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China’s draconian own goal: What it means for the Bitcoin miners of the free world

At the end of last week, the inevitable began to make itself known in the form of the might of the Chinese government’s iron fist being unleashed on the absolutely gigantic Bitcoin mining fraternity within the limits of the People’s Republic.

Over a period of several years, Chinese Bitcoin miners, of which there are vast numbers, have been operating with, rather ironically in a communist country, an economic advantage and more favorable business standpoint than miners and mining pools outside China’s jurisdiction.

China has an over-engineered national electricity generating sector, and many of its citizens work for state-owned organizations and utility companies which provide cost-free power, which can be easily utilized for large-scale Bitcoin mining without the astronomical costs usually associated with high-output mining rigs.

Over the weekend, the government moved in, and began to clamp down on the peer-to-peer decentralized currency industry, which is as unofficial in China as can possibly be, yet is one of the nation’s top ten consumers of electricity! That is absolutely remarkable considering the industrial powerhouse that mainland China is, and that its workforce produce absolutely every conceivable item for every aspect of life in every region of the world.

That statistic is a reliable one, too, as it did not come from the propaganda departments of the Chinese government, but from a life sciences research institute in the United Kingdom.

The ban by the Chinese government on cryptocurrency activity within China’s mainland was long awaited, however as is the nature of decentralized currencies, it has been quietly anticipated that those who have invested tremendous resources into building enormous mining rigs on an industrial scale would have a clever contingency plan.

And they have. By last weekend, although some miners began to submit to the potential logistical challenges of relocation whilst the all-seeing-eye of the state monitors their movements rallied around to dispose of their rigs, many will not give up that easily and are looking to move their equipment to underpopulated regions in Asia with high fossil fuel production and therefore cheap energy prices, such as Kazakhstan.

As an example, Xive, a company based in Kazakhstan that helps miners find space and convenient energy contracts in China, operated by owner Didar Bekbauov has been receiving a large numnber of requests from representatives of Chinese miners looking to relocate to Kazakhstan. He said over the wekeend “These people are waiting for some clarification from the Chinese government, and they are looking for a plan B in case the government restricts or somehow bans mining altogether.”

As of this weekend, the need to find alternative sources of power and a more friendly environment ramped up, with electricity producers in China beginning to remove miners from grids, alongside Chinese dealers who are now selling Bitcoin mining computers on the secondhand market at absolute bargain basement prices.

What this means is that production will likely slow down in China considerably, yet not all miners will continue their business nor will they move their business elsewhere. That will be the preserve of the most determined and perseverant, and even then, the cost of mining will increase even in areas with relatively cheap power, because Chinese miners have been paying next to nothing, and in some cases absolutely nothing, for their electricity hence the enormous investment in vast, high-output equipment farms.

Going back nine years, the loophole that allowed cryptocurrency mining to take such an enormous hold in a nation whose internet is strictly controlled by the state has begun to be a thorn in the side of the same government that allowed it in the first place.

The Sichuan province earthquake of 2013 created a massive flow of charitable donations, many of which were in Bitcoin which resulted in a large scale interest locally in digital currency, fueled by Jiang Zhuoer, a local telecommunications professional who began mining at home where he made a bit less than $1000 per month in profit from mining.

This fueled a huge craze and suddenly electricity producers wanting to make a quick buck – or Yuan – promoted themselves as big data centers, including one particular main power station which actually offered miners the ability to host their machines within its facility!

What is absolutely congruent with other industries is that when China does something, it does it BIG. Bitcoin mining is no exception. It is so enormous now that its withdrawal from China is a massive consideration.

What would happen if China stopped mining altogether? Some say that the entire domestic network would lose over three quarters of its entire hash rate and the rate of creating new Bitcoins would drop significantly, therefore driving an increase in other areas by existing free-market Bitcoin miners.

If Chinese miners stopped altogether and no increase in production outside China took place, the hash rate would be entirely wiped out in China and therefore no new Bitcoins would be produced in the region, and the same number outside therefore the price of Bitcoin would rise due to the lower global production rate, and no negative impact would be noticeable on mined blocks.

Going back three years, the view of the analysts was often that if Bitcoin mining stopped in China, it wouldn’t force the price up, it would make it volatile instead.

Some views even go as far as to say that in the medium term, the loss of computing power would make it slower, and more expensive, to make transactions which could go on for even weeks and in the long term, the loss of Chinese miners could change the balance of power on decisions regarding the Bitcoin protocol and possibly even threaten the security of the network.

Uncertainty is still very much in the minds of the vast majority of miners and holders of Bitcoin with regard to the extent the accelerating exodus from China by miners.

Either way, this is a power struggle – yes it’s a pun – between the all-controlling state and the freedom-seeking entrepreneurs that have now turned into massive industrial mainstays of digital currency production.