When the value of Bitcoin dropped in May this year, many crypto enthusiasts put it down to the volatile nature of the currency which has risen and fallen regularly since its inception in 2011.
However, there was something different about this latest drop. Instead of activity from the big Bitcoin players, known as ‘whales’, being the quoted reason, experts pointed at China, where the government had introduced a blanket ban on cryptocurrency – huge news in a nation that was responsible for around 70% of Bitcoin’s global mining power.
Chinese crypto firms acted quickly. In what has been dubbed ‘the great mining migration’, several large enterprises have left their native country to continue their operations abroad. Here’s how they’re doing it.
What’s Bitcoin mining?
To understand why these businesses are fleeing China, it’s important to understand what they do. Cryptocurrency has often been likened to playing the lottery: you invest some money in the coin of your choice – or buy a lotto ticket, to keep the comparison going – then hopefully you’ll land a big return on your investment. The downside with crypto, though, is that your investment is going to be many times more than the cost of a lotto ticket – and you might lose most of it.
Bitcoin mining, on the other hand, is less risky. Energy costs are high, and you may end up with nothing after a mining session —but successful miners do get BTC for much less than the equivalent would cost in an exchange. To mine, you simply need a powerful computer and a little techie know-how, and thousands of Chinese miners have been chipping away ever since Bitcoin was launched a decade ago.
Yet there is a third requirement that miners need – something that most hadn’t thought previously: a relaxed regulatory environment. Until this year, there were no rules against Bitcoin mining anywhere, apart from in North Korea, perhaps, where internet use is virtually prohibited. But then the crackdown struck. In June, the Chinese government banned domestic mining, stating that they wished to cut down on carbon emissions, although removing the chief competitor to China’s own crypto coin appears to be a likelier motive.
Largescale miners, including companies whose sole purpose is extracting the coin, were stunned. How could they continue or even stay in business?
The answer lay abroad.
Where are the miners heading?
A popular destination is one that has a proud history of mining – for gold. However, 21st century Texas is very different to the wild west of the 19th century: its enthusiastic attitude to crypto and cheap electricity – some of the lowest in the world – make it an extremely attracting prospect for Chinese miners.
The migration has accelerated in recent weeks. Mining companies have been holding talks with Texan oil producers about providing direct energy sources to make mining easier. Chinese firm BIT mining is building a $26 million data centre in the state, its competitor Bitmain is also expanding its base in Rockdale, a small Texan city.
The benefits for both parties are clear. The Chinese firms get to keep mining while Texas reaps the benefits of foreign investment. State Governor Greg Abbott even declared the state as the world’s ‘crypto leader’ in June.
Other destinations are also on the miners’ radar. El Salvador hit the headlines recently by becoming the first country to officially recognise BTC as an official currency, although its energy infrastructure is far below that of Texas. Malaysia is another place: closer to home for the firms and enjoys some of the highest mining rates in the world, according to a Statista report.
The future looks bright for the miners – but there could be some obstacles along the way.
Bitcoin mining’s huge thirst for energy is one cloud on the horizon for the industry. While it’s easy to think that the USA’s advanced infrastructure is ideal for an endless supply of power, it’s still susceptible to unforeseen events. In February, a huge snowstorm in Texas wiped out power for a week, forcing bitcoin miners to go offline. Extreme weather seems to be becoming more frequent across the world and the US has been hit hard.
Chinese companies are also under scrutiny from US authorities in the ongoing trade war between the two nations. Texas even passed a ‘hostile foreign actors’ law recently after fears that foreign companies could steal sensitive information and gain a march on American companies. Much of the future action against Chinese miners may depend on the rhetoric coming from President Biden as he looks to strengthen the US economy ahead of a second year in office.
Despite these potential hurdles, though, things appear brighter for bitcoin and crypto in general. The price of BTC recently hit the $50,000 mark again after dropping to a low of around $30,000 just weeks previously, and certain experts are saying that the Chinese clampdown may even have helped crypto as it meant a bigger slice of the pie for non-Chinese miners, and an increase in mining action as a result.
Whatever happens in the crypto world over the short term is something that will captivate enthusiasts the world over, and the great Bitcoin migration is the latest page in an intriguing story.