The subsequent reality of the Bitcoin network could change soon, some industry experts argue. The reason is quite simple and, surprisingly, has nothing to do with the cryptocurrency itself: The rainy season has arrived in Sichuan, a province in southwest China known as one of the best places for Bitcoin mining (BTC).
The rain in Sichuan is a good sign for all local farmers, including Bitcoin miners. The abundance of water leads to an excess supply of hydropower, which in turn leads to lower electricity prices, the main burden for miners. As a result, mining is becoming increasingly profitable, which can lead to an increase in the overall hash rate. But is it possible for a single Chinese province to provide the entire Bitcoin network with reward cuts?
The ideal place for mining
According to the latest data from the Cambridge University Center for Alternative Finance’s Bitcoin Mining Map, Sichuan accounts for 9.66% of the total BTC hash rate. It is worth noting that the southwestern province is not even the most important mining location in China at the moment, behind Xinjiang, the desert region that accounts for up to 35.76% of Bitcoin’s global hash rate.
However, the distribution of hash energy in China changes between May and October each year when the rainy season begins in Sichuan. Local actors then begin to migrate en masse from Xinjiang, Inner Mongolia to Sichuan and Yunnan to benefit from the lower electricity rate. Leo Zhang, the founder of Anicca Research, told Cointelegraph:
“Over the years, the mining industry started to organize itself according to this calendar. Manufacturers make their product announcements in May. The facilities offer their special offers shortly before the rainy season begins. “
It depends on the intensive hydropower sector in Sichuan. The province was reportedly producing 78.2 gigawatts in 2019 and exporting 104 billion kilowatt hours, which is about 30% of its total production, to other national regions. According to the traditional Chinese press, the abundant water power during the rainy season and the cold climate in the mountainous areas of Sichuan have made it an “ideal destination for miners”.
Delayed rainy season and problems after halving
This year’s rainy season in Sichuan came later than usual as most areas did not start the rainy season until May 25th. The delay has reportedly affected the local mining sector. According to a local crypto news agency, some Bitcoin miners in Sichuan went offline earlier this month due to power shortages.
The report cited a government announcement released on May 18, which found that the region’s electricity load has increased 22% since the beginning of May, while water flow in local rivers has decreased 20%, resulting in a Deficit in hydropower supply leads. According to the report, an unidentified local miner said that some of the local mines were without power for more than three days, while others could only mine overnight.
This year’s rainy season is more complicated than in the past, while halving also comes into playZhang told Cointelegraph. According to him, mining operations in southwest China are still slowly recovering:
“After halving when more machines left the network, the facilities urgently needed to fill capacity. So far, the supply of accommodation has far exceeded demand. Many facilities in the Sichuan and Yunnan areas have trouble finding customers. The oversupply of residential buildings in the flood season further lowers the average electricity prices. Compared to last year’s total costs of 0.24 to 0.26 RMB / kWh, this year’s average can only be 0.10 to 0.20 RMB / kWh. “
The impact of block reward reduction is partially absorbed by lower energy costs, Zhang added.Emphasizing current trends among Sichuan Bitcoin miners that many of the facilities have contracts with power plants that describe minimum power consumption. He added, “To attract companies, some of them offer joint mining programs in which miners pay minimal monthly costs and share mining income with the owner of the facility.”
Pankaj Balani, CEO and co-founder of the crypto derivative platform Delta Exchange, shared a similar opinion in an email to Cointelegraph, arguing that the rainy season could be dangerous even for the local mining sector: “While significant efficiency gains can be made in terms of electricity costs for miners, complications can also arise, including flooding and destruction of the mining infrastructure.”
In 2019, Bitcoin’s hash rate increased from 48 million to 90 million terahashes per second between May and September, with rate gains comparable to those of 2018. But this time, according to Balani, the results could be different. :: “The recent halving plays a role here, and it remains to be seen whether the observed increase in the hash rate of the rainy season can be sustained in a low-income period like this.”
Overall, the mining sector in China has had problems combining COVID-19 restrictions, revenue cuts and price fluctuations in recent weeks. For example, Canaan, a major mining company headquartered in China, recently reported a loss of $ 5.8 million in the first quarter and reduced the price of mining hardware sold by up to 50%.
Ian Descoteaux, head of mining at Bitcoin.com, does not believe the hash rate will increase “if you consider that we are not even established after halving”But in his opinion, the rainy season at least helps prevent further drops in the bitcoin hash rate. In the meantime, some experts are much more positive about this year’s rainy season. Kristy-Leigh Minehan, a consultant and former chief technology officer at Genesis Mining, told Cointelegraph that she expects an increase:
“”A large number of my customers switched the latest machines offline and moved them just because they are still inexpensive at 0.03 kWh instead of recycling hardware. We have also seen a steady increase in the hash rate of 207% in 2017, 73% in 2018 and 104% in 2019. So I hope to see a similar growth paradigm in 2020. “
New ASICs are approaching
The mining market is currently in a declining phase and margins are “thinner than ever,” Matt D’Souza, CEO of Blockware Solutions, a mining hardware broker, told Cointelegraph. This trend, the most inefficient miners, must leave the game, or alternatively the price of Bitcoin has to go up.
The dropouts will be replaced by the next generation of mining equipment such as the M30 series from MicroBT and the Antminer S19 machines from Bitmain. These units are capable of producing up to 100-120 TH / s, which alleviates the greatest difficulties in mining. Some of them have already been shipped in limited quantities, but are not yet widely used among miners. Descoteaux said to Cointelegraph:
“We will see a significant increase in the hash rate when the Bitmain S19 finally ships in the summer. The S19 is a significant improvement over the S17. While the miners don’t really provide more power, the overall efficiency gain in the network leads to one higher net hash rate. “
According to D’Souza Chinese miners have “aggressively” updated the next generation team. “Because of that [los nuevos dispositivos] They expired until September. “He also believes that the start of the rainy season will increase the hash rate, but it is unlikely that there will be a massive increase.
Minehan confirmed that many farms had switched to new ASICs months in advance, even though the corona virus, shipping delays, and material delays “caused some delay.” According to her, “June, April and September will be the next update periods. Therefore, we can expect an “increase” in the net hash in these months. “He added,” Many of the more experienced Chinese miners, which means that this is not their first cut in half, have simply planned the mission accordingly. “