The harsh regulations imposed by the Chinese government this year have caused a major migration of hashrate from the country. With the Chinese Communist Party looking upon the activity unfavorably, outright bans followed in many major regions and the majority hashrate flowed out. The outflow was evident from a record drop in difficulty following the bans on July 3rd, with difficulty dropping by roughly 28%.
Difficulty has since partially recovered from the drop as various regions find a home for the migrating hashrate. Some of the hardware may be never turned on again as Chinese miners struggle to relocate. However, Chinese miners that have migrated their hardware have various options with North America, Central Asia, and Latin America all offering various tradeoffs in terms of mining favorability.
At Wattum, we keep our finger on the pulse of hardware movements, helping large-scale miners secure their hardware effectively and efficiently from both the primary and secondary markets. In this article, we consider the aftermath of the great Chinese hashrate migration, reviewing where hashrate has moved and the various tradeoffs of different regions.
North America and Central Asia Compete for Largest Hashrate Share
Nick Hansen, CEO of crypto mining firm Luxor, estimates that about 25% of the mining hash power displaced from China will eventually end up in North America. Hansen anticipates that another 25% will go to Central Asian countries including Kazakhstan, Mongolia, and parts of Russia.
Based on analyses of infrastructure availability and first-hand conversations, Hansen anticipates that the remainder will be split between Latin America and the European Union, with a significant portion not turning back on. He further estimates that 15% will migrate to Latin America, 10% to the European Union, and that the remaining 25% will likely never return online due to a variety of factors.
As it stands, Bitcoin difficulty has recovered from its local low of 13.67 trillion to 19.89 trillion, at the time of writing. Before the China crackdown, difficulty reached record highs of 25.05 trillion, representing an all-time high in Bitcoin network hashrate deployed. The subsequent drop and recovery suggest that roughly 41% of the hashrate that turned off after the China crackdown has turned on once again. However, some of this hashrate will represent new equipment. This suggests that either more hashrate will come online in the coming months, or there remain significant amounts sitting idle in China. As a direct result of the mining crackdown in China, a dispersion of the overall share of hashpower has been seen amongst the top 4 shareholders, as demonstrated in the charts below. In the span of 1 year, from April 2020 to April 2021, the hashrate that migrated from China can be seen to have trickled down amongst the U.S., Kazakhstan, and Russia. North America, as further demonstrated by Canada’s increased share, continues to make headway as an increasingly desirable Bitcoin mining hub.
For the remainder of this article, we will analyze the favorability of the major regions that have attracted the hashrate that did migrate from China, and turned back online.
North America: The Future of Bitcoin Mining?
Texas has been gaining attention as a new Bitcoin mining hub in the U.S. due to its relatively lax energy regulations and bountiful power sources. Kevin Zhang, Vice President of mining firm Foundry, shared: “The most desirable places that many of these Chinese miners are moving to are in North America. A lot of miners have been looking at Texas and other parts of the U.S., where it is very friendly towards crypto and bitcoin mining.”
North America has many key benefits, including legal accountability for business stakeholders, crypto-friendly regulations, and high-quality facilities. Most importantly, states with energy marketplaces like Texas offer miners the ability to secure extremely attractive energy prices, in some cases within the range of $0.03 per kwh. Moreover, Texas also allows miners to participate in demand-response programs which allow them to further reduce their effective power price.
However, other prices in the U.S. may be significantly higher. This includes infrastructure building costs, labour and repairs, and a whopping 25% in Chinese import tariffs introduced by the Trump administration. Beyond this, income earned from mining is taxed from 10% to 37%, depending on the home state’s regulations.
Legal frameworks are being developed in multiple states to support the domestic mining industry. Texas Governor Greg Abbott signed the Texas Virtual Currency Bill into law in June. In Miami, Mayor Francis Suarez has suggested that the city become a Bitcoin mining hub due to its rich nuclear power. In Kentucky, a Bitcoin incentive bill was signed by Governor Andy Beshear to give tax breaks for miners. A prospective future mayor for New York City, Eric Adams, has also pledged during a campaign speech that he will turn the Big Apple into a Bitcoin hub. As more data is released to showcase exactly where the missing hashpower has moved to, the U.S. emerges as a clear frontrunner.
Head of research at Blockchain.com, Garrick Hileman, notes that “Miners are famously secretive,” making it difficult to tell exactly what’s going on. He stated that the stable regulatory environment of North America has made it extremely attractive to displaced Chinese miners, and noted Texas and Quebec for their extremely cheap wind farms and hydropower, respectively.
The Mining company Bit Digital is still working to move almost 10,000 mining rigs out of China, and into new mining locations in Nebraska, Georgia, Texas, and Alberta, Canada. They’ve been working with mining infrastructure companies like Compute North, which is in the process of developing five new locations to accommodate miners in Texas, North Carolina, and Nebraska. Further, Georgia is expected to be receiving 56,000 Bitmain Antminers which are anticipated to consume up to 200 MW of power when they are fully operational in October 2022. South Carolina is another potential mining hub with Greenidge Generation Holdings planning to buy 10,000 Bitcoin Miners for its new facility in Spartanburg, S.C. With so many companies creating new mining infrastructure in North America, we’ll likely see the continent continue to grow as the top mining destination in the world.
Central Asia and Attractive Mining Power Costs
Central Asia emerged as another frontrunner, with several hosting sites in Kazakhstan reporting spikes in inbound demand. Along with its geographic proximity to China, affordability is a major factor in the growth of Central Asia as a destination for Bitcoin mining. Low cost of energy is one of the largest determinants of profit margins when mining cryptocurrency, and Central Asian countries can offer $0.05/kWh and below.
Low labour costs in Central Asia are another attractive feature, resulting in cheap maintenance and repairs of machines. In the U.S., the cost of repairs can sometimes surpass the value of the machine. Transportation costs, tariffs, and taxation also tend to be substantially lower within this region.
Kazakhstan, a huge mining hub with a pro-mining government, leads the world as one of the top hosting regions. This is in part due to cheap energy, low import taxes, and an ideal climate. However, due to its popularity, spaces are scarce. Wattum offers competitively priced hosting in our data center in Kazakhstan. The facility offers 24/7 customer support, on-site technicians, and routine diagnostic testing, all secured by video surveillance and armed security.
Latin America as an Up-and-Coming Mining Hub
Venezuela and Paraguay were both noted as major recipients of the estimated 15% of hashrate that is moving from China to Latin America. Mining can be extremely profitable in these regions, with energy prices often as low as $0.04/kWh. Theodoro Araujo, who leads crypto-mining firm DoctorMiner, commented on his company’s home country: “Venezuela is like a paradise for mining,” citing its abundant hydropower and low energy costs.
Given the unstable economic climate in this region, many factories and warehouses near energy sources provide infrastructure at a low cost. This readily available infrastructure reduces the lead time to 1.5 months for a 2 MW facility, significantly shorter than other regions.
In Paraguay, a bill has been introduced that would allow crypto companies and miners to finance operations with cryptocurrency, and is expected to increase the local hashrate. El Salvador has been receiving heavy media coverage due to the announced introduction of Bitcoin as legal tender, the mining of which will be powered naturally by volcanic resources. Salvadoran president, Nayib Bukele, has been very vocal about his support for cryptocurrency for the country. As the Latin American mining landscape continues to see expansion, Wattum maintains a sales office in Argentina as part of a recent breakthrough into the region, seeking to potentially grow these operations further and provide clients with ongoing opportunities.
Further Decentralization on the Horizon
Regardless of where machines go, this regional diversification will further decentralize Bitcoin, making it even more attractive in the near future. Miners around the world are scrambling to find and build reliable hosting infrastructure. The Wattum Buildout Division comprises more than 30 years of experience in building mining facilities within North America. If you are also looking for equipment or hosting availability, Wattum has you covered from North America all the way to Russia and Kazakhstan. As a comprehensive provider for all mining needs, contact Wattum today to learn more about how we can help you get into the Bitcoin mining game and increase your mining efficiency.