Is the drop in Bitcoin’s hash rate an opportunity in disguise?

China’s fight against Bitcoin (Bitcoin) The mining business has led to a significant drop in the network hash rate, but industry participants believe that this provides incredible opportunities for the broader mining ecosystem.

For a long time, China has been a major contributor to the field of Bitcoin mining, sometimes accounting for more than 70% of the global hash rate of the world’s outstanding cryptocurrencies. Until June 2021, when. . .when The Chinese government shuts down Some of the largest mining centers in the world.

Sichuan, a southwestern province in China, is rich in hydroelectric power and is supplied by the Yangtze River, the largest river in Asia. Due to its preferential electricity prices, the emergence of ASIC mining has made the province the location of some of the largest mining operations in the world in the past few years. But due to the country’s strong stance on cryptocurrency mining and the entire ecosystem, this situation is now coming to an end.

Local media reported that 26 major Bitcoin mining centers in Sichuan were forced to close, which had a huge impact on the global hash rate.Bitcoin hash rate reach the peak The speed in mid-May was 171 terahash per second (TH/s), but it fell to a low of 83 TH/s on June 23-which marked a 50% drop in just over a month.

Industry analysts estimate that more than 70% of China’s total mining capacity has been offline in the past week, and it may increase to more than 90% in the next few weeks.

Kevin Zhang, Vice President of Foundry Services, a mining infrastructure company- if The situation in China is outlined in a Twitter post. The key point is that operators are given the least time to clean up stores, and most of their power infrastructure is not compatible with systems in other countries.

Bitmain is one of the world’s largest ASIC mining hardware manufacturers, with Temporarily postpone sales of new mining equipment Work hard to support miners who wish to sell second-hand hardware.

Initial impact

At first glance, the situation looks disturbing, but some people believe that the resilience of the Bitcoin mining ecosystem will prevail. China’s regulatory suppression provides a unique opportunity for miners in other countries to accumulate BTC holdings.

In a communication with Cointelegraph, Daniel Frumkin, a mining researcher at Braiins and Slush Pool, explained the initial impact of the recent drop in hash rate:

“In the past four adjustments, the difficulty has decreased in three times, and the next adjustment may be the biggest drop in Bitcoin history. For miners outside of China who are focused on maximizing BTC accumulation, this is an incredible Opportunity, because the hashrate (BTC/TH/day) is increasing rapidly when everyone expects the opposite.”

The researchers also emphasized the fact that despite the large scale of hashing power offline in recent weeks, the security of the Bitcoin network has not been affected, adding: “Chinese miners are relocating machines around the world, so in 6 By 12 months, the hash rate may be much better than any period before the ASIC era.”

Nonetheless, as Annabelle Huang, head of Amber Group GlobalX, emphasized the recent sell-offs and plunges in various cryptocurrency prices, the entire cryptocurrency market has felt the impact of China’s mining contraction:

“Following Inner Mongolia and Xinjiang, Sichuan Province officially shut down BTC mining earlier this week, although hydropower is more environmentally friendly than coal mining. Coupled with the Fed’s hawkish sentiment, we are seeing a sharp sell-off in the crypto market. Sichuan’s shutdown is somewhat Unexpectedly, it is likely to bring medium-term selling pressure to miners, who expanded their operations during the bull market earlier this year.”

Valuable rack space

As Chinese miners went offline, there have been some interesting chain reactions. First, these miners are now looking for new locations to rebuild their business, and some are beginning to sell their equipment.

Frumkin pointed out that the ASIC hardware market will be saturated with a large number of second-hand hardware sold, and third-party hosting service providers are likely to find that their excess space will soon be filled up by miners who want to bring ASICs online: “Existing mining Facilities that provide hosting services for third parties are quickly filling up, and new mining infrastructure requires a lot of time to plan and build.” He further added: “Any company and country that can quickly build an infrastructure to host thousands of ASICs May become the biggest winner in this situation.”

The emergence of ASIC mining has severely undermined the efficiency of small, avid Bitcoin miners, who are simply unable to compete with the economic scale of industrial-scale mining operations. Over the years, small mining operators may have the opportunity to expand their business for the first time, but as Frumkin further explained, there are still some obstacles:

“Many smaller-scale miners use third-party hosting services, which provide higher electricity bills than are usually on conventional energy grids. Due to the high demand for such hosting capacity, these miners may not be easy to expand now. However, compared to any time in the past year or so, any miner who has off-grid facilities (such as next to a gas well) or other direct access to some surplus energy is in a better position to start mining or scale up because the hardware is cheaper , Easier to obtain, and the hashrate (BTC/TH/day) is unexpectedly high.”

Great migration?

The reality of China’s latest regulatory measures is that the pattern and distribution of the Bitcoin mining ecosystem is undergoing tremendous and rapid changes. In the past two years, as rumors of broader crackdowns continue to spread, some Chinese companies have been actively looking for new locations to set up mining centers.

Companies such as Canaan that expanded from hardware manufacturing to actual mining have established a Kazakhstan operating base, Using its own proprietary Avalon mining unit. BTC.com, the world’s fifth largest mining pool, also moved the first batch of miners to the country.

Moving to neighboring Asian countries will undoubtedly be the easiest export option for Chinese miners, but space and electricity will be very precious, and further options are already being explored.

As Foundry’s Chang concluded on Twitter, the so-called “ASIC exodus” will certainly not go so smoothly because the company is working hard to resolve logistics issues, escrow terms and negotiations. Frumkin believes that this benefits hosting companies: “This is a huge opportunity for mining infrastructure companies to take advantage of the growing demand for hosting capacity.”

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Indeed, China’s mining industry may have sounded the death knell, and the great migration of mining equipment has begun. Frumkin believes that all these factors indicate that North America will become the next Bitcoin mining center in the next few years. He claimed that being close to hardware suppliers gives Chinese miners an advantage, adding, “At the same time, many large-scale miners in North America have found that electricity is less than 4 cents or even less than 3 cents per kilowatt hour, which is the same price that Chinese miners have paid in recent years. He concluded:

“Now they no longer face a competitive disadvantage in hardware procurement, and these North American mining companies are ready to become the dominant players in the next few years.”

As Darin Feinstein, the founder of Core Scientific, said sum On Twitter, the resilience of the Bitcoin mining network is obvious. Although a large part of the hash rate of the network was forced to go offline, the company soon sought to relocate in an uncoordinated way, and the end users were basically unaffected.

As he said: “China has forcibly closed more than 60% of the Bitcoin network infrastructure. There is no lawsuit, no bankruptcy, no rescue, no downtime. The network infrastructure just shrugged and relocated to countries with increased freedom. “