In the summer of 2021, the Chinese government banned the mining of bitcoin (BTC) and sued the usual concerns about the harmful effects of environmental and money laundering. Today, the Chinese government is working on creating its own digital currency, the e-yuan. This raises the question of whether the original reasoning was Troy’s horse.
This ban could easily deal with a fatal blow to bitcoin momentum. After all, almost 75% of the total mining bitcoin was made in China at the end of 2019, according to Cambridge Alternative Finance Benchmarks. If the network pursued the ban across China, other governments may have begun to think that bitcoin could be banished after all.
China’s ban was a bitcoin stress test
For a short time, the ban worked as planned: by the end of June 2021, the Bitcoin network hash rate had dropped to 57.47 exahashes per second (EH / s), a drop of a few multiples. However, the hash rate increased to 193.64 PE / s in December 2021 and in February 2022 reached an all time high of 248.11 PE / s.
This was a test of bitcoin ‘s success with flying colors: The ban on mining bitcoin has proven to be as effective as the Prohibition era in killing drinking culture in the United States.
In early 2022, the clear explanation for the hash rate recovery was that miners who migrated to China fled to the Western Hemisphere. There seemed to be many elements supporting this hypothesis, mainly the fact that the US share in the global hash rate exploded from 4.1% at the end of 2019 to 35.4% in August 2021.
The ban created a decentralized black market
However, “mass migration” may not be the only unintended consequence of China’s embargo. In May 2022, Chinese miners accounted for 22% of the global hash rate, a figure that is not as dominant as before, but it is not a small piece of the pie either.
As the Cambridge Center for Alternative Finance reports:
“A large share of Chinese miners probably adapted quickly to the new circumstances and continued to operate covertly while covering their tracks by using foreign proxy services to divert attention and scrutiny. »
In fact, there is probably a black supermarket now in mining of bitcoins in China.
No matter how hard he tries, one of the most authoritative systems on the planet cannot stop his citizens from bitcoin mining. From an economic point of view, the potential benefits for Chinese-based miners outweigh the costs of being caught on the red hand.
Despite the concern and skepticism of ‘experts’ about bitcoin, Chinese miners enjoy the activity so much that they are willing to risk breaking the law to get their hands on the global reserve asset of the future.
International competition for miners is increasing
Despite the boom in China’s black market, there is no doubt that the US economy has benefited from China’s embargo. Near Kearney, Nebraska, a company called Compute North operates one of the largest data centers in the United States for cryptocurrency mining. Around the time of the ban in China, the company received a large number of calls from companies seeking to move their mining equipment from China to the United States.
Compute North welcomed its new partners with open arms. “We’ve doubled in size,” the lead technician said. “We were busy all summer. […] And the demand keeps growing. »
Other cities, such as Rockdale, Texas, and Massena, New York, are also seeing growth in their cryptocurrency mining ecosystems.
All of this migration could lead to a vicious cycle for China and a virtuous cycle for the US, which means that all sorts of other bitcoin – related opportunities are moving from China to the US as well. Lamont Black, a finance professor at DePaul University, believes the recent influx of bitcoin miners into America could support the country’s blockchain economy in a broader way.
And this logic works both ways: as bitcoin miners leave China, bitcoin ancillary activities travel with them.
While runaway miners have considered countries other than the United States, American miners seem to prefer it because of its relatively strong respect for property rights. A Chinese migrant miner said: “Maybe the governments [de pays comme la Russie ou le Kazakhstan] not only close the operation, but also accept […] for all machines. You risk losing everything, so the United States is a safe bet. »
Takeaways for World Governments
This black market phenomenon should be a lesson to Western politicians: If the Chinese government cannot prevent the mining bitcoin, but you can’t.
As the United States progresses in studying the regulatory implications of this industry, traditional financial institutions are closely watching its movements. Retail and institutional investors are also acutely aware of market fluctuations in the face of inflation in their countries. At this point, trying to put the toothpaste back in the tube is a waste of energy. an mining bitcoin is not going away.
The United States and other world leaders must learn from the mistakes of others so that they do not need to be repeated. China has wasted its efforts so that others will not waste it.
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William Szamosszegi He is the CEO and founder of Sazmining, the first clean energy bitcoin mining platform for individuals. He also hosts the Sazmining podcast, and as a bitcoin advocate, is committed to enhancing the relationship of humanity with time, money and energy. Will received a Bucknell Entrepreneurship Grant, was a contestant in the SXSW Digital Entrepreneurship Competition, received a Forbes Fellowship, and is a regular speaker at bitcoin mining conferences.