Since mining bitcoin became big business, no nation has been bigger in the mining game than China. With access to cheap electricity and resources, wealthy Chinese conglomerates moved into the mining scene and wrested control over the industry. Last year, calculations estimating the composition of the global mining picture revealed that 75% of the world’s bitcoin mining was happening in China.
That figure is astronomical, especially considering how the bitcoin blockchain operates. Mining is what keeps the network alive, verifying transactions and minting new coins in the process. New coins are minted as rewards for miners who ensure that transactions between users are completed successfully.
Originally, the concept of mining was intended to be a means of decentralizing the bitcoin network. Because anyone could mine at the beginning just using a computer, mining was done by a plurality of people whose economic interests were in line with the help of the network. In order for a transaction to be confirmed it must be verified by a number of different miners, and, once that is done, the transaction will enter the blockchain.
However, if a majority of the mining is being done by one party or a group of people operating together, they would potentially have the ability to manipulate the blockchain to their own advantage. That has never really happened as any kind of falsification or manipulation of the blockchain would immediately have a negative effect on the value of bitcoin, virtually ruling out any incentive to do so.
Nonetheless, the keys to the bitcoin kingdom lying in China’s lap is a precarious situation to put it mildly. Outside of network health considerations, we also have to think about ecological factors. Elon Musk put an exclamation point on the concerns that had been growing over the carbon footprint left by crypto mining operations when he announced a few months ago that Tesla would no longer be accepting bitcoin as a means of payment.
China is notoriously awful at complying with industrial and ecological standards. The energy consumed by the global mining industry is enormous. Studies have equated the annual figure of bitcoin energy consumption to be on par with that of entire developed nations like Sweden and Norway. With little in place to stop Chinese miners from using the cheapest energy available, regardless of the damage it is causing the environment, those figures begin to make sense. With around 3/4ths of the mining being done in China, that means that energy consumption of bitcoin mining in China alone rivals that of small, developed nation-states.
China’s consolidation of the mining industry is not something that the world will have to reckon with anymore, however. Back in May, Chinese authorities announced sweeping measures aimed at cracking down on and eliminating bitcoin mining. According to Chinese sources, the crackdown was caused by environmental concerns. At root is China’s carbon neutrality policy, which has forced a drastic reduction in coal-fired power. Energy coming from coal-burning accounted for over 57% of China’s energy consumption prior to the crackdown.
With the goal of halving coal energy consumption by 2030, Chinese authorities have been scrambling to put their country on a path towards compliance. Bitcoin mining, considered non-essential to the well-being of the state economy, has proven to be one of the first targets of the restrictive measures.
The great mining migration
What this has resulted in is being called “the great mining migration,” as businesses that constituted over half of a huge industry are being liquidated or forced to seek greener pastures. The mining industry is being forced to completely redefine itself, this time with an emphasis being placed on using sustainable energy sources. Many mining companies are setting up shop stateside in places like Texas, where miners can tap into some of the lowest electricity prices in the world in a relatively unregulated environment that is remarkably pro-crypto.
Bit Mining Limited, one of the Chinese mining companies displaced by the crackdown, has already made the transition to Texas, inking a $25 million dollar deal in May. The company came to an agreement with Dory Creek, LLC, a Texan company, to build and operate a 57.2 MW mining facility powered by 85% low-carbon energy.
Others are looking elsewhere, closer to China, in places like Kazakhstan and Russia. Minto, a mining operation in Northern Russia, is trying to transform the industry by using DeFi technology and access to cheap, renewable energy in order to once again make mining feasible for average people. The operation is community-based and offers those looking to mine the opportunity to buy tokens and collect rewards that are distributed to each token holder.
We are still very much in the early stages of a complete overhaul. It is impossible to say what the layout of the mining industry will look like even a year from now. The big question is how it will respond to the external pressure tied to environmental concerns. That, coupled with China forcing its miners to close up shop, has introduced a great level of uncertainty into the equation. There is hope, however, that the new circumstances will lead to necessary and positive changes that will lay the foundation for greater things in the future.