China still mining 20% of world's Bitcoin

China still mining 20% of world's Bitcoin

China still mining 20% of world's Bitcoin

China has once again become a major Bitcoin mining hub, despite a strict government ban in place since 2021, according to a new report.

Chinese miners hiding in plain sight

A report released by the Cambridge Centre for Alternative Finance (CCAF) on May 17 shows that China contributed about 20% of Bitcoin’s overall hash rate from September 2021 until January 2022. This comes despite vigorous government efforts to ban the practice, ostensibly because of the strain it places on the country’s overloaded electrical grid.

According to the report, “[data] strongly suggests that significant underground mining activity has formed in the country. Access to off-grid electricity and geographically scattered small-scale operations are among the major means used by underground miners to hide their operations from authorities and circumvent the ban.”

The report adds that most Chinese miners hide their location using foreign proxy services and virtual private networks (VPNs).

Due to the semi-private nature of Bitcoin mining, it’s virtually impossible to directly measure how much activity is taking place in a specific area. Analysts rely on the hash rate, a measure of computer power used to solve the mathematical problems that enable a successful miner to create a block and earn its rewards.

China led the world in Bitcoin mining beginning in 2019, accounting for more than 75% of all world activity. Then, as the country began a serious crackdown on domestic mining in 2021, many mining operators began relocating to the United States, and the global hash rate dropped precipitously from its high of nearly 180 million terahashes per second. At that time, Chinese mines consumed around 86 terawatt-hours per year (TWh/yr) of electricity, generated from both coal and hydropower plants, many of which have been forced to close since the mining ban.

By July, miners who were trapped in the country appeared to have shut down. But in fact, many relocated to more secure locations throughout the country where their financial resources could ensure freedom from interference by local authorities. In particular, the many large dams in Sichuan province offered abundant hydroelectric power, and miners began reappearing online two months later.


Bitcoin mining energy consumption

The report also confirmed what had been previously stated in other reports, that Bitcoin mining accounts for a tiny percentage of the world’s energy usage, approximately 0.19%. This is slightly less (127 TWh/yr) than the energy required for gold mining (131 TWh/yr).


China’s contradictory crypto attitude

The China government’s attitude toward cryptocurrency has often been extremely confusing. This month, the Shanghai High People’s Court seemed to support Bitcoin, ruling that it’s virtual property that “has a certain economic value, and according to the attributes of property, the rule of law of property rights is applied for protection.”

This ruling came after China banned banks from Bitcoin transactions in 2013, and crypto ICOs in 2017. The government reiterated these decisions and made all crypto transactions illegal in September 2021. Meanwhile, China has been developing its own Central Bank Digital Currency (CBDC) on a ledger owned by the government, and is already experimenting with it for tax payments.

The data suggests that the Chinese government may have come to an unofficial “understanding” with the miners, allowing them to continue so long as they don’t become too successful or obvious, or become a serious drain on precious energy resources. However, this could change if the country loses access to coal and oil imports from Russia.

This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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