Bitcoin mining has totally recovered from the Chinese language ban
Whinstone CEO Chad Harris takes CNBC on a tour of the largest bitcoin mine in North America.
Bitcoin mining has fully recovered from the Chinese crypto crackdown that took more than half of the world’s miners offline practically overnight earlier this year.
Recovery is measured using hashrate, a term used to describe the processing power of all miners on the Bitcoin network. China has long been the epicenter of this industry, with previous estimates suggesting 65 to 75% of global bitcoin mining took place there. But after Beijing effectively banned the country’s cryptocurrency miners in May, more than 50% of Bitcoin’s hashrate declined from the global network.
As of Friday, data from Blockchain.com shows the network has completely reduced those losses. The network’s hashrate has increased about 113% in five months.
“Bitcoin withstood a nation-state attack by China that actually bans mining, and the network put it down,” said Kevin Zhang. of Foundry digital currency company, which helped bring over $ 400 million worth of mining equipment to North America.
The upward momentum in the hashrate could bode well for the price of the world’s most popular cryptocurrency, which has fallen 30% in the last month. China’s ban was a clear buy signal, just as it did with Google and Facebook before, according to bitcoin mining engineer Brandon Arvanaghi, who now runs Meow, a company that enables companies to participate in crypto markets.
But for Arvanaghi, the biggest lesson of this whole ordeal is the fact that Bitcoin mining has survived its biggest stress test to date with little drama.
“The Bitcoin network withstood an attack by a major superpower and came out stronger than ever six months later. How can anyone ever argue, ‘But what if nations forbid it?’ again? ”he said.
Bitcoin’s rapid recovery
When half of the Bitcoin network went dark this spring, many experts said the miners in North America would get back online. Many predictions were also made about the schedule to bring the network back to its previous peak.
Nobody CNBC spoke to thought the network would recover by the end of the year.
Texas-based bitcoin miner and engineer Marshall Long – who is the head of architecture at Rhodium Enterprises, a fully integrated bitcoin miner that uses liquid-cooled infrastructure – tells CNBC that he was somewhat surprised by the speed of its recovery.
“I thought we’d be here sometime in late January or early February,” he said. Others thought it would take longer and followed Long’s forecast for another six to twelve months.
According to Zhang, the rapid recovery of the Bitcoin network came about because the US laid the foundation stone for it to become a new mecca for mining. Zhang says that in the States there is a “huge appetite for growth, Build infrastructure and use stranded energy. “
Companies in the US have been tacitly increasing their hosting capacity for years, betting that, if the infrastructure was in place, miners would settle in the US when the time was right.
When bitcoin collapsed in late 2017 and the broader market entered a multi-year crypto winter, there wasn’t much demand for large bitcoin farms. US mining operators saw their opening and took the chance to use cheap money to build the US mining ecosystem.
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“The big, publicly traded miners were able to raise capital to make big purchases,” said Mike Colyer, CEO of Foundry.
Core Scientific founder Darin Feinstein agrees that America’s mining infrastructure has grown significantly. “We have seen a massive increase in mining operations looking to relocate to North America, mostly the US,” he said.
Companies like Core Scientific expanded hosting space throughout the crypto winter to ensure the capacity to plug in new devices.
Alex Brammer of Luxor Mining, a cryptocurrency pool designed for advanced miners, points out that the maturing capital markets and financial instruments surrounding the mining industry also played a large role in the industry’s rapid rise in the US, Brammer says that many American Operators were able to quickly start expanding after securing funding by leveraging a multi-year track record and existing capital as collateral.
Covid also played a role.
Although the global pandemic crippled large parts of the economy, the state stimulus money proved to be a boon for US mining companies.
“All the money printing during the pandemic meant that more capital had to be deployed,” Arvanaghi explained.
“People were looking for places to park their money. The appetite for big investments has never been so great. Much of it likely found its way into Bitcoin mining operations outside of China, ”Arvanaghi continued.
This game of chance was worth it. Cambridge University data shows the US is now the number one target for bitcoin miners, dwarfing China for the first time.
But the picture may not be as simple as it looks.
According to several sources, many miners who did not have the resources to relocate stayed in China and moved their operations underground. Some went “behind the counter” and obtained electricity directly from sources such as dams in southern Sichuan Province. Others split their mining operations into much smaller farms across the country that authorities were less likely to notice.
Whatever the cause of Bitcoin’s faster-than-expected recovery, Bitcoin miner Alejandro de la Torre – who for years shaped crypto all over the world, including China and most recently Austin, Texas – tells CNBC that the bigger lesson here is the resilience of the global mining industry.
“I am confident that any Black Swan events that could come to Bitcoin mining in the future will also be a non-event,” said de la Torre.