines provide a cheap and abundant energy supply. Kazakhstan, which generates 87% of its electricity from fossil fuels, saw its mining hash rate share increase sixfold from September 2019 (1.4%) to April 2021 (8.2%). Another location could be Texas which has some of the world’s lowest energy prices and its share of renewables is growing over time, with 20% of its power coming from the wind as of 2019. It has a deregulated power grid that lets customers choose between power providers, and crucially, its political leaders are very pro-crypto.
For the time being, there isn’t that much mining capacity worldwide that is ready to absorb the Chinese miner diaspora. While they scramble to find a new home, we could see hashrate go offline — and stay offline. In practice, that would mean all the remaining miners are more profitable for sometime. Although, going ahead, having more geographic dispersion would even out the global balance of power, and it would also reduce the ability of any one sovereign nation to co-opt or control the network.
