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China Ban on Crypto Mining Will Save The World ?

Bitcoin Mining
Photo by Ewan Kennedy on Unsplash

Are you bullish about bitcoin If not, you probably should be. That's because amongst all the tweet fueled fund and click bait headlines, changes are happening in the Bitcoin market. It could change it for the better forever. I am of course talking about the rapid exodus of miners from China. The waning influence that the Chinese government could have on the Bitcoin markets, the eventual elimination of the ever present China FUD. In my blog post today, I'll be giving you an overview of the Bitcoin mining industry and taking you through some of these general market trends. I will also be explaining exactly why this is so bullish for Bitcoin and what it could mean for the price going forward. So this is something you definitely don't want to miss. Before we continue, there's a disclaimer I need to give you. I am not a Financial Advisor. This blog post is only for educational purposes Sorry. If you're new here, you might be feeling a little bit lost right  My name is "MrCrypt "and I am your crypto geek here at the cryptolibrarynow . I pass on the knowledge of cryptocurrencies, exchanges, DeFi, protocols, NFTS and market analysis are just a few of the topics I tackle on the daily basis. Now enough with the intro. Let's get it on , 

The Problem with Chinese Miners -:

In order for you to understand the importance of global mining shifts, you have to know why there is currently a problem. It basically all comes down to centralization. Chinese mining centralization has always been a thorn in the side of Bitcoin, and its being used by critics for years and they are not wrong. Currently over 65% of all the global mining hash power is concentrated in China. Now mining concentration is dangerous because it means that miners have more control over the network. Moreover, with over 51% of the hash rate miners could theoretically launch a double spend attack. It's also not too comforting to note that's so much mining hash power is concentrated in a country controlled from the top to the bottom by the CCP. Now, it's not just fears about potential network overtakes, it's the volatility that comes from the hash power in the region. Every time there's a threat of the Chinese government clamping down on miners, there is a drop in hash power. As these miners try to avoid regulatory risk. As you may know that no falls in hash power lead to slow transaction. Times and increased transaction costs, we actually saw this recently in the most recent crackdown. Apart from this, there are also environmental concerns that come from Bitcoin mining in China. Yes, many mining forms do use hydropower, but for all of the rest, they have to rely on dirty coal fired power stations. Moreover, there is evidence that the amount of Bitcoin being mined by coal in China is being under counted, for example we had numerous stories about the increase in illegal coal mining in order to meet the insatiable demand by these Bitcoin mining firms. This is especially the case in areas such a Xinjiang inner Mongolia, where coal mining is the dominant source of energy. Remember that story about the coal mine that flooded in Xinjiang back in April? Yeah, that single episode lead to a fall in no less than 30% of the hashing power on the network. It was the biggest fall in hash power on record and lead to slow transaction times across the network. Not ideal at all. You should also note that even though these Chinese miners have been making use of hydro power in places like Sichuan, Hunan, this power supply is inconsistent during the dry months, these miners will move their rigs further into the interior to those provinces that use coal in a Mongolia and Xinjiang . So what this means is that not only is the Chinese mining centralization a problem for the Bitcoin network, but it's also a problem for the environment. Not only that, because these miners operate in a country that's constantly changing its mind on crypto, we go through these minor panic periods where hash power drops quickly. Which inevitably clogs up the network and drives up transaction fees. However, it appears as if things are beginning to change, and that's what comes from the moves of the Chinese government itself. 

Government's Problem with Miners -:

chinese notes
Image by RABAUZ from Pixabay 

Well, crypto has technically been banned in China since 2017. The government has taken a much more hands off approach when it comes to the miners. They allow them to continue hashing further just as long as retail traders would not be involved in crypto trading. However, things took a turn for the worse for the miners this year. That's because 2021 saw the launch of the Chinese Yuan Central Bank digital currency. This would allow China to further consolidate control over the finances of the population in a high tech and profoundly dystopian way. Now of course, if you want to make sure that your centralise *shit coin cbdc is adopted, you have to make sure there is no competition. If you have miners in your country, creating a decentralized and free version of your currency, you have to limit its production. Moreover, the Chinese Government also has carbon emission goals, Xi Zinping. Has a plan to make China carbon neutral by 2060. Of course, Bitcoin miners that are using once disused coal mines to hash Bitcoin are a potential stumbling block to these goals, so it was with all this in mind that the CCP took the staunchest steps. It has taken in order to clampdown on the industry. On the 21st of May , The Chinese Vice Premier released an announcement that the government would quote crackdown on Bitcoin mining and trading behaviour and resolutely prevent the transmission of individual risks to the social field. This was perhaps one of the most senior officials to address the Bitcoin mining question, and it led to an understandable panic in the industry. The price of Bitcoin immediately fell by 6% as market participants tried to process exactly what this might mean. For many miners, this was the straw that broke the camels back. They decided to move forward with plans they already had to relocate to greener pastures. Literally. Following this announcement, there was strong on chain evidence that these miners was selling their Bitcoin inventory in order to fund their relocation initiatives. Now I'd like to direct your attention to this really helpful blog post by coin matrix. It takes a deeper look into Bitcoin miner flows, moving one hop from the coin based transaction. Now, without getting too technical, the coin based transaction is the first transaction of every Bitcoin block and yes, that's where the exchange got its name. We also note that these transactions are most likely to be miner's as they are the ones that are finding these new blocks. So by monitoring these transactions, we can see that outflows from the miner addresses have been at the highest level since the peak of the pandemic last year. This could be an indication that these miners are getting ready to sell a coin. Either through exchanges or OTC desks, etc. This miners selling pressure could have been a contributing factor 2 the fall in price of Bitcoin over the past 2 months, something that the authors also point to. However, these minor coin flows are just the tip of the spear when it comes to the China exodus that are numerous reports of miners scrambling to either ship out or close up.

Miners Moving Out -:

Something else that we can look at is the amount of mining equipment that is hit the second hand market. For example, according to Robert Van Kirk, who runs the kaboom racks equipment market place, these miners have been quote, fire selling equipment. This was further corroborated by comments from the CEO of kanan, a large acid manufacturer listed on the NASDAQ. He said that these miners were under selling their equipment on the market. Spot prices on these machines are 20 to 30% below the market rate. He also stated that the announcement by the Chinese government is causing the domestic miners to move overseas. This is something kanan themselves are doing. They trying to accelerate the offshoring of the chip manufacturing. According to this piece in Wired magazine, there is a mad scramble within China. Anonymous source said that many of these miners. have essentially shall be moving that mining equipment overnight to Kazakhstan within Kazakhstan. Similar stories abound. According to the founder of ZIVA Kazakhstan based company helping miners, he has received quote daily requests from these Chinese miners. Wall Kazakhstan is a popular choice given its location post to Xinjiang region. Chinese miners are also looking further abroad. They have also been a flood of requests to relocate to countries in North America, for example, Alex Brahma of Luxor Tech has been fielding frantic enquiries from miners who are looking for data center Co-location space all over the US. Rama even stated quote. Anecdotally, I would say that many, many will be leaving China within the next 30 to 60 or 90 days to give you an idea of justice, how frantic it has been inside the Chinese crypto mining sector.  It's not just miners that are bearing the brunt of this large mining pools and cloud mining operators have also suspended their operations in China. This includes the likes of Hobe and Btc.Top to give you an idea of the scale these mining pools control about 3 and 1.5% of the global hash power respectively. These mining pools were an important method whereby smaller miners in China could band together in order to hash out some Bitcoin. However, with air suspension, it means that these miners will have to find other pools to use. So the exodus has begun. And as these miners start to move their operations overseas, we likely to see a continued fall in hash power. This is because they are unlikely to find all the capacity to service their needs in subspace short period of time as mentioned by grammar, these miners are coming in requesting upwards of 500 megawatts of energy, a number that US power stations just cannot meet. On top of that, it's not the easiest thing to move 10s of thousands of mining rigs. Across continents, at a time when we still have a pandemic and a US China trade war going on so, all bad for Bitcoin, right? Wrong. 

Is This a Life Saving decision for Bitcoin -:

Although there will be a temporary fault in the hash rate on the network, it will still be the best thing in the world for Bitcoin. The network is meant to be robust and adaptive. If there's a fool in the hash rate, the difficulty adjusts in order to bring more miners into the fold. This has actually already happened in the wake of that initial hash power crash back in may, the difficulty dropped a full 16% from the pre China scare highs when the difficulty falls, it means that mining Bitcoin becomes easier, which brings more marginal miners back into the fold. So that's the immediate adjustment that we likely to see in response to the fall in hash rate. However, in the longer term, as those Chinese miners are able to set up their farms overseas, hash power is likely to return to the near all time highest that we have recently witnessed. And when this hash power comes back online, it's likely to be in a country. That's a lot more stable from a political risk perspective, most of these miners have been eyeing countries in the West like the US, Canada and Sum in Northern Europe. These are regions weather likely to have a way more stable operating environment. Now this is not only great for the miners themselves, but also more positive for the ecosystem. It will be way less volatility for hash power as the Chinese Government will have less influence over the Bitcoin mining sector. Eventually there will come a time when the number of miners. Still remain in China is negligible and the flood it comes out of the CCP will be muted. It will be a more stable network where fees and transaction terms will be that much more predictable. Not only that, but it will mean the Bitcoin network will no longer be a centralised as it once was. The hash power could be better distributed to data centers in a number of different countries. No longer will Bitcoin receive the same criticism of it being controlled by Chinese mining interests. The lingering fears of potential 51% tax will be a thing of the past awaits you say. What about the environmental impact? Won't this lead to an explosion of Co-2 emissions in the new countries that they operate in well? No, not at all. 

Impact of Mining On Enviornment -:

The first thing to understand here is the fact that methods of energy production are different from those of energy use. Just because industry is using a lot of energy does not make it bad, just as long as that energy is coming from sustainable and renewable sources. Coal fired power stations are perhaps the dirtiest out there, and China generates a total of. 53% of all the world's coal emissions. Not only that, but they are the only country in the G20 that saw a massive increase in coal power generation last year. Given that this energy is cheap and consistent, it creates a perverse incentive for those Chinese miners to setup farms there and use that energy. However, energy production sources are vastly different in other countries, particularly those that some of these miners are looking to relocate to. For example, take a look at this map. It shows the percentage of energy production that comes from coal in each of the countries in China, over 60% of all energy is produced by coal. However, in the USA. It's 19% in Russia, it's 20% in Canada its 7% and in countries such as Iceland and Norway it is 0%. That's right. In these countries none of their energy is produced from coal. These also happen to be countries where a large proportion of the Chinese miners are looking to set up there. Operations. Moreover, these countries are a lot further along the curve when it comes to power generation through renewable sources such as wind, solar, hydro. So when these miners move to these countries, they're going to be tapping into energy grids that are greener and less damaging to the environment. But its not only that there is a strong chance that the increased demand for Bitcoin mining in these regions could actually spur a green energy revolution. Allow me to explain.

Fostering Green Revolution -:

Green Energy Use

About 2 months ago, Ark and Square Invest, released this report that explained how Bitcoin could be the key to a future of clean energy generation. It's a really fascinating report and I've linked below.

Ark and Square Report

 However, the gist of the report is this renewable energy, such a solar and wind, is cost efficient and it's cheaper to produce than fossil fuel energy in general. The only problem with it is that it's inconsistent. Sunlight is only available during the day. Wind only blows a particular times. However, on the consumption side, energy is quite predictable. It follows what is called the Nerl Duck Curve . There are times mornings or evenings where the load on the grid is most intense. This therefore means during those hours demand could outstrip renewable supply. In order to store power for use during these times, strong batteries are needed. These are incredibly expensive and require considerable investment. Now, this investment may not be recouped from traditional consumers as they only consume a bulk the energy during peak times. These energy produces need consumers that can use the energy that producing outside of the peak times the Dark Valley over here. They will need consumers through a time independent and can set up anyway. Well, crypto miners are an ideal consumers. All they need an Internet connection and they can be turned on and off with the flip of a switch. They can consume all of that excess energy that's being produced by these energy companies during the off peak hours and by doing this, they are increasing revenues for the energy companies and making the ROI on these battery storage facilities worth it. So in a nutshell, crypto mining companies could be the ideal energy consumers that these green energy companies need to make their future investments economically sustainable. If all these Chinese mining companies are able to relocate their operations to be near these producers, it could help to accelerate their investments in green energy production. This will also effectively blunt those arguments that have been constantly made about Bitcoin mining and the environment. I, for one, would love to see what Elon Musk or Bill Maher would have to say if they knew that mining could actually help to foster that green energy revolution that they are looking for. Now. I have actually covered this Bitcoin mining Environment found in a lot more detail in a separate article of mine and that's linked right here (crypto mining climate change) for your viewing pleasure.

So how this ban will affect us , bitcoin traders and investors -:

Okay let's bring all of this together. Chinese mining centralization has always concerned me, despite knowing that any sort of overtake of the Bitcoin network was unlikely. I was a bit uneasy about all that concentrated hash power. However, it seems so the Chinese government was more annoyed by it then I was there. Recent actions against these miners have shown these companies. Extreme regulatory risk that comes from operating in the country. As I've shown, these miners are now scrambling for the exits. They're selling coins, dumping machinery and frantically trying to find new locations for them to set up their mins. Well, then maybe a falling hash power as they tried to adjust. This is likely to only be temporary. However, when they start coming back on line, it will be in much more favorable jurisdictions for these miners. These will also be in regions that have a great deal of renewable energy and a less reliance on coal. Not only that, but if these miners are able to locate to targeted regions, they could help to spur on the adoption of green energy. It will be a win for the miners as they get access to cleaner and more cost effective energy. It will be a win for the producers as they can invest in battery storage and get an ROI on it. It would be a win for the consumers as they will get cheaper energy and it will be a win for the environment as these are renewable sources, everybody wins. Now my only hope is that these miners don't call relocate, its only one region that they fan out to numerous corners of the world in order to further distribute decentralized 8 hash power. The last thing we want is another situation in which a group of miners in a particular region get too much power to the point where they also started trying to influence decisions. That's perhaps another reason as to why I'm quite wary about this proposed Bitcoin Mining Council, but that is a topic for another blog post. I hope you guys found that blog post interesting. However, it's now time to hand the floor over to you. So what do you think of these changes and are you also worried about the Bitcoin Mining Council? Tell me by your comments as ever below   Finally, thank you so much for your time and I hope you got value from this article. If that is indeed the case, then let it be known by sharing this blog post with your friends and family. 

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