Mining bitcoin may become easier after China’s crypto crackdown

With China’s crackdown on cryptocurrencies, it may soon become much easier – and more profitable – to mine bitcoin.

Beijing last month called for measures to end bitcoin mining amid concerns over its environmental impact. This has already led crypto miners to flee China for other regions, such as North America.

The crackdown in China escalated over the weekend, with authorities in China’s hydropower-rich Sichuan province ordering crypto miners to cease operations.

More than 90% of China’s bitcoin mining capacity is reportedly shut down. Between 65% and 75% of global bitcoin mining is believed to take place in China.

While this might not be good news for bitcoin miners in China, others could benefit.

When you think of mining, the image of a gold mine with pickaxes and shovels is probably the first thing that comes to mind. But bitcoin mining has nothing to do with hunting for gold or other precious metals.

Digital currencies are based on a vast network of computers around the world. In the case of bitcoin, these computers rush to solve complex mathematical puzzles in order to pass transactions. This process also generates new bitcoins, rewarding cryptocurrency miners if they are successful.

Currently, rewards for minors are capped at 6.25 BTC. Previously it was 12.5 BTC, but because the total bitcoin supply is capped at 21 million, the amount of bitcoin rewarded to miners is cut in half about every four years.

Being the first miner to mine a new block – essentially a list of bitcoin transactions – is “a game of random chance,” says Alyse Killeen, founder and managing partner of bitcoin-focused venture capital firm Stillmark.

The bitcoin network‘s total hashrate, or processing power, appears to have fallen sharply in the wake of Beijing’s crackdown.

In the past month or so, bitcoin’s hashrate has gone from a record 180.7 million terahashes per second – a measure of the speed of crypto-mining hardware – in mid-May to around 116.2 million. Wednesday, according to data from Blockchain.com.

Crypto experts say that with more bitcoin miners taken offline due to China’s restrictions, the share of other miners in the network will increase, potentially making mining much more lucrative.

“As the hashrate decreases from the network, the difficulty will adjust downward, and the hashrate that remains active on the network will receive more for its proportional share of the mining rewards,” Kevin Zhang, vice-president, told CNBC -President of cryptocurrency mining company Foundry.

Meanwhile, bitcoin’s network difficulty – a measure of how difficult it is to mine bitcoin – has gone from a record over $ 25 trillion in May to $ 19.9 trillion last week. The mining difficulty is adjusted approximately every two weeks, so there is a lag in the data.

“The difficulty of the network decreases the more mining equipment is online,” Killeen said. This effectively leads to less competition for other bitcoin miners.

However, another important factor that determines the profits of bitcoin miners is the price of bitcoin, which has fallen from record highs in recent months following negative comments from Tesla CEO Elon Musk and the crackdown. Chinese against industry.

Bitcoin’s value has almost halved since it hit a record high of nearly $ 65,000 in April. The cryptocurrency fell below $ 30,000 on Tuesday, briefly wiping out its 2021 gains, but has since recovered to trade above $ 34,000.