|
China has many advantages in the Bitcoin mining industry, but this advantage will not last forever as more countries are entering the field. The COVID-19 pandemic has disrupted the industry's supply chain in China. According to a recent report, China's computing power is decreasing compared to last year, but it is growing in other parts of the world. When it comes to Bitcoin mining, we have to talk about China. China has become a giant in the Bitcoin mining ecosystem, with major mines and mining pools, fast and cheap labor, and control of most of the world's computing power. So, should we go there to build mines? Does this approach have more advantages than disadvantages? Is China really a threat to the Bitcoin ecosystem? Let's take a look at the current situation of mining in China.
Back to basics <br />In the early days of Bitcoin, you could simply mine with your laptop or arrange a few miners at home to run the hashing algorithm. But as more and more miners began to become active, the difficulty of Bitcoin mining increased, requiring more computing power and electricity to solve the equation and get the reward.
There is only a limited number of Bitcoins that can be mined - 21 million coins in total, so mining becomes increasingly difficult over time. Miners will constantly need better and faster hardware, which also means greater electricity consumption. Today, mining operations are moving to large data centers, where thousands of miners run day and night.
Why do I mention this? Because when mining at scale, if the goal is to generate profits, then electricity costs, labor costs, speed of acquiring new hardware, and sustainability come into play, and China has an advantage in almost all of these areas.
The current situation of mining in China
At the end of 2019, China provided nearly two-thirds of the world’s hash power. Although the use and exchange of cryptocurrencies are banned in China and Bitcoin mining was once in danger of being shut down, the government has made changes and increasingly accepted the use of blockchain technology in its major industries — and allowed the development of Bitcoin mining.
Bitcoin mining in China is a growing industry because China is one of the hubs of global trade, so labor costs are cheap, turnaround time is very fast, and delivery time and production costs are much lower. Since most of the hardware used to mine Bitcoin is made in China, mining machines can be upgraded very quickly. If you want to build a data center quickly with low overhead and fees, do it in China.
Miners can also get cheap electricity in the form of hydroelectricity. Because Bitcoin mining requires a lot of electricity between powering the miners and powering the fans that cool the miners, data centers need to get electricity at the lowest price possible. Hydroelectricity in Sichuan Province has been reported to be as low as $0.02 per kilowatt-hour during the rainy season. The Chinese government is now encouraging mining in the province so that operations can take advantage of the hydroelectric stations there.
However, only some mining operations in China use cleaner, cheaper hydroelectricity. Most mines use more polluting and more expensive coal-fired power. Of the current major energy sources, hydroelectricity is the cheapest, at about $0.01 to $0.02 per kilowatt-hour, and wind power is another cheap option at $0.025 per kilowatt-hour. Natural gas and coal are more expensive options at $0.03 to $0.035 cents (plus transmission costs and taxes). So while labor and materials may be cheap, the use of coal makes mining operations unsustainable from a cost and environmental perspective. Add in the political instability of setting up a mining operation in China, and you might want to look elsewhere.
Can China maintain its lead?
Those who want to set up large-scale mining operations are increasingly looking for locations in the Nordic countries, Canada, and the United States. While these locations may require higher startup and maintenance costs, sustainable, cost-effective electricity supply is a major advantage. In addition, these regions are politically stable, with less threat that the government will one day decide to shut down all mining operations. In fact, Canada deemed mining operations an "essential service" during its COVID-19 pandemic-induced lockdown.
This could be the reason for the migration of global hashrate. According to a recent report, hashrate in China is decreasing compared to last year, but increasing in the rest of the world.
Another reason could be that China’s mining industry has been hit hard in 2020. The coronavirus pandemic disrupted supply chains, leading to significant delays in the arrival of new hardware into data centers. In an industry where every second counts, using older, slower mining machines for even one extra day can mean lost money and advantages. In addition, China’s quarantine rules prevented workers from tending to their mining machines, further disrupting operations.
In addition, the third Bitcoin halving took place in May this year, slashing the mining reward in half, forcing miners to make major hardware upgrades to remain competitive. Because it now takes twice as much computing power to mine the same amount of Bitcoin as it did a year ago, mining operations not only need to upgrade, but also need to ensure that their energy costs remain efficient. After the halving, many miners around the world chose to shut down because the work was no longer profitable.
On top of that, this summer’s monsoon season caused excessive flooding in Sichuan Province, leading to power shortages that cut computing power in the region by 20%.
Despite these major setbacks, China’s mining industry is sure to bounce back. But as the rest of the world accepts and encourages Bitcoin mining, and as greater sustainability is offered elsewhere, we may soon see China’s position as a giant in the industry challenged. (Cointelegraph) |
