There has been much speculation about a potential migration of the Bitcoin hashrate that has accumulated in China over the past decade. However, this speculation has finally come to fruition with the Chinese government outright banning the mining of Bitcoin.
At this point, it is undeniable. The Chinese government is going after Bitcoin miners, which has already caused some miners to move out of China. This article will cover whether or not Bitcoin can survive the majority of its hashrate moving out of one particular country (hint: Bitcoin can survive this).
Why Is China Banning Bitcoin Mining?
The official reason given by China for the recent ban on Bitcoin mining is “to prevent transmission of individual risk to the social field.”
In other words, China banned Bitcoin mining because it viewed that as a risk for societal stability. However, this reason does not really make much sense because China still allows domestic cryptocurrency exchanges like OKEx and Huobi. Furthermore, cryptocurrency mining is a relatively contained industry – miners mine cryptocurrency, receive cryptocurrency rewards, and sell the cryptocurrency.
This does not appear to be an industry that has great destabilizing potential. Here are some alternative explanations for the cryptocurrency mining ban that make a little more sense than protecting social order.
China Wants To Release a Central Bank Digital Currency
A popular reason that many have speculated for the ban of cryptocurrency mining by China is the future release of a central bank digital currency (CBDC) by the country. Those in the cryptocurrency industry promoting this theory base it on the fact that China has a tendency to ban businesses before releasing their own version.
They have already done this with Google, Facebook, and most other internet apps. It is only logical that they will effectively ban Bitcoin before releasing their own state created version of it.
This, in our opinion, is a good reason that China has banned cryptocurrency, but it is not the only reason. It is likely more complex than simply clearing the way for a CBDC.
Cryptocurrency Mining Makes Offshoring Money Easy
Another potential reason for the ban of cryptocurrency mining is that mining cryptocurrency makes offshoring money extremely easy. All someone would have to do is purchase some ASICs, begin mining bitcoin, and then sell the bitcoin for fiat currency in a different country.
This would work extremely well because the bitcoin one receives from mining is not Know Your Customer (KYC) bitcoin. It is 100% anonymous bitcoin.
We know this might sound far-fetched, but a lot of the money in the RMB-USDT exchange is used for offshoring money to other jurisdictions.
China Has a More Efficient Grid
Finally, China had a big energy problem about 15 years ago. Basically, all the places that produce energy in China are located in the sparsely populated areas of the country (ie. Inner Mongolia and western China).
This meant that a large amount of energy was being wasted, so the government did not mind the monetization of that energy. In fact, a decent amount of bitcoin mining occurred with the permission of Chinese officials in those far flung provinces. In some cases bitcoin mining was even done by party officials.
Anyway, China has finally upgraded their grid, which means that there is much less wasted energy. And bitcoin mining will actually compete with the energy meant for the populated areas of China.
To summarize, Bitcoin mining in China was fine when it was being done when the grid was not particularly efficient and a lot of energy was being wasted. But now that the grid is more efficient the government wants to eliminate a big competitor on energy usage.
China Banning Bitcoin Mining Is Actually Good For Bitcoin
Now, to answer the question poised in the headline – will Bitcoin survive the migration of hashrate from China?
Yes, Bitcoin will survive the migration of the hashrate. The answer is even in one word in the question – “migrate.”
That’s right. The hashrate is migrating to other places and not disappearing. And this is why we say it is good for bitcoin.
The migration of Bitcoin’s hashrate will result in more decentralization, which is something that is always good for any blockchain. It was not really a good thing that ~65% of the hashrate was located in a single country.
The next section will cover a few locations where all these bitcoin miners might end up moving.
Where Will Bitcoin Miners Go?
The beauty of bitcoin is that it can be mined from any location in the world. All that is required is an internet connection. But there are some locations that are better for bitcoin mining than other locations.
This section will cover some potential places that Bitcoin miners based in China will move their operations.
A probable place that many bitcoin miners will end up is El Salvador. The small central American country recently made bitcoin a legal currency. And they are even offering citizenship to investors that invest three bitcoin into the economy.
That relatively low investment threshold opens the door to many bitcoin miners, but the price of energy must be low enough for miners to deem it a worthwhile move.
Fortunately, El Salvador has relatively cheap geothermal energy that can be used for mining. And the country is obviously extremely open to bitcoin entrepreneurs coming into the country.
Russia is a popular option for cryptocurrency mining that will likely become more popular with the lower hashrate from the lack of Chinese miners.
Basically, Russia is a popular choice for cryptocurrency mining because energy is relatively cheap and it’s a cold country. Cold countries are preferable for bitcoin mining because it is much cheaper to cool the hardware in a cold country.
For those that do not know, cryptocurrency mining rigs produce a lot of heat. And keeping them cool requires a pretty decent amount of energy.
With that in mind, we expect a decent amount of mining operations to appear in Russia over the coming year.
Finally, the United States is not usually thought of as a popular place for cryptocurrency mining because energy costs are a little too high, labor is expensive, and there are a lot of regulations.
However, the lack of Chinese miners might make it more profitable to mine bitcoin in the United States. Not to mention that a few US based investment funds have expressed some interest in starting bitcoin mining operations.
With that in mind, the United States is certainly a country that could see an uptick in bitcoin mining in the coming year.
That covers it for the great hashrate migration. It is such a non-problem for Bitcoin that it is barely worth talking about – Bitcoin will obviously survive the hashrate decreasing. Bitcoin has survived much bigger problems like the hacking of MtGox exchange.
The bigger question at this point is to what countries will bitcoin miners move their operations. And there is a pretty clear path to bitcoin miners spreading out their operations across the world, which is only a positive for the future of Bitcoin.