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By September 2021, China accounted up just over 22 percent of the entire bitcoin mining industry, according to Cambridge University data.
Paul Ratje | The Washington Post | Getty Images
Bitcoin miners aren’t giving up in China despite Beijing’s prohibition on the activity.
China was previously the world’s greatest crypto mining hotspot, accounting for between 65 percent to 75 percent of the overall “hash rate” — or processing power — of the bitcoin network.
But the country’s proportion of worldwide bitcoin mining capacity plunged to zero in July and August 2021, according to Cambridge University statistics, as officials started a new crackdown on cryptocurrency.
Among the moves China took was to eliminate crypto mining, the power-intensive process that leads to the production of new digital money. That led in numerous miners leaving to neighboring nations, notably the U.S. and Kazakhstan, which borders China.
But, as CNBC has previously documented, some underground mining operations have subsequently sprouted in China, with miners taking care to operate under Beijing’s restrictions.
Now, new analysis from the Cambridge Centre for Alternative Finance demonstrates that Chinese bitcoin mining activity has swiftly returned. By September 2021, China accounted up slightly over 22 percent of the entire bitcoin mining industry, statistics from Cambridge researchers reveal.
It means China is once again a prominent worldwide player in bitcoin mining – second only to the U.S., which overtook China as the leading destination for the industry last year.
There is one caveat: The study approach relies on aggregate geolocation from massive bitcoin mining “pools” — which combine computer resources to more efficiently mine new coins — to establish where activity is concentrated in various nations.
This strategy may be subject to “deliberate obfuscation” by certain bitcoin miners utilizing a virtual private network (VPN) to mask their location, experts added. VPNs make it possible for users to route their traffic via a server in another country, making them ideal tools for those in countries like China, where internet access is strictly limited.
Nevertheless, they acknowledged this constraint would “only marginally impair” the accuracy of the study.
What is bitcoin mining?
Unlike conventional currencies, cryptocurrencies are decentralized. That implies the task of processing transactions and minting new units of money is done by a distributed network of computers instead of banks and other middlemen.
To enable a bitcoin payment, so-called miners need to agree that the transaction is genuine. That procedure requires doing sophisticated calculations to figure out a riddle that rises in complexity as more and more miners join the network, known as the blockchain.
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Whoever is first to solve the riddle gets to upload a fresh batch of transactions to the blockchain and is awarded with some bitcoin for their work.
Why is Beijing worried?
This process of obtaining agreement, known as “proof of work” requires a lot of energy – nearly as much as whole nations, such as Sweden and Norway.
China has regularly issued warnings regarding crypto. But its most recent crackdown was undoubtedly the most harsh.
The world’s second-largest economy was battling with a multi-month energy shortfall last year, which led to repeated power interruptions.
China is still largely dependent on coal, and is expanding investment in renewable energy in a drive to become carbon neutral by 2060. Authorities regard crypto mining as a possible barrier to that goal.
Now, a revival of bitcoin production in China has pushed the country to the second-largest destination for anyone seeking to unearth fresh digital money – there’s still 2 million bitcoins still to be mined. It could be a less rewarding enterprise today, however, with the bitcoin price down more than 50 percent from its November high.
China’s National Development and Reform Commission and the People’s Bank of China — who have both issued strong cautions against crypto mining and trading — were not immediately available for comment when reached by CNBC.
