Why China is still the best country to mine bitcoin despite sanctions ？
China cracked down on bitcoin mining in May 2021, which led to most miners fleeing the region. The country once accounted for 65% to 75% of the global bitcoin hashrate, but its mining capacity fell to zero a few months after the ban. However, in September 2021, it captured 22% of the global bitcoin mining market, according to Cambridge data.
Despite the sanctions, China is still the best county to mine bitcoin. Here is why;
Miners have access to cheap electricity
China has abundant coal resources that are used to generate electricity. Coal is a cheap energy source, making it an economical choice for energy-intensive industries such as crypto mining. Notably, throughout China’s economic rise, thermal power has been and remains a primary source of power generation, 79% of China’s power in 2021.
Other provinces in China also have cheap hydroelectric power access. For example, in southwestern China, Sichuan province has access to large rivers and mountainous terrain, making it ideal for hydropower generation. Hence, the electricity cost is lower than in most parts of the country.
Provinces with easy access to electricity that miners took advantage of are Xinjiang, Inner Mongolia, and Yunnan. They have affordable and abundant energy, but the power source isn’t necessarily clean. Hydropower supplies most of Yunnan, and miners would head there over the wet season for the excess electricity. As for Inner Mongolia and Xinjiang, they still use power generated from coal.
Before the sanctions, China accounted for two-thirds of Bitcoin mining worldwide. Since, companies have moved their operations overseas to regions such as the US, Canada, and Kazakhstan.
Miners have access to mining equipment
China has a well-established supply chain for mining equipment and hardware. Some of the largest bitcoin mining hardware manufacturers, such as ASIC miners, are China-based and dominate the mining equipment industry. Hence, China’s miners can access the most efficient and latest hardware.
Canaan, a Chinese manufacturer, has mass-produced application-specific integrated circuit (ASIC) mining machines for Bitcoin since 2013. Despite the mining crackdown, it mentioned that 2022 was a good year as it expanded globally and brought about overseas supply chains. The company also partnered with several crypto firms to capture more market opportunities.
Chinese manufacturers have also been able to manufacture high-quality equipment at lower prices than their competitors. Chinese miners are taking advantage of the economies of scale by making ASIC purchases at low prices hence lowering operating costs, including low shipping fees.
Meanwhile, the miners can also access expert labor to help with the bitcoin mining hardware and machines. In an earlier interview, Mark Zhou, Meta-Luban head, mentioned that he had about 100 engineers in repair centers in Sichuan province and Shenzhen handling about 20,000 mining rigs in a month. He added that most of the equipment was from other countries.
Hong Kong is looking to become a crypto hub
Hong Kong is also investing in becoming a virtual asset hub. The city’s push contradicts most of the Chinese mainland, where Beijing has banned crypto trading and related activities.
Hong Kong is looking to bring about new rules come June that will see crypto trading platforms licensed by the Securities and Futures Commission. So far, the city has started a consultation on its proposal to regulate virtual asset trading platforms.
Former BitMEX CEO Arthur Hayes said last October that the next bull run would begin in Asia, specifically China. He also noted that Hong Kong would be vital to the China crypto revival. In addition, he explained that Hong Kong would be a litmus test for Beijing in its push to become a crypto hub.
Following the announcement, Chinese-founded crypto companies started announcing plans to return home. It is the same with miners and other crypto-related companies, who send proposals for obtaining licensing from the SEC. Meanwhile, Forex Suggest declared Hong Kong the “best-prepared country” for crypto adoption while basing it on regulations, ATM installations, and startup culture.
Underground bitcoin mining is still ongoing in China
China’s Bitcoin hashrate share fell after sanctions began in May 2021. However, it surged back up in September of that year, showing underground mining activity, as the Cambridge Centre for Alternative Finance (CCAF) discovered.
Miners have been using virtual private networks to help obscure their location from authorities. In addition, individual miners are finding houses in rural areas and installing only a few rigs in each household to maintain the power consumption at a minimal range to avoid raising suspicion.
In addition, they are spreading their mining equipment across multiple sites so that none of the operations stand out on the country’s electrical grid. Some have also resulted in drawing electricity from local and small power sources not part of the larger grid, such as dams.
Other miners join mining pools and combine their computing power with other crypto miners worldwide. However, they avoid using their names or their IP addresses.
Despite sanctions and regulatory hurdles in China, the country remains the best country for bitcoin mining. The country has abundant cheap electricity and the latest mining technology, giving China-based miners a competitive advantage. However, the country’s regulatory environment is uncertain, so its climb back as the top bitcoin mining country remains unclear.
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