China bans, USA strengthens, how is the crypto mining landscape going?

A few months ago, Chinese regulators urged the public to refrain from transacting cryptocurrencies because they viewed them as dangerous to the neophyte public in transactions with digital currencies. Then, they went further by restricting the possibility of carrying out certain transactions in the banks of that country. But for a couple of weeks, the ban has been extended to all cryptocurrency transactions. And this does not come exclusively from the People's Bank of China, but has the signature of the internet regulator, and eight other government institutions.

The truth is that it is not a concern for the financial well-being of its citizens, but a measure to protect its own digital currency: the digital yuan.

According to france.24, has gone so far as to affirm: “all cryptocurrencies will be illegal in China", And in the same way, they indicated:"drastic measures will be taken against speculation with virtual currency to safeguard people's properties and maintain economic, financial and social order".

Crypto mining in China

How does this statement fit in with the country's impressive crypto mining industry? In the middle of last year, according to the University of Cambridge, China (especially the provinces of Sichuan and Xinjiang) accounted for 65% of the global hash power. (Hash rate? It refers to the ability to mine and process crypto transactions). In fact, precisely because of this level of crypto mining, the environmental effect of the terrible expenditure of energy from carbon sources was criticized, but apparently this has given a 180 degree change.

Now the map looks very different:

Those sections with intense red coloration represent a high level of crypto mining, in it we find the United States with 35,40% hashrate worldwide, Kazakhstan with 18%, Russia with 11.23% and China with an incredible 0% hashrate and ¿ What did it look like before the crypto mining ban announcement in May?

It had 34.25% global hashrate. This is a high figure compared to other mining locations, but quite low compared to the 65% it had in May 2020. That is, the continuous announcements of the Chinese government against cryptocurrencies in general had already caused the exodus of the industry .

The mining exodus

What was the place of refuge? According to CNBC, one of the privileged places of arrival has been Texas. Why? (i) favorable environmental conditions (abundance of solar and wind energy), (ii) low energy rates, (iii) deregulated market, and (iv) crypto-friendly political scenario. In other words, “the paradise of crypto mining companies”. However, it is not certain that the state can meet the energy needs of the industry.

Other destinations? Kazakhstan, due to its low energy costs (based on coal), its proximity and its low level of regulation. Similarly, Russia seems to be another of the favorite destinations.

The algorithm setting

When the largest of the competitors leaves a market, the price of the product or service rises irretrievably, simple laws of supply and demand. This is what has happened in the crypto mining industry, in the absence (momentary is expected) of Chinese miners, now, the bitcoin code has been recalibrated to make mining 28% easier, and at the same time more lucrative, he said. CNBC. Why does it have to be easier? Because in the absence of miners to solve the mathematical operations to validate bitcoin transactions, these would become increasingly slow, if this is not to happen, the operations have to be less difficult so that the validation ratio does not fall . This is an adjustment that the bitcoin algorithm makes automatically based on the mining machines it detects. In a few months, as the industry recovers, and there are more competitors, the difficulty will increase and the pay, in response, will be lower.

USA takes hold

As a result of the mining ban in China, the US hashrate increased to 35.4% globally. In other words, more than a third of mining worldwide is carried out in this country. Without a doubt, having these figures, and being on the way to increasing them, implies many adjustments, one of them at the logistical level. In that sense, Cointelegraph informs: "American miners like Argo Blockchain, Riot Blockchain, Marathon and others have bought large orders for mining rigs from major manufacturers like Bitmain and MicroBT”. This, in turn, generates an increase in the manufacture of this type of equipment.

Finally, it seems that Ohio is another of the states that is thinking of hosting this industry, as it will be the place where an 85 megawatt mining facility will be built, as a result of the joint venture agreement between BIT Mining and Viking Data Centers.

How are operations in Texas? According to Lee Bratcher, chairman of the blockchain council of Texas: “there are five or six large-scale mining operations and more than twenty small-scale mines throughout Texas. Mines have been established in sparsely populated communities like Big Spring, (…) Dickens County (…) and Rockdale ”. The Big Spring crypto mining operation is operated by Compute North, it has access to the city's power plant, and consumes around 3 megawatts, however, in view of its imminent growth, Mark Willis, executive director of the Big Spring Economic Development Corporation noted: “Ultimately, Big Spring officials say they can provide 25 megawatts of power here. This would be enough energy to keep the lights on somewhere between 4500 and 10,000 Texas homes year-round."

This is a small example of the conversations that many crypto mining operators should be having, with energy supply companies and with government agencies in these states. Could an energy imbalance be generated? Will they be able to satisfy the energy needs of this industry? Can it be guaranteed that the energy resource does not have negative effects on the environment? All of these are considerations that are directly related to the crypto mining industry that must be addressed by any host in this industry.

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Marilú Lazo
Lawyer from the Pontifical Catholic University of Peru (PUCP). Writer at The Crypto Legal Blog, she has experience in corporate advice, consumer protection, as well as in matters of personal data protection and new technologies.

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