After a decade of Chinese domination in the Bitcoin and Cryptocurrency mining sector, the map in this industry is about to change.
The Crypto-mining industry has been remarkably profitable so far but it is also largely concentrated only in just one country, China, where vast resources have been allocated the previous decades into the creation of cheap and efficient energy, with the development of hydroelectric dams and other sources of green energy.
The Chinese miners were reaching up to 75% of the total hash rate of the Bitcoin network and had similar statistics for many other PoW cryptocurrencies. This allocation of hash rate inside the borders of only one country was a cause for decentralization concerns by many even inside the crypto sphere.
While the news of a cryptocurrency mining clampdown by the Chinese authorities was bearish and the effect in the market was a brutal 50% correction inside only a few days, the long-term effects of this move could be positive and many inside the industry are welcoming new opportunities.
The New Map Of Cryptocurrency Mining
The map above is given in the website Chain Bulletin. This is a dynamic live estimate of Bitcoin’s (BTC) hash rate according to data coming from several major mining pools (Source).
Chinese miners were holding near to 75% of the hash rate before May, and even after the major clampdown of mining in the Xingjiang region, China is still producing 65% of the BTC network’s total hash rate.
It is expected though that re-allocation of miners will slowly start decreasing this high number from now on.
Miners in China were expecting a ban and while this is just a regional for the time being, it could expand into a nationwide ban of cryptocurrency mining.
There were questions why the Chinese government would allow mining facilities to operate untouched, while in 2017 it enforced a blanket ban on cryptocurrency exchanges and trading.
China didn’t see a reason to ban crypto mining in 2017, since it was a profitable industry that contributed to the countries GDP and the Chinese digital yuan was still at a theoretical level.
Possibly an appeal by miners could have given them some more time. Also, the consideration of the excess electricity resources that could be used productively.
The production of new Bitcoins and the profit that amounted to billions of dollars was considerable. This probably allowed the Chinese mining industry to operate unaffected despite the ban on exchanges.
Hash Rate Down To 2019 Levels
The 7-day average hash rate is preferred as it gives a more realistic value. Hash-rate went down to an average of 85 Exahash from a high of 200 Exahash in a matter of a few weeks. Currently, it is recovering and stable at about 100 Exahash (50% lower than the previous high).
With the hash rate going lower, Bitcoin’s algorithm that manages the difficulty for the SHA-256 (the so-called: Difficulty Adjustment) is being reduced for the fourth time consecutively. Profitability for the miners that remain active has not been affected massively due to the drop of price in stop exchanges, since the difficulty for mining blocks has also dropped by about 50%.
This is the first time in Bitcoin’s history where four consecutive difficulty adjustments brought a lower difficulty level.
This is the result of the mining clampdown in the Xingjiang region of China and the process of migration in different countries outside of China.
However, for the next difficulty adjustment that is expected in roughly two weeks, the estimation is a positive one.
The Hash rate is showing signs of recovery:
While it is still early in the current epoch, the rate of new blocks mined gives hope for stabilization and return to growth.
The Future of Crypto Mining In China
We can’t be very optimistic that mining will completely cut off from the Chinese influence. The Chinese government understands this is a booming market and losing its leverage in the mining sector may not be a great idea.
The Chinese government has plans for financial expansion in the Asian and African continents with the creation of infrastructure required for the “Belt and the Road” initiative. Tied to the planning for financial expansion is the new vision of a digital Yuan, the Chinese CBDC.
The Chinese government is currently supporting the rapid promotion of its CBDC inside the country and cryptocurrencies are seen as an obstacle that has to be dealt with swiftly and decisively.
Chinese miners are already trying o relocate their operations to areas outside of China. They are looking for conditions that will offer them maximum profitability, however, outside of China, they find many obstacles.
Some of them are in talks with neighboring countries like Kazakstan are already transferring equipment and hiring personnel, as well as discussing with investors in the country.
It will not be easy for any Chinese miner to operate entirely outside of China. The laws and the business environment are different and there could be limitations to the mining farms on electricity consumption.
Energy efficiency and environmental rules will apply and could be even stricter from what the Chinese miners found in their mainland.
Meanwhile, some countries with very cheap electricity like Kazakhstan also suffer from a crime rate about ten times higher than China, making security a high priority that will increase the running cost.
Some countries that are expected to increase cryptocurrency mining production are Venezuela and Iran as electricity can be produced cheaply in these countries and they are already offering some kind of incentives for businesses and individuals to begin with mining.
However, the governments of both these countries have as a rule to control cryptocurrency mining, and probably the Chinese miners will not relocate to one of these areas under these conditions.
Miners Increase BTC Flow to Exchanges After the Ban
The miners were holding coins during the bull run, and they massively started selling after the Chinese government announcement that was not favorable to their operations.
Miners keep selling massively since May, mostly due to the increased expenses to relocate their business to other countries and upgrade their business plan into a more viable one.
While there is a growing sentiment that the Bitcoin mining map will change, and it will be dispersed in more regions, globally, it will still be a lengthy process that may require many years.
Last Thoughts: The Future of Mining as Consensus Algorithm. PoW vs Pos
Russian and American mining farms are expanding their operations, ordering new equipment, and expanding. Venezuela, Pakistan, and Iran are mining cryptocurrencies on the government level trying to profit from their vast infrastructure of cheap electricity sources.
China is banning mining, but only regionally, however, it is a reason for concern and miners are already moving out of the country into more stable regions.
A new map of Bitcoin mining is to be expected in the following years, with China losing its dominance. This could be good news for cryptocurrencies since mining will be less localized and prices will not be affected by government decisions.
PoS Vs PoW
Besides PoW, PoS is currently on the rise again, after Ethereum’s consensus-driven decision was to move on with Proof Of Stake and perhaps completely remove traditional PoW mining in the next 2–3 years.
These algorithms required for a network to achieve consensus will probably have to contest each other fiercely since eventually, the most efficient one will survive.
If PoS is proven to be equally secure and decentralized as PoW then we may be heralding a new era. PoS doesn’t require vast electricity consumption to validate transactions and include new blocks to the blockchain.
However, if PoS is found to have major design flaws while tested at a large scale of the Ethereum network then PoW prevails as the definite winner.
There is a theory forming in the Cryptoverse that a move to more efficient and eco-friendly methodologies is required and testing Ethereum 2.0 with pure PoS would bring interesting results for the future of Cryptocurrency.
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Originally posted at Medium