• May 21, 2022

China Has Triggered a Bitcoin Mining Exodus

Edward Evenson, director of business development at bitcoin mining company Braiins, is more sanguine. He says that most larger miners will just be shipping new machines from manufacturers based out of China, and that they will have the resources to pull that off relatively quickly. “Smaller miners may not have the resources or connections, so they will probably have to sell off their machines,” Evenson says. “But the larger operations will simply move their machines to more stable environments for mining.”

The big question, however, is whether the panicked calls will lead to a true exodus. As a matter of fact, right now most Chinese miners are waiting for the government’s next move. “Chinese miners, who have higher risk tolerance than Western miners in our observation, are largely taking a wait and see approach,” says Ian Wittkopp, vice president of Beijing-based venture capital firm Sino Global Capital. “Most Chinese miners have experienced similar cycles of news in the past. The cost of migrating to a new location can be high, we expect most miners to wait for more regulatory clarity before relocating.”

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This is not the first time China has been waving its fist at bitcoin; but that harsh posturing has never really sunk the country’s thriving bitcoin industry. “Whenever the price of bitcoin shoots up, and there’s a lot of speculative mania around it, the government makes one of these announcements,” Evenson says. “They’ve done it essentially every year or about every other year since 2013.”

But this time it may be different. First of all, the seniority of the official who made the announcement, China’s vice premier Liu He, may mean that this time the government plans more decisive action. On top of that, the regional government of Inner Mongolia—a bitcoin mining hub— has proposed a ban, while energy officials in Sichuan, another key mining region, have been holding consultations on the matter. According to Shuyao Kong, a director at blockchain firm Consensys, Beijing might simply want to target miners in regions such as Xinjiang and Inner Mongolia, which power their rigs mostly with coal, as part of China’s push for sustainability. Kong says this might trigger “the estrangement of China and the crypto industry”, tired of dealing with the vagaries of the government’s posturing and equivocating.

Another key difference from the past, Evenson says, is that the level of investment Chinese miners have poured into their operations means they have much more to lose. “No one, when they’ve invested this much capital into a project, wants to keep dealing with the uncertainty. So if you can, you want to secure a stable environment to run your machines,” he says. While he expects China to remain a bitcoin mining powerhouse, Evenson expects up to a quarter of its miners to relocate within two years.

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The WIRED Guide to Bitcoin

The cryptocurrency represents amazing technological advances. Bitcoin has a way to go before it’s a a true replacement for, or even adjunct to, the global financial system.

What such a shift will mean for bitcoin is hard to tell at this stage. One immediate consequence is that the bitcoin networks will become more geographically decentralized, which will assuage the fears of many cryptocurrency believers worried about the excessive concentration of miners in a single authoritarian country.

Another unexpected upshot might have to do with bitcoin’s environmental impact. The cryptocurrency has been heavily criticized recently for consuming as much energy as the Netherlands. While the University of Cambridge estimates that 39 percent of mining is powered by renewable energy, many – including former bitcoin champion and Tesla Technoking Elon Musk—think that mining’s carbon footprint is still too high.

A shift from China to North America, where the question of bitcoin’s environmental impact has become a top priority (Musk himself has been in talks with American miners to increase its sustainability), in parallel with China’s own crackdown on mining in coal-powered regions might paradoxically end up making mining greener.

This story originally appeared on WIRED UK. 

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