What is the current state of mining in various countries after China completely banned mining?
China's Bitcoin mining power has been zeroed out, and the United States, Kazakhstan, and Russia have become new "habitats" for miners.Original Title: "What Happened to the Mining Industry After China Banned Cryptocurrency Mining?"
Written by: Chenglin Pua
Between May and June 2021, China intensively introduced policies to restrict trading in cryptocurrencies and banned the operation of cryptocurrency mining farms.
So, what is the current state of the mining industry after China completely banned mining?
On May 25, the Inner Mongolia Development and Reform Commission issued the "Eight Measures to Firmly Crack Down on and Punish Virtual Currency Mining Activities (Draft for Comments)", greatly restricting the operation of mining farms in Inner Mongolia.
On June 9, the Qinghai Provincial Department of Industry and Information Technology issued the "Notice on the Cleanup and Rectification of Virtual Currency Mining Projects", requiring relevant regions in Qinghai Province to carry out cleanup and rectification of virtual currency mining activities.
According to the "Notice from the Sichuan Provincial Development and Reform Commission and the Sichuan Provincial Energy Administration on the Cleanup and Shutdown of Virtual Currency Mining Projects", all mining farms in Sichuan must cease operations before June 20, 2021.
Due to risks and other factors, China has long restricted the trading of virtual currencies domestically, but prior to this year, it did not restrict the cryptocurrency mining industry. China was once a major hub for the mining of cryptocurrencies like Bitcoin. According to data from the University of Cambridge in the UK, China once accounted for 65.08% of Bitcoin's hash rate. However, the intensity of this regulatory crackdown has been described by many industry insiders as "unprecedented." This crackdown also led to a decline in the overall hash rate of Bitcoin. Data from BTC.com shows that on July 13, 2021, the average hash rate of the Bitcoin network was 97.21 EH/s, a drop of nearly 51% from the historical peak of 197.61 EH/s on May 13.
In fact, after miners shut down their operations in China, the hash rate of the Bitcoin network has gradually recovered from its low point in July. According to data analysis site Y Chart, as of October 14, the hash rate of the Bitcoin network had increased by approximately 117% from the July low of 61 EH/s to 135.48 EH/s.
Bitcoin mining hash rate over the past three years, source: Blockchain website
After China completely banned the mining industry, the United States replaced China as the hub for mining, and industry insiders believe this trend will not stop anytime soon. Data from the Cambridge Centre for Alternative Finance (CCAF) shows that since China fully banned the mining industry, miners primarily from the United States have gradually taken over global Bitcoin mining operations. By the end of September, the U.S. accounted for 35.4% of global hash rate, more than double the 16.8% at the end of April and more than four times the figure from September 2020.
Distribution ratio of Bitcoin mining industry, source: Cambridge Centre for Alternative Finance
Distribution of Bitcoin mining ratio (as of Q2 2021), source: Cambridge Centre for Alternative Finance
Bryan Bullett, CEO of mining company Bit Digital, stated in an interview with CoinDesk: "Due to the lack of restrictions on this industry, the U.S. is expected to continue to play a leading role in market share. No one wants to operate in areas where they face survival risks."
Meanwhile, China's share of mining has actually dropped from a high of 75.53% of the global Bitcoin mining hash rate in September 2019 to zero. According to CCAF data, Kazakhstan and Russia now follow the U.S., with current hash rate shares of 18.1% and 11.23%, respectively, compared to 8.2% and 6.8% in April.
United States
For miners, lower electricity costs are more attractive. Electricity prices vary across U.S. states. The average commercial electricity price in Texas is 8.09 cents per kWh (30% lower than the national average). The average residential electricity price in Texas is 11.75 cents per kWh (15% lower than the national average). According to Global Petrol Price data, the world average electricity price is 13.6 cents per kWh. Texas's commercial electricity price is 40.5% lower than the world average.
Renewable energy is also gradually becoming one of the important sources of electricity in the U.S. According to data from the EIA (U.S. Energy Information Administration), hydropower accounts for 24% of Washington State's electricity generation; New York State is at 23%. Additionally, many states in the U.S. have nuclear power sources, which account for 20% of the country's energy structure. The share of renewable energy in Texas has also been steadily increasing over time. As of 2019, 20% of its electricity came from wind energy.
The mining industry has always been criticized for its energy issues. To address this, many mining farms use renewable energy for mining. The U.S. has abundant renewable energy, attracting a large number of mining farms.
On May 14, 2021, Elon Musk tweeted that Tesla would stop accepting Bitcoin due to concerns over its energy consumption. However, once mining becomes more sustainable in terms of energy, Tesla would reconsider accepting Bitcoin payments. Mining with renewable energy in the U.S. not only offers significant profit potential but also reduces greenhouse gas emissions.
