When we talk about mining Bitcoin (BTC), we have to talk about China. China has grown into a giant in the Bitcoin mining ecosystem, with significant mines and pools, fast and cheap labor, and majority control over global hashing power. So should we set up a mining operation there? Do the advantages outweigh the disadvantages? Is China Really a Threat to the Bitcoin Ecosystem? Let’s look at the mining situation in China.
Back to basics
At the beginning of Bitcoin development, you can simply mine from your laptop or set up some miners in your house to run the hashing algorithm. But as more miners started activating and the difficulty of mining Bitcoin increased, it took more computing power and electricity to solve the equations and earn the reward.
Only a limited amount of Bitcoin (21 million tokens) can be mined. So over time it becomes more and more difficult to break them down. Miners continue to need better, faster hardware that uses more power. Today, the mining operations are moving to large data centers where thousands of miners work day and night.
Why mention all of this? Because in large-scale mining, electricity costs, labor costs, speed of acquiring new hardware, and sustainability all play a role if the goal is to make a profit, and China has the upper hand in almost all of these areas.
The state of mining in China
At the end of 2019, China was producing almost two-thirds of the world’s hash power. Despite the fact that the use and exchange of cryptocurrencies are reportedly banned in China and bitcoin mining was once in danger of being stopped, the government has turned 180 degrees and increasingly adopting its use. of blockchain technology in its main industries and enables the growth of bitcoin mining.
Bitcoin mining in China is a growing industry as the labor costs are cheap, the response time is incredibly fast, and the delivery time and production costs are much lower as the country is a trading center. World. Since much of the hardware used to mine Bitcoin is made in China, miners can upgrade very quickly. If you want to quickly set up a data center with low cost and effort, do it in China.
Inexpensive electricity is also available in the form of hydropower. Because mining bitcoin requires so much power between powering the miners and powering the fans to cool the miners, a data center needs to get power as cheaply as possible. Well known Hydropower in Sichuan Province is only $ 0.02 per kWh during the rainy season, and the Chinese government is now promoting mining in that province so that operations can use the hydropower there.
But few Chinese mines run on cleaner and cheaper hydropower. Instead, most run on charcoal, which is a dirtier and more expensive option. Of the major energy sources today, hydropower is the cheapest, priced between $ 0.01 and $ 0.02 per kWh, and wind is another affordable option at $ 0.025 per kWh. Gas and coal are the most expensive options between $ 0.03 and $ 0.035 (plus transmission costs and taxes). While labor and materials can be cheap, the use of coal makes mining unsustainable from both a cost and an environmental perspective. Also, take into account the political instability in setting up mining operations in China, so you may consider looking elsewhere.
Can China stay at the top?
Those who want to set up large-scale mining operations are increasingly looking for locations in the Nordic countries, Canada and the USA. While these locations may offer higher start-up and maintenance costs, the availability of sustainable and inexpensive electricity is proving to be a huge benefit. Furthermore, These areas are more politically stable, so there is less chance that the government will one day decide to shut down all mining operations. Indeed, Canada viewed mining operations as “essential services” during the shutdown of the COVID-19 pandemic.
This could be why the hashing power of the world is shifting its location. According to a recent report, the power of Chinese hash is decreasing compared to last year, but it is growing in other parts of the world.
Another reason for this decline could be that Chinese mining was hit hard in 2020. The COVID-19 pandemic disrupted supply chains, causing new hardware to significantly delay the arrival of data centers.. In an industry where every minute counts, using slower and older miners for another day means losing money and benefits. In addition, China’s quarantine rules prevented workers from servicing their rigs, which further disrupted operations.
In addition, Bitcoin’s third halving occurred last May, cutting the reward for mining in half and forcing miners to significantly upgrade their hardware in order to stay competitive. With twice as much hashing power now required to mine the same amount of Bitcoin as it was a year ago, the mining operations not only had to upgrade, but also had to make sure their energy costs remained efficient. After the halving Many miners around the world went offline because the effort was no longer profitable.
Beside everything This summer’s monsoon season caused excessive flooding and power outages in Sichuan Province that reduced the area’s hash rate by up to 20%.
Despite these major setbacks, mining in China is sure to rebound. But as other parts of the world embrace and encourage bitcoin mining and sustainability is increased elsewhere, we will soon see China’s place as an industrial giant challenged.
The views, thoughts, and opinions expressed herein belong solely to the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Philip Salter He is Head of Mining Operations at Genesis Mining, the world’s largest cloud cryptocurrency mining company, where he leads the research, data development and software development teams. Salter began his career as a software developer at BSI Business Systems Integration AG. Salter is an avid miner and crypto enthusiast based in Germany.