In May and June 2021, a number of provinces in China banned bitcoin mining. The bans come amid the introduction of China’s own digital crypto yuan. These measures have far-reaching implications for the entire cryptocurrency market. The CEO of the Point Pay cryptocurrency platform Andrei Svyatov told how the mining map of the world will change, what consequences may arise for investors, equipment manufacturers, miners themselves.
In May and June, the ban on bitcoin mining in China affected provinces such as Inner Mongolia, Xinjiang, Qinghai, Sichuan, and Yunnan. These are the main concentration of mining farms in China. China cites tax evasion and money laundering through cryptocurrencies, as well as excessive energy consumption, among the main reasons for this decision. Profits of bitcoin and etherium miners have already dropped by more than 50% compared to May’s figures.
“As far as energy consumption is concerned, China’s and Ilon Musk’s statements on this are nothing more than manipulation of numbers. Any data center like Google or the U.S. national security center requires more energy than bitcoin mining – a comparison made in 2017. Nevertheless, even considering the increased amount of energy required, mining is a very competitive environment, which means that miners are looking for the cheapest electricity and the most energy-efficient equipment and location,” Andrei Svyatov states. – So mining is no more harmful to the environment than any big data center in the United States.”
There is also debate in the cryptocurrency community over what China’s real goals are in imposing such bans. There is a view that the anti-mining campaign is nothing more than an attempt by China to force miners to stop contracting directly with power plants to bypass the state grid. “Perhaps the Chinese government wants to collect additional taxes from miners by obliging them to connect to state-owned power suppliers in profinets,” PointPay noted. “In that case, some miners will still remain in China, albeit on different terms. In any case, the position of miners in China is too shaky and they are unlikely to take risks and delay the relocation.
In general, in the near future miners will be left at a crossroads: whether to sign contracts with state suppliers, sell equipment, build farms from scratch or rent locations – these are serious issues on which the profitability of the business depends. And the main problem is the relocation and transfer of equipment to new territories.
But some miners have no choice, given the scarcity of available storage space in mining centers such as the U.S. The U.S. could benefit the most from market redistribution, but other countries close to China territorially could also get a chance to build new infrastructure.
“Obviously, in the first year and a half, the relocation of miners will be chaotic and panicked. Miners will have both logistical problems and financial losses, there will be testing of new locations for farms and rejection of them. But, overall, the displacement of miners from China will be a boon to the security of the cryptocurrency market. The threat of the 51% problem, which has been talked about so often, will become much lower,” said CEO of PointPay Andrei Svyatov.
PointPay cryptocurrency ecosystem analysts made their suggestions on how the world’s mining map will change due to the bans in China. In addition to the cost of electricity, miners will consider parameters such as: the proximity to China, the level of development of legislation in the field of mining and cryptocurrencies, the cost of delivery of equipment, the availability of qualified personnel to maintain farms in the region and even the climate when relocating.
The most likely places to relocate mining farms will be the U.S., Canada, Central Asia, Afghanistan.
Where will miners move from China?
Other implications for the market
– Falling prices of mining equipment and graphics cards
– Search for the most energy efficient solutions
– Decrease of the hash rate and the level of complexity of calculations in the network
– Temporary decrease in mining competition and increase in profitability
– Creation of new pools
– Development of legislation on mining
– Possible temporary decline in the value of cryptocurrencies
– Cryptocurrency value growth in the long term
PointPay also notes that in the long run, China’s decisions have not always unambiguously badly affected the market. As cryptocurrency market analysts around the world note, the major cryptocurrencies, bitcoin and etherium, grew by an average of 40 percent within 90 days of the ban.
“Overall, the effects of the Chinese ban on the market are rather positive. Diversifying capacity and developing new locations is good for the market in the long run. A separate plus is that the remaining miners will theoretically earn more during the period of relocation,” Andrei Svyatov summarized.