China has taken numerous regulations against Bitcoin since the country decided to introduce its own electronic currency, but also for other reasons. Among other measures, Beijing called for a severe crackdown on bitcoin mining and trading in May, triggering what the industry calls “the great mining migration.” According to analysts, the miners expelled from China could make their way to Texas where there is an abundance of solar and wind power. The Texan market would also be an asset for miners because of its unregulated nature and its political position favorable to cryptocurrencies.
China invites bitcoin miners to leave the country
Data for 2021 on the global distribution of mining power is not yet available, but past estimates have shown that 65-75% of the world’s bitcoin mining is in China, mainly in four Chinese provinces: Xinjiang, Inner Mongolia (Inner Mongolia), Sichuan and Yunnan. However, last May, Beijing decided to send them away as soon as possible. Thus, the government has called for a severe crackdown on bitcoin mining and trading, resulting in a large mining migration. Texas would be their next destination.
The reduction in the number of minors has reportedly already started in Inner Mongolia. Indeed, after failing to meet Beijing’s climate goals, provincial leaders decided to give bitcoin miners two months to leave. They would have explicitly blamed its energy deficiencies on cryptocurrency mines. It looks like we can move from policy statement to actual implementation in a relatively short time frame, said Nic Carter, founding partner of Castle Island Ventures. This exodus is measured using a barometer called “hashrate”.
This is a term used in the industry to describe the computing power of all miners in the bitcoin network. Given the drop in hashrate, it seems likely that facilities will be blacked out across the country, continued Carter, who also believes that likely 50-60% of all bitcoin’s hashrate will eventually leave China. However, one of the main characteristics of bitcoin is that it is completely independent of the place of extraction. Minors only need an Internet connection, unlike other industries which need to be relatively close to their end users.
The good thing about bitcoin, and one that is underestimated by many opponents, is that it is a portable market; you can take it straight to the power source, said Steve Barbour, founder of Upstream Data, a company that manufactures and supplies portable mining solutions for oil and gas installations. That said, the exodus might not be instantaneous, in part because it will take time for miners to move their machines out of China or liquidate their assets and settle elsewhere.
Miners could leave China for Texas
After the wave of technology companies’ migration from Silicon Valley (or California) to Texas, it may be the turn of cryptocurrency miners looking for an attractive setting. Indeed, mining is an energy-intensive process that allows both to create new coins and to keep a record of all transactions of existing digital tokens. However, despite a lack of reserves that caused power outages for several days last winter, Texas often has some of the lowest energy prices in the world.
Its share of renewable energy would increase over time, with 20% of its energy coming from wind as of 2019. It would have an electricity grid that would allow customers to choose between electricity providers. In addition, its political leaders are said to be in favor of cryptocurrencies, dream conditions for a miner looking for a discreet place and cheap sources of energy. You are going to witness a dramatic change in the coming months, said Brandon Arvanaghi, previously a security engineer at the Gemini cryptocurrency exchange.
We have governors like Greg Abbott in Texas who encourage bitcoin mining. It’s going to become a real industry in the United States, which is going to be incredible, he added. Another likely destination, however, is China’s immediate neighbor Kazakhstan. Its coal mines would provide a cheap and plentiful supply of energy. Kazakhstan is also said to have a more lax attitude to construction, which would bode well for miners who have to build physical facilities in a short period of time.
That said, Kazakhstan might just be the subject of a stopover or a stopover in what should be a long migration to the west. Texas not only has the cheapest electricity in the United States, but also one of the cheapest in the world, said Didar Bekbauov, who runs Xive, a company that provides accommodation services to international miners. It is also very easy to start a mining company if you have 30 or 40 million dollars, you can be a leading miner in the United States, he added. Other people say Wyoming could also be a prime mining destination.
The United States: the new mining capital of the world?
According to analysts, there are some major limitations to this. First, the time to build the physical infrastructure to accommodate the minors would likely be six to nine months, Carter said. The United States probably cannot be as flexible as other countries in relocating these wandering minors, he said. The logistics of the move could also prove difficult. There is reportedly a shortage of shipping containers, due to the tailwinds of the Covid-19 pandemic.
But perhaps the biggest question is that of the reliability of the Texas power grid. The storm that devastated much of the state in 2021 reignited the debate over the need for Texas to winterize its systems, a potentially expensive project that could impact taxes or other charges for those looking to connect to the state power grid. Things are said to be such that recently ERCOT, the organization that manages Texas’ power grid, asked consumers to save energy to avoid blackouts.
It is uncertain whether the mining exodus in China will tip the scales in favor of bitcoin enthusiasts in the token carbon footprint debate. Until now, the mainstream rhetoric has been that much of the world’s bitcoin is mined with Chinese resources. If all the miners eventually leave China, it will mean less mining fueled by fossil fuels, but it will also mean that the grid’s share of mining powered by renewable energy will decrease.
This is why the question of the destination of these migrant miners could prove to be crucial for the future of bitcoin. It’s the biggest story of the year for bitcoin, Carter said. Mining is price sensitive, so you look for the cheapest energy, and the cheapest energy tends to be renewable, because if you burn fossil fuels there are extraction costs. , refining and transportation, explains Adam Back, CEO of Blockstream.
Each year, the investment bank Lazard publishes a breakdown of energy costs by source.
Its 2020 report would show that many of the most common renewable energy sources are equivalent to or less expensive than conventional energy sources like coal and gas. And the cost of renewable energy would continue to decline. But there would be limits to mining cryptocurrency solely from renewable energies. Although solar and wind power are the cheapest energy sources in the world today, these two energy sources would face limitations on scale.
This raises concerns about the viability of miners who would turn exclusively to wind or solar energy. At the moment, there is not much mining capacity in the world ready to absorb the Chinese miners’ diaspora. In practice, this would mean that all the remaining miners are more profitable for a while. Greater geographic dispersion would restore the global balance of power and also reduce the ability of a sovereign nation to co-operate or control the network.
In addition, one could also see the emergence of special crypto economic zones in the coming months. You will see jurisdictions taking a very positive stance and creating the equivalent of special zones to encourage minors to stay locally, Carter said. We’re seeing it at the state level here. You’re also going to see it at the country level, you might even see subsidized electricity for mining, he concluded.
Source: The Chinese government
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