Why Bitcoin mining hubs have been on the move
From Texas to the wild reaches of Inner Mongolia, there are dozens of territories around the globe where Bitcoin mining is especially prevalent. Yet, there remains little understanding about why these destinations are so popular for miners, and why they’re such important contributors to network resilience.
With hubs and hashrate news consistently making headlines, it’s important to know why Bitcoin miners choose the environments they choose, and why they seem to be to move.
Why we need to mine Bitcoin
Bitcoin uses a proof-of-work consensus mechanism which is not managed by any central entity, but rather generated through a distributed computing process called mining. In simple terms, mining is a race to solve a particular mathematical problem which is used to confirm transactions and secure the network. The measurement of power of all these computers combined is called the hashrate.
In the early days, mining could be done on a household computer, but as time went by and problems became tougher to solve, more powerful equipment was needed, and soon warehouses filled with powerful supercomputers were being used to mine Bitcoin.
The vast majority of miners moved to China, thanks to cheap energy solutions and large spaces for warehouses. By September 2019, Bitcoin miners in China accounted for a massive 76% of all computer energy used in the mining of the cryptocurrency. That was, until, the Chinese government’s crackdown on crypto mining.
The rise and demise of China’s crypto mining tenure
Inner Mongolia had been one of the most important crypto mining hubs in the world, contributing 8% of the planet’s Bitcoin mining. This remote part of the world stretches from Tibet’s northern plateau to China’s far northeast to create an area roughly the size of South Africa, and is home to a high concentration of coal mines that were perfect for BTC mining. In fact, coal-powered electricity was in such abundance here that crypto miners paid Inner Mongolia’s Electric Power Trading Center just 2.60 cents per kWh, which is five times cheaper than what the average residential customer in the United States pays for electricity.
Then in May 2021, the Chinese Communist Party called for a severe crackdown on Bitcoin mining and trading, and by September they had issued a blanket ban on all crypto activities. Although speculation suggests this was done to meet Beijing targets or to make way for CBDCs, this move triggered what some crypto circles called “the great mining migration.”
Decentralised mining returns
“Every Western mining host I know has had their phones ringing off the hook,” says Castle Island Ventures founding partner Nic Carter. “Chinese miners or miners that were domiciled in China are looking to Central Asia, Eastern Europe, the U.S. and Northern Europe.”
Bitcoin’s borderless nature means it can be mined from virtually anywhere in the world. Post China’s mining exodus, mining has become more decentralised, echoing the vision of its creator(s), Satoshi Nakamoto. According to the Cambridge Bitcoin Electricity Consumption index, Bitcoin mining is now shared more evenly across the globe, with one dark area standing out: the USA.
The United States’ average monthly hashrate is 35.4% of global output, with mining hubs scattered across its most favourable regions, like Texas, New York and Georgia.
But how did the US manage to be so prepared? Before Bitcoin miners started flocking to the States, companies preemptively decided they’d move there should there be adequate infrastructure. And sure enough, there was and their bets paid off.
“The large, publicly traded miners were able to raise capital to go make big purchases,” says Mike Colyer, CEO of digital currency company Foundry. “A majority of the new equipment manufactured from May 2020 through December 2020 was shipped to the U.S. and Canada.”
The Covid-19 pandemic also had an influence, as some economies were cryogenically frozen while others were completely destroyed. Yet, one was booming: US crypto mining.
“All the money printing during the pandemic meant that more capital needed to be deployed,” says bitcoin mining engineer Brandon Arvanaghi.
“People were looking for places to park their cash. The appetite for large-scale investments had never been bigger. A lot of that likely found its way into Bitcoin mining operations in places outside of China.”
What makes fertile grounds for Bitcoin mining?
While traditional miners look for minerals and resources to dig up from the earth, crypto miners are in search of a different kind of environment. Instead, they drove toward regions that have positive crypto regulations, cheap energy that’s preferably in excess, and sustainability. But according to Darin Feinstein, founder of blockchain companies Blockcap and Core Scientific, that’s only one step in the recipe.
“If you’re looking to relocate hundreds of millions of dollars of miners out of China, you want to make sure you have geographic, political, and jurisdictional stability. You also want to make sure there are private property right protections for the assets that you are relocating.”
This is what makes countries like the United States such a popular choice: Texas boasts cheap, renewable energy and has a friendly regulatory environment; New York, while slightly more expensive, has a surplus of empty factories and a cold climate ideal for mining; and Kentucky has laws granting tax exemptions for mining operations.
There are also hubs outside of North America — perhaps most famously, El Salvador. What previously sounded like a plot for a Bond film is actually a reality, with the Central American country tapping into volcanic energy in thick jungle to power its crypto mining efforts. Following the Chinese ban, Kazakhstan also found itself highlighted on the crypto mining map, and is currently the second-largest hashrate contributor, thanks to its relaxed building regulations and cheap energy. Iceland is also a leading nation, with a surplus of hydroelectric and geothermal power which mint completely green Bitcoin. Johannesburg also makes the list as a wildcard entry: despite its shaky powergrid, an annual average of 3182 hours of sunshine a year has made it a great destination for solar-powered BTC mining.
The future of Bitcoin mining
As machines evolve, we could potentially see Bitcoin mining become more accessible and energy-efficient. Creations like Intel’s energy-efficient ASIC (application specific integrated circuit) will help further reduce power consumption and are currently being scooped up by Bitcoin proponents like Block executive, Jack Dorsey. The founder and former CEO of Twitter is building an open Bitcoin mining system that will allow mining to become easily available, reliable, performant, and relatively power efficient compared to its high hashrate. The culmination of this would make mining more decentralised and strengthen network resilience.