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A few months ago, the cryptocurrency industry was shaken by news of the exodus of miners from China. At the end of May 2021, it became known that the Chinese authorities would ban Bitcoin (BTC) mining, bringing the already existing regulatory pressure on miners to the breaking point.

The list of prohibited operations includes purchasing cryptocurrencies, as well as any related investment activities, trading and exchanging cryptocurrencies. The People’s Bank of China conducted substantive consultations with banks and payment systems, and then the largest Chinese financial institutions were asked to stop speculative trading – in particular, with BTC.

As a result, Bitcoin’s hash rate has shown one of the biggest drops in its history. China’s share of BTC mining has fallen by 55% since the beginning of the year, as many participants in the Bitcoin network have turned off their equipment.

This is confirmed because the secondary market of China is full of GPU cards. Miners were actively selling cards, including the GeForce RTX 3090 and Radeon RX 6900 XT, at below-market prices.

Of course, not all miners, especially large ponds, gave up. The logical way out of this situation was the “mining migration” to other countries. But where have Chinese miners moved, and what countries could become the new mining mecca?

Is mining really bad for China?

Before trying to figure out where the miners are leaving, it is worth understanding why the Chinese government has banned mining, and what consequences such a decision will have for the cryptocurrency industry and even for some sectors of the country’s economy.

After the ban was implemented, the largest mining pools were the first to react. Huobi, BTC.TOP and HashCow have completely or partially ceased their activities. Huobi, one of the country’s largest cryptocurrency exchanges, has suspended both crypto mining and some trading services for new customers from mainland China.

Mining company BTC.TOP announced that it will suspend its business in China, citing the risks, while HashCow said it will stop buying new BTC mining stations.

Bitmain, the world’s largest producer of Bitcoin mining equipment, temporarily halted sales at the end of June 2021. The company took the decision after a 75% price drop. The suspension only affected bitcoin miners, while Bitmain continues to sell altcoin mining equipment.

According to the Chinese government, the problem with mining was the high consumption of electricity. China, which was home to most of the BTC mining pools, relies mainly on coal energy, which produces a lot of pollution.

But according to some commentators in the crypto industry, the real motive of the Chinese authorities was not to protect the environment in the country but to promote its cryptocurrency, the digital yuan – that is, by banning BTC mining, the Chinese government is “making space” for its central bank digital currency (CBDC). .

Now the development of the digital yuan is in full swing. At the end of June 2021, subway passengers in Beijing were able to purchase tickets using the digital yuan. Two weeks ago, the Agricultural Bank of China was the first bank in the country to allow its customers to convert digital yuan into cash and vice versa.

At the same time, the government appears to be actively cracking down on CBD competitors. In 2020, Ant Financial’s initial public offering – fintech company Alibaba – was largely thwarted by Chinese authorities’ fears that the Alipay payments system could compete with the digital yuan.

So, is it possible that miners are just collateral damage on their way to achieving the country’s goal of supporting a widely applied digital national currency? After all, the latest crypto ban has not prevented anything new, as the current restrictions were already clarified in 2017.

new mining centers

China, where three-quarters of all bitcoins were mined, began reducing its share of global mining long before the prohibitive measures were introduced in May.

According to research conducted by the Cambridge Center for Alternative Finance on global bitcoin mining from September 2019 to April 2021, China is gradually becoming less attractive to crypto enthusiasts. This can be seen as a confirmation of the hard-line policy of the state government. However, the country’s share of bitcoin mining remained high at around 46%. However, as Fei Cao, CEO of Huobi Pool, told Cointelegraph:

“This year, the main trends in digital mining are increased compliance and capital requirements, and these two trends appear to be more promising in the North American region, where mining is legal under local regulations.”

Statistics confirmed Cao’s words that the United States It has now more than quadrupled its share in global BTC mining – from 4.1% to 16.8%.

Over the years, the US has worked to build its hosting capacity, long before the Chinese ban, even when the cryptocurrency market was in a serious decline. US miners have been particularly active when there was little demand for large BTC farms, for example, in 2017.

In addition, the United States also has some of the cheapest energy sources on the planet, many of which are renewable. Moreover, American investors themselves are interested in cooperating with miners. At a recent meeting in Texas, US oil and gas executives suggested that miners use surplus natural gas to generate electricity.

Cheap electricity is also very attractive to major manufacturers of mining equipment. For example, in 2020, Bitmain entered into a partnership agreement with Foundry, a subsidiary of Digital Currency Group, which provides financing to North American Bitmain clients and provides a wide range of hardware for BTC mining.

Kazakhstan has also shown strong growth in its share of the bitcoin mining world this year – increasing from 1.4% to 8.6%.

This country borders China, so the cost of transporting equipment is cheaper than transporting it across the ocean to North America. Moreover, lawmakers in Kazakhstan are making the country more attractive to miners by allowing local banks to open accounts for cryptocurrency transactions. In addition, a mining company can be officially registered in the country since the digital currency was officially legalized in 2020.

Chinese companies have already benefited from this. Cryptocurrency mining provider Canaan announced in June that it had started mining BTC in Kazakhstan. Crypto miner BIT Mining, which recently announced that it will expand from the Chinese market, is planning to acquire 2,500 BTC miners to deploy in Kazakhstan. According to experts, Chinese miners have sent about 4,000 mining machines to Kazakhstan.

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Another important factor for Kazakhstan’s popularity as a destination for miners is the fairly low electricity prices with a kilowatt cost of $0.03. However, the country’s energy system is not as large as that of the United States.

Russia also increased its share in global mining to 6.5%. As in the case of Kazakhstan, Russia has a border with China, which is convenient when transporting mining equipment. The Russian Association of Cryptocurrency and Blockchain Industry (RACIB) outlined in July 2021 the advantages of mining in the country, highlighting the surplus of cheap electricity.

Due to the diversity of the climate in the country, mining farms can be established in areas with a cold climate, reducing cooling costs while maximizing expected profits.

In addition, RACIB has entered into a partnership agreement with a consortium of the largest mining companies in China, which until recently controlled 25% of the Bitcoin hash rate.

Miners will move, mining will continue

Less than six months after the Chinese ban, miners have found a new home, perhaps even better than the previous one, and the Bitcoin hash rate is predictably recovering.

Therefore, the Chinese miners will not disappear but will only change their positions. “Due to the impact of changing policies and regulations around the world, the BTC mining industry is currently going through a transformation phase,” Kao said, adding:

“Old miners have been discontinued in the industry, but at the same time, new, more advanced miners will be put on the market to make up for the shortfall.”