CHINA WAS once king of the crypto mines. In September 2019 it accounted for three-quarters of the world’s bitcoin mining activity. Rural provinces were dotted with bitcoin mines that specialised in solving cryptographic puzzles in order to validate transactions made with the cryptocurrency. But in May 2021 the Chinese government, sensing a threat to its control of the country’s financial system, vowed to put a stop to the industry. By July official mining operations in China had, in effect, been wiped out. Authorities are reportedly cracking down on smaller, illegal operations, leaving miners with little choice but to leave. Where did they go?
The Cambridge Centre for Alternative Finance (CCAF), a division of Cambridge University’s business school, might have found the answer. Its Bitcoin Electricity Consumption Index tracks the IP addresses of mining-facility operators that connect to the servers of bitcoin mining “pools”, large groups of miners who join forces to maximise their chances of solving the crypto puzzles. Its data show China’s hash rate, a measure of the processing power being used by the bitcoin network, went from 79.5 exahashes per second at the start of the year to zero by July (one exahash is equivalent to a quintillion hashes, or mathematical functions—that’s the number one followed by 18 zeros). Many of those hashes have gone to America: there, the monthly hash rate in August 2021 was 722% higher than it was a year earlier. America is now the world’s top destination for bitcoin mining, accounting for over one-third of the global hash rate (between May and August this year, the period in which China cracked down on mining, the total global hash rate declined by about 25%).
Kazakhstan and Russia have also become popular locations, with 18% and 11% of the global share respectively. Their common denominator is cheap electricity. The energy-intensive process guzzles more electricity every year than the total wattage consumption of the Philippines or Finland.
There are some limitations to CCAF’s data. They only capture at most 37% of bitcoin’s total computing power based on a sample of mining pool data, though the CCAF calls it a “reasonable approximation”. The data also throw up some incongruous destinations.Take Ireland and Germany: there is little evidence that these countries have ramped up their crypto mining, yet their global hash rates increased by 46% and 17% respectively between January and August this year. That might be because of Chinese hashers re-routing their traffic through European virtual private networks to avoid authorities’ ire. But it is clear that the global centre of bitcoin mining is shifting. When it comes to traditional measures of economic activity, such as GDP, China is catching up with America. But in the crypto-economy America is racing ahead. ■