What if China Bans Bitcoin Mining?
Do you know how access to precious metals, such as gold and everyday objects such as coal is gained? Miners go through a laborious process of digging through underground tunnels and collecting rocks that contain such metals. The strenuous efforts that miners exert for the extraction of such minerals are akin to the efforts needed in order to extract cryptocurrencies.
One must be able to fulfill a particular activity in order to unlock cryptocurrencies; the most common of which is the solving of difficult mathematical problems that grow increasing complex the more you solve. Upon the completion of the task, “miners” are then compensated with digital currency in exchange for their efforts.
To be able to solve these mathematical equations, miners must utilize immense computing power. As the degree of difficulty increases, the more digital currencies are unlocked; the processing power needed grows increasingly larger as well. In this case, the finite number of 21,000,000 is available for mining within a closed network, and people have only been able to extract a mere 16,585,563 as of now.
Presently, China has earned the title as the country with the largest source of mining efforts. These cooperative efforts from Chinese miners are possible due to the accessibility to low-priced electricity. As of date, China accounts for 71% of total Bitcoin mining companies.
The Role of Energy in Mining Operations
Given the immense amount of processing power needed in order to mine cryptocurrencies, China has the advantage due to the comparatively lower costs of energy and electricity when differentiated from its foreign mining counterparts.
However, with the very recent law that disallows the trade of digital currencies in China, the fate of the Chinese mining operations remains to be seen. However, with most of the contributions to the extraction of cryptocurrencies coming from China, the act of suddenly ceasing such operations will inevitably leave a huge hole in the mining industry.
With the impending dark fate of digital currencies, here are three possible outcomes for the mining operations in China:
1st Scenario: Miners continue with their operations regardless of the restrictions.
As the Chinese government had already disallowed the trade and use of digital currency, the threat of the government also discontinuing mining operations is just looming over the miners. If such an event occurs, stubborn miners will have to resort to going underground, delving into the illegal depths of the industry.
The aspects that make this scenario unlikely are the repercussions and the profit that miners would gain. Even if they were to be able to mine cryptocurrencies, the dilemma of converting the digital money into fiat currency still remains. While there are possible ways to go around the problem, the risks presented may be too high compared to the profits to be gained.
Given how determined the Chinese government seems to be in purging the digital trade within their country, the implications of being caught continuing trading cryptocurrencies could prove to be severe.
2nd Scenario: Miners emigrate from China to a different country.
China’s laws remain within China; there are plenty of other countries where the trade and mining of digital currencies remain legal. Hong Kong and Mongolia seem to be the emerging alternatives to Chinese miners, given their proximity to the mainland.
Hong Kong has already set its sights onto becoming the major global source of Blockchain-related technology and digital currencies, replacing China. However, the cost of electricity in Hong Kong is immensely more expensive compared to that of China’s, ranging from 3 to 6 times larger than the rates in China.
The other option would be China’s friendly northern neighbor Mongolia. While the energy rates still cost higher than China’s, it is dramatically less expensive than its competitor Hong Kong. In addition, it offers fiber internet connections, ensuring that miners will be able to have a stable access to the cryptocurrency network.
However, the scale of existing physical assets that had already been invested in could prove to be extremely difficult to relocate, especially if a large sum of money had already gone into mining facilities. Regardless, the mining industry in China will not be able to leave the country unscathed.
3rd Scenario: The activities of global miners increase to fill the gap left behind by China.
As the host of Bitfury, one of the five leading mining pools in the world, Georgia seems to be the most likely candidate to take and reign over the industry. With the benefits of cheap energy and labor costs, Georgia is in the perfect position to gain the most market shares should Chinese miners be forced out of the picture.
Aside from Georgia, Iceland and India are also plausible replacements for China, especially with low energy costs and prior experience in the field of digital currencies. While countries such as Japan and US try their best to contribute to the industry, they have significantly higher energy and electricity costs compared to their foreign counterparts, giving them a disadvantage.
Still, the sudden disappearance of China, the largest market in terms of mining, would inevitably require other countries to pick up the pace in order to make more profit.
Where are We Heading?
While some leaders of the crypto-industry believe that China’s Bitcoin mining industry is unlikely to be shut down, the threat is truthfully just around the corner. If it occurs, then global mining hubs outside China’s jurisdiction will simply have to take over in order to keep the industry running.
The concern remains that due to the actions of the Chinese government, a depreciation in the value of digital currency is likely to occur. Nonetheless, it should be noted that the industry has faced and triumphed over countless difficulties before. Should Chinese miners be banned from continuing their activities, the other members of the industry will inevitably have to cooperate in order to keep themselves alive and afloat.