Bitcoin Mining – Made in China

[Pmalek]

NOTE: I posted a similar thread a few days ago in Development & Technical Discussion that got moved to the mining section. After that, the thread was thrashed by the admin of the mining board. I would like to keep this one here if that is all right, so @mods please don't move it to the mining board.

We know that 4 out of the 5 biggest mining pools are located in China, and they control 60-65% of the world’s hashrate. My focus will not be on the pools because hashrate can be easily directed to other non-Chinese pools if needed. What could be worrying is the centralisation in the production of mining equipment and mining farms located inside China’s borders.

Why is China leading the mining race?

The biggest reason is cheap electricity. Hydroelectric power, wind farms, and energy produced from burning coal. The electricity produced by these facilities is more than the supply demands. A lot of it would have been wasted if the produced energy wasn’t directed towards mining bitcoin.

According to GlobalPetrolPrices.com, the price of electricity in June 2020 in kWh for households amounts to $0.085 in China. In the US, the same amount of electricity costs $0.149. Electricity is the most expensive in Germany, where 1 kWh costs $0.385.



If we switch to electricity prices for businesses, we see a very different picture. The cost in China is $0.104/kWh and it the US it’s $0.111/kWh. The difference isn’t that big. Surprisingly, Aruba and Bahamas are at the bottom of this list with $0.274 and $0.305 per kWh.



Low Prices = Centralisation of Mining Power?

Chinese mining firms once dominated the market by over 70%, but that rate is slowly but steadily dropping to 65% and 60%. The problem could be that still too much of the hashrate is centralised in a region under a regime that could attempt to control, oppose, or destroy it. China doesn’t keep it a secret that they want to create their own national digital currency. From the regime's point of view, the big focus on bitcoin could affect their own digital asset they are planning to release sooner or later.

They don’t have to ban bitcoin mining, but they could hit miners where it hurts the most: The source and access to power. Increase electricity costs, make it less profitable, and have them abandon ship and take their equipment elsewhere.   

The Northern American continent is now taking a decent chunk in this industry with new centres opening in the USA and Canada.

The US helps in decentralising bitcoin mining

Suppose we are to trust the stats provided by GlobalPetrolPrices.com from above. In that case, the USA's institutional price for electricity is not much more expensive than in China.   

In October 2020, the US crypto mining company Marathon announced that it partnered with a local power provider to supply them with electricity for their mining operations. The location for this new facility is in Hardin, Montana.

According to media reports, the price of this electricity is $0.028 per kWh. This is well below the figures that GlobalPetrolPrices.com reported. The initial report claimed that the company plans to install 11.500 Antminer S19 Pro with some already in operation.

In December 2020, a new announcement was made. It was mentioned that Marathon had purchased an additional number of 10.000 Antminer S-19 Pro miners. These will be delivered throughout 2021, and once all are installed, Marathon will have over 33.500 miners (not sure where the others came from). These numbers were later boosted with another purchase of 70.000 Antminer S-19 miners taking the overall count to well over 100.000 ASIC miners once all are deployed.

There seems to be ever-growing interest by some Chinese miners to relocate their operations to the States. The US offers greater political stability and freedom, not just competitive prices. This is good for the entire industry and helps in decentralising bitcoin mining. Marathon is not the only facility, and currently, there are around 15 mining companies in USA and Canada.

Another report discusses how the Chinese government has started suspending bank accounts of Chinese miners who have been found exchanging bitcoin for yuan over OTC platforms. Unable to convert their coins into fiat and pay for electricity and other expenses, some firms have shut down, while others have fled to Russia or Kazakhstan. 

What is your take on all of this? Do you believe that countries like USA, Canada, Russia, etc. will become the powerhouses of mining operations in the future?
Do you see China as a treat to decentralization?


Sources of information and further reading material:

1.   https://www.buybitcoinworldwide.com/mining/china/
2.   https://www.coindesk.com/bitcoin-miner-marathon-profitability-joint-venture-us-power-provider
3.   https://www.coindesk.com/chinese-miners-struggle-to-pay-for-electricity

[GreatArkansas]

What is your take on all of this? Do you believe that countries like USA, Canada, Russia, etc. will become the powerhouses of mining operations in the future?

It will always possible. As Bitcoin continues to grow, a lot of entity starting bitcoin mining businesses and yes, these countries can join the club with China. It will help the hash rate to become allocated in separate countries/entities. And the threat of China to decentralization can be solve.

Do you see China as a treat to decentralization?

This is also what I am worried about. This question becomes somehow trending on Twitter few months ago I think, I read some articles that talk about this that China got some biggest mining pools around the world.
Speaking of decentralization, there will be a solution for it. People will not allow China to control the Bitcoin network, as Bitcoin is created for being decentralized, and I believe China will not even attempt it.

[Bitcoinpro]

Their stealing govt infrastructure and energy generation

For a private investment. They will need to upgrade or build

A new dam soon

[dansus021]

In this morning i just watch interesting video on youtube that talk bitcoin mining USA VS China mining supremacy https://www.wsj.com/video/us-vs-china-the-battle-for-bitcoin-mining-supremacy/78975620-B4A1-49B1-A83D-FE8195D8C635.html and mostly talk about government

[Wind_FURY]

Another report discusses how the Chinese government has started suspending bank accounts of Chinese miners who have been found exchanging bitcoin for yuan over OTC platforms. Unable to convert their coins into fiat and pay for electricity and other expenses, some firms have shut down, while others have fled to Russia or Kazakhstan. 

I can’t comment on the post about the centralization of mining, I’ll wait for the forum’s resident miner, Phillip Ma, for that.

BUT, I believe the suspended bank accounts “because the Chinese government was after the miners” is wrong. I heard that many non-miner bank accounts that used those OTC platforms were suspended too, because the OTC platforms were laundering money.

[masterzino]

I think it's normal for most giant mining farms to be in countries like China and Russia for a couple of reasons:

- China is the biggest chipmaker

&

- Cheap electricity
- No questions asked if you are with the right people, which leads to the next one
- Less regulations and explanations

Math (expenses) + convenience = China and Russia winners.

[slaman29]

Why are we considering just base prices though? I don't know much because I'm not an expert, but China as far as I know doesn't really use that, they use hydropower on different contract terms, which literally can mean free electricity to some direct businesses who link with government, and they even sell it for cheaper rates to non-govt linked businesses in some of the regions.

In most countries also it is different prices for residential and business. We should get not a base price but what actually is paid.

[Pmalek]

- China is the biggest chipmaker

That's a good point when we consider that companies like Bitmain can't produce enough ASIC miners to suit the demand. Mining firms are making agreements to have their equipment shipped to their destinations throughout 2021. Preorders + premiums... The trade war between China and the USA doesn't help either. Someone from the US might know more about how expensive customs for Chinese products (like ASIC miners) are at the moment. 

[pixie85]

Chinese mining firms once dominated the market by over 70%, but that rate is slowly but steadily dropping to 65% and 60%. The problem could be that still too much of the hashrate is centralised in a region under a regime that could attempt to control, oppose, or destroy it.

How do you destroy or control mining?

If they tell miners to stop mining they will move somewhere else. There's plenty of countries with lower electricity rates and if you have 100 million dollar operation it's easy to choose because most countries will welcome you with open arms.

If the government starts mining itself it's all the same for Bitcoin.

[Pmalek]

How do you destroy or control mining?

If they tell miners to stop mining they will move somewhere else.

You don't destroy it per se, but the mining companies can be shut down, the miners can get confiscated, etc. Even if the Chinese government would just ban mining firms on its territory, taking all the mining hardware and reallocating it to another country takes time. It's not as easy as getting in your car and driving to the US or Russia. The location has to be found, the company has to be registered, electricity companies need to be contacted and deals made, the mining equipment has to be set up. These things don't happen overnight.   

[NeuroticFish]

In my country there were many years and many cases "businessmen" who knew "the right people" and got so good electricity prices (for super high volumes) that at the end the producing companies were selling at a loss.
I expect similar situations happen easily in China too, hence comparing electricity prices is actually meaningless.
If you also take into the account the cheaper hardware (no shipping nor border taxes), not mentioning that probably the