For a long time, China has been home to more than half of the bitcoin miners in the world, but now, Beijing hopes that they will leave as soon as possible. In May 2021, the Chinese government called for a severe crackdown on Bitcoin mining and trading. This triggered a phenomenon known as the “big mining migration” in the crypto circle. This migration is ongoing, and it may change the rules of the game in Texas.
Mining is an energy-intensive process that creates new cryptocurrencies and maintains all transaction logs of existing digital tokens. Although Texas has insufficient energy reserves that caused power outages for several days last winter, it is often one of the lowest energy prices in the world, and its share of renewable energy continues to grow. As of 2019, 20% of the state’s electricity comes from wind energy. It has a deregulated power grid that allows customers to choose between electricity suppliers, and most importantly, its political leaders are very supportive of encryption-ideal conditions for a miner to find a popular and cheap energy source.
“In the next few months, you will see a dramatic shift,” said Brandon Arvanaghi, a former security engineer at the crypto exchange Gemini. “We have governors like Greg Abbott of Texas who are pushing mining. It will become a real industry in the United States, and it will be incredible.”
Data on the global mining power distribution in 2021 has not yet been released, but past estimates have shown that 65% to 75% of the world’s Bitcoin mining happens in China-mainly in the four provinces of China: Xinjiang, Inner Mongolia, Sichuan, and Yunnan. Hydroelectric power generation in Sichuan and Yunnan has made them sacred sites for renewable energy, while Xinjiang and Inner Mongolia are home to many coal-fired power plants in China.
In Inner Mongolia, the reduction of miners has already begun. After failing to meet the climate target, the province decided to give Bitcoin miners two months to clean up and attributed the energy shortage to crypto mining.
The way to measure this loss is to look at the hash rate, which is an industry term used to describe the computing power of all miners in the Bitcoin network. Given the decline in Bitcoin’s hash rate, it seems that Bitcoin devices across China have been shut down.
Although China’s statement has not yet been consolidated in policy, this does not prevent miners such as Alejandro De La Torre from stopping losses and exiting. De La Torre, vice president of Poolin, a Hong Kong-based mining company, said: “We don’t want China to introduce some kind of new ban every year. Therefore, we are working hard to make our global mining hash rate Diversity, that’s why we moved to the United States and Canada.”
One of the most influential features of Bitcoin is that it is entirely free from location restrictions. Miners only need an Internet connection, unlike other industries, they must be relatively close to the end-user. Nevertheless, this outflow will not happen instantaneously, partly because it takes a while for miners to ship their machines out of China, or liquidate assets and operate them elsewhere, Kazakhstan, China’s neighbor, being one of them. The country’s coal mines provide a cheap and abundant supply of energy. Kazakhstan has a more relaxed attitude towards construction, which bodes well for miners who need to build physical facilities in a short period. Whether Kazakhstan is a destination or just a transit point for westward migration remains to be seen.
The major destination is Texas. The electricity in Texas is the cheapest in the world, but perhaps the biggest problem is the reliability of the Texas power grid. A storm in 2021 destroyed a large area of Texas. Here is a potentially costly project and may affect taxes or other expenses for those who wish to connect to the state’s power grid. Recently, ERCOT, the organization that runs the Texas power grid, asked consumers to save energy during what officials described as an abnormal number of “forced power outages” and the upcoming heatwave.
There is not so much mining capacity in the world that is ready to absorb the diaspora, Chinese miners. When they are busy looking for a new home, we can see that the hash rate is offline – and stay offline. More geographical dispersion will balance the global balance of power and reduce the ability of any sovereign country to choose or control the network.
Writer: Imaaz Nadeem