China has long been home to more than half the world’s bitcoin miners, but now, Beijing wants them out ASAP.
In May, the government called for a severe crackdown on bitcoin mining and trading, setting off what’s being dubbed in crypto circles as “the great mining migration.” This exodus is underway now, and it could be a game changer for Texas.
Mining is the energy-intensive process which both creates new coins and maintains a log of all transactions of existing digital tokens.
Despite a lack of reserves that caused dayslong blackouts last winter, Texas often has some of the world’s lowest energy prices, and its share of renewables is growing over time, with 20% of its power coming from wind as of 2019. It has a deregulated power grid that lets customers choose between power providers, and crucially, its political leaders are very pro-crypto – dream conditions for a miner looking for a kind welcome and cheap energy sources.
“You are going to see a dramatic shift over the next few months,” said Brandon Arvanaghi, previously a security engineer at crypto exchange Gemini. “We have governors like Greg Abbott in Texas who are promoting mining. It is going to become a real industry in the United States, which is going to be incredible.”
2021 data for the global distribution of mining power is not yet available, but past estimates have shown that 65% to 75% of the world’s bitcoin mining happened in China – mostly in four Chinese provinces: Xinjiang, Inner Mongolia, Sichuan and Yunnan. Sichuan and Yunnan’s hydropower make them renewable energy meccas, while Xinjiang and Inner Mongolia are home to many of China’s coal plants.
The drawdown in miners has already begun in Inner Mongolia. After failing to meet Beijing’s climate targets, province leaders decided to give bitcoin miners two months to clear out, explicitly blaming its energy misses on crypto mines.
Castle Island Ventures founding partner Nic Carter says that while it’s not totally clear how China will handle next steps, a phased rollout is likely. “It seems like we’re going from policy statement to actual implementation in relatively short order,” he said.
The way this exodus is measured is by looking at hashrate, an industry term used to describe the computing power of all miners in the bitcoin network.
“Given the drop in hashrate, it appears likely that installations are being turned off throughout the country,” continued Carter, who also thinks that probably 50% to 60% of bitcoin’s entire hashrate will ultimately leave China.
Although China’s announcement hasn’t been cemented in policy, that isn’t stopping miners like Alejandro De La Torre from cutting their losses and making an exit.
“We do not want to face every single year, some sort of new ban coming in China,” said De La Torre, vice president of Hong Kong-headquartered mining pool Poolin. “So we’re trying to diversify our global mining hashrate, and that’s why we are moving to the United States and to Canada.”
One of bitcoin’s greatest features is that it is totally location agnostic. Miners only require an internet connection, unlike other industries that must be relatively close to their end users.
“The cool thing about bitcoin that is underappreciated by a lot of the naysayers is that it’s a portable market; you can bring it right to the source of energy,” said Steve Barbour, founder of Upstream Data, a company that manufactures and supplies portable mining solutions for oil and gas facilities.
That said, the exodus won’t be instantaneous, in part, because it will take miners some time to either move their machines out of China or liquidate their assets and set up shop elsewhere.
Because miners at scale compete in a…