Tesla's tweet about stopping Bitcoin acceptance
Some view mining as a means of waste management. For example, in Texas oil fields, associated natural gas is often flared into the atmosphere. Setting up mining rigs nearby to capture the energy produced from burning natural gas not only reduces greenhouse gas emissions but also generates revenue for oil producers. A natural gas power plant in New York has purchased 7,000 Bitcoin mining machines to consume excess electricity.
Bitcoin mining machines in a natural gas power plant, source: BlockPitch
01 Blockchain has also compiled the number of Bitcoins held by some North American publicly listed mining companies and their corresponding values, as of the writing date (October 19, 2021).
Table 1: Some North American listed mining companies, source: 01 Blockchain compilation
Kazakhstan's Policy Support
Currently, Kazakhstan ranks second in the global Bitcoin mining market share, following the U.S., accounting for 18.1% of all cryptocurrency mining. However, according to IEA (International Energy Agency) data, coal fuels account for about 70% of electricity generation, followed by natural gas at 20%, with the remainder from renewable energy sources. Kazakhstan attracts many miners due to its low electricity costs, but its energy structure indicates that more mining activities mean more carbon dioxide emissions.
Kazakhstan has a favorable policy stance towards cryptocurrencies and the mining industry. In 2020, Kazakhstan passed a law recognizing Bitcoin as a digital asset, allowing it to be traded domestically like other goods. The law also permits the establishment of cryptocurrency exchanges in Kazakhstan, provided they comply with regulations.
Table 2: Kazakhstan's relevant policies on cryptocurrencies, source: 01 Blockchain compilation
The Astana International Financial Centre (AIFC), a financial center established in Kazakhstan, has created an IT park where mining farms are exempt from any taxes except for a 1% "usage fee" on annual revenue. However, as more mining farms choose to settle in Kazakhstan, the country intends to amend its tax laws, planning to impose a digital mining tax of 1 tenge (0.00232 USD) per kWh starting in 2022.
Additionally, Kazakhstan's Ministry of Digital Development is drafting regulations for the cryptocurrency industry and blockchain technology in collaboration with the AIFC and the Blockchain Association to standardize the country's blockchain regulations.
Kazakhstan's firm support for cryptocurrencies and its proactive approach to establishing relevant policy frameworks and favorable policies for cryptocurrencies have attracted a large number of mining farms to settle in the country.
Russia
Heat dissipation has always been one of the issues that mining farms need to address. Multiple mining machines generate significant heat when operating, and without effective cooling methods, these expensive devices may last less than a month. Additionally, a single mining machine can produce noise levels of 100 decibels, and the noise pollution from multiple machines operating together is considerable. Therefore, mining farms are rarely located in urban areas, mostly situated in rural regions.
Mining farms typically feature locations far from residential areas, equipped with powerful ventilation and cooling systems. The cold and sparsely populated Siberia meets these criteria.
Many mining farms are set up in valleys or near rivers, utilizing the naturally low temperatures of specific terrains to cool the machines. Globally, high-latitude regions are favored by large cryptocurrency mining companies. In the Northern Hemisphere, the Siberian region in the Russian Far East has the lowest average annual temperatures.
Average monthly temperature and rainfall in Siberia, source: HikersBay website
Moreover, the abundant energy supply is another reason. The nearby city of Bratsk has rich hydropower resources. One of Russia's largest hydropower stations, the Bratsk Hydroelectric Power Station, and the relatively downstream Ust-Ilimsk Hydroelectric Power Station are both located nearby, with substantial scale and power generation capacity.
Bratsk Hydroelectric Power Station
Mining farms require a large amount of electricity, and the nearby hydropower stations can provide the necessary power. BitRiver (a Bitcoin mining company) has its own mining farm nearby.
This city was previously a heavy industrial city with many aluminum plants. BitRiver collaborated with the companies behind the aluminum plants to lease a large number of old factory buildings for placing mining machines. They also signed agreements with the hydropower station to obtain nearly 100 megawatts of cheap electricity from En+ Group (a Russian energy company), enabling them to scale up their mining operations.
In reality, 100 megawatts of electricity is just a tiny fraction of the Bratsk Hydroelectric Power Station's capacity, which can generate over 22.5 terawatts of electricity. The global Bitcoin mining activities consume 110 terawatts of electricity annually, so theoretically, if all the electricity from the Bratsk Hydroelectric Power Station were dedicated to Bitcoin mining, it would not be a problem to mine 20.45% of the world's new Bitcoins.
Additionally, Russia legally recognizes the status of cryptocurrencies. On July 22, 2020, the lower house of the Russian parliament passed a bill granting cryptocurrencies legal status but prohibiting their use as a means of payment. Anatoly Aksakov, chairman of the Russian State Duma's Financial Committee, stated that the legal definition of cryptocurrencies in Russia has been established.
In contrast to many countries that currently have ambiguous stances on cryptocurrencies, Russia has clarified its position. Russia adopts a lenient and pragmatic policy towards the cryptocurrency industry. Some mining farms are concerned about regulatory or legal issues, but mining farms in Russia are spared from legal risks, attracting many to settle there.
