Data from Cambridge Centre for Alternative Finance (CCAF) shows that China is the world’s largest bitcoin producer. It makes up about 65% of all Bitcoin mining worldwide — Inner Mongolia alone represents 8% because of its cheap energy. The country’s Bitcoin mining consumes about 128.84 terawatt-hours per year of energy, more than entire countries such as Ukraine and Argentina.
To show how influential China’s latest proposal to clean up all cryptocurrency mining activities and shut them off by the end of April 2021 gave another boost to the already flipping bitcoin prices. We shall look into why China is a top mining hub and the general crypto mining situation in China. Stay put.
Why China has Always Been Among Top Mining Areas
With growing computer issues for cryptocurrency mining, specialized hardware for powerful computing needs to be made. For bitcoins, the hardware includes a GPU or ASIC, a miner developed solely for mining purposes, for an application-specific Integrated Circuit.
A CCAF cost structure contrasting Chinese and US miners would seem to confirm China’s competitive advantage in the acquisition of mining machines. China’s competitive advantage was attributed to hardware producers’ concentration, shorter supply chains, and lack of additional shipping charges in the outside world.
In addition to the cost of capital, the cost of electricity forms the lion’s share of miners’ operating costs. The estimate of CCAF states that the annualized consumption of Bitcoin mining power in the country, like Argentina and the Netherlands, is close to 140 terawatt-hours.
Hydropower, followed by coal and natural gas, is the world’s leading electricity source for miners. Miners from Asia-Pacific also rely on hydro and coal production. Renewable energy is still much less exploited as a source of electricity.
The regions of China’s Xinjiang and Inner Mongolia use coal for cryptocurrency electricity, while Sichuan and Yunnan provinces use hydropower in the Southwest of China. These are all areas with plenty of electricity.
Cryptocurrency Mining Ban in China
In recent years, cryptocurrency in China has attracted regulatory scrutiny. In April 2019, a tentative list of industry sectors, which it wanted to eliminate, was added by the Chinese National Development and Reform Committee, including energy spending and regulation. In November, however, the final version excluded the mining of cryptocurrency from the list.
Inner Mongolia in northern China was unsuccessful in meeting the central government’s energy use evaluation goals in 2019 and was scolded by Beijing. In response, the region’s development and reform commission laid out plans to reduce energy consumption.
One of these proposals was to close existing crypto mining ventures and not approve any new projects by April 2021. They may require re-evaluating other high-energy sectors, such as steel and coal.
While the Chinese government supports bitcoin’s underlying blockchain technology, it has looked to hunt digital currencies themselves. Beijing prohibited initial coin offerings, a way of issuing digital tokens, and raising money in 2017. The government has also tackled cryptocurrency-related companies, for example, exchanges.
China is also calling for greater environmental support. President Xi Jinping said last year that by 2030 the country targets peak carbon dioxide emissions and carbon neutral by 2060.
Leaving China for Canada
All the reasons for reducing power supplies to bitcoin miners, from energy use to dissenting activity, have been listed. Bitcoin is a decentralized network based on which a single company, such as a central bank, does not emit it. Transactions that are registered on a blockchain public directory must be “verified” by miners.
These miners run computers designed to solve complex mathematical puzzles that allow a Bitcoin transaction to take place. The miners are rewarded with bitcoin, which is the incentive. However, since PCs are powerful, they consume a great deal of energy.
In reality, many bitcoin miners have left the country and sought refuge in countries like Canada. In a way, this is a more philosophical, general statement, but it does mean that, despite what these countries are leading you to think, people are not strictly connected to their states.
Chinese bitcoin mining pools and bitcoin miners work in China’s political system in a kind of protest. While some local governments can endorse them, Blockchain and DCEP have been strongly supported by China’s central government, thus shunning cryptocurrencies. Miners themselves are extremely nomadic in China, with many weather and electricity prices from various areas.
While their income cannot be without financial interest (and is possibly mainly motivated by money, in fact), it flows in front of the facts on the ground that the mineral pools are built in a particular nation and regulated or blindly loyal to a Government. Mining pools are loyal to any rewards which enable them to increase their value. Miners are loyal to whatever pool their position on Bitcoin and best benefits supports.
If these networks’ health decreases, then the fixed investment they made in ASIC mining equipment will be worthless. Bitcoin’s miner’s value is derived from bitcoin and other proof of work cryptocurrencies. Their involvement is in line with the Bitcoin network, which plays an important role when deciding what to do during a fork.
Mining Machines Scarcity
Bitmain, Canaan Creative, Ebang, and WhatsMiner are the major manufacturers of mining machines in China. Bitmain said that they shipped thousands of ASICs, which account for 75% of the world market.
According to its SEC filing, Canaan Creative was listed on Nasdaq in 2019 and received net sales of $204.3 million in 2019. At the end of 2019, Canaan Creative announced that all ASIC Mining Machines had a 22% market share. In June 2020, Ebang debuted on Nasdaq, which announced its 2019 submission of $109.1 million in revenues.
According to Miao, China has almost monopolized mining machines’ production but relies on ASIC chips made by Taiwan’s TSMC and Samsung.
Demand is so strong right now that waiting times are approximately half a year.
Conclusion
The primary goal of the ban on all mining operations in Inner Mongolia is to reduce emissions of carbon. Although the first to declare a ban on all cryptocurrency mining, Inner Mongolia is not the highest bitcoin mining computing resources producer. The China Sichuan Province accounted for 30.13 percent of the world’s computing capacity for bitcoin mining operations, and Xinjiang accounted for 18.58 percent between September 2019 and April 2020.
It is still unclear if the two mining giants and other provinces will provide bans themselves. However, China remains the leading producer of cryptocurrency worldwide for the time being.