As many know, price is just one of many levels of a crypto asset. For proof-of-work (PoW) -based assets like Bitcoin, mining is another important level.
After Bitcoin mining migrated from China this semester after its ban to other friendlier places, the landscape in this sector has changed significantly, although the hash rate is almost at the same level as it was before the Chinese ban.
There has been talk in recent months that China is cracking down on Bitcoin and cryptocurrencies in general. Although these conversations are no longer new, as similar news had already surfaced since 2013 and 2017, this time around the Chinese government has taken a stronger stance specifically against mining cryptocurrencies. In this most recent event, the impact of the ban on the power of the Bitcoin hashrate was clearly visible.
Bitcoin’s hashrate fell 40% in June, making it one of the steepest drops in its history. Since miners protect the network, reducing their contribution to the blockchain makes it less costly to attempt an attack on the blockchain.
The hashrate is the additional power of computers to secure a proof-of-work blockchain.
By this year, more than half of the Bitcoin miners were in China. After China’s crackdown on cryptocurrency mining, the hash rate dropped more than 50% as these miners relocated to countries like Mongolia, Kazakhstan and Georgia. Even Texas and New York state have become mining-friendly environments. These changes have resulted in a redistribution of the miners supplying Bitcoin.
After hitting a low in June, the hash rate has risen steadily and hit new highs this week despite falling prices.
Redistribution of the mining industry
American miners have been one of the biggest beneficiaries of China’s mining ban, as the United States is currently generating the bulk of the bitcoins issued worldwide.
Unknown independent miners have also grown significantly, suggesting that there are now more independent entities that mine themselves without relying on mining pools that concentrate great power over the Bitcoin network.
However, Bitcoin has incentives to get feedback from miners. Since the price of Bitcoin has fallen less than its hash rate, it is initially less competitive for mining, although mining revenues remain relatively high. This makes mining more profitable on average and attracts more miners.
The impact of the ban on miners in China is reflected in the sharp decline in the number of blocks mined per day in the Binance and Huobi pools, which are down 35% and 63%, respectively. At the same time, unrecognized and independent miners marked as “unknown” have grown remarkably in the past few months, from 0.03 blocks / day to more than 10, according to data compiled by IntoTheBlock
Although China’s mining ban has created short-term uncertainty, it has made the network more resilient as it is now more distributed and decentralized globally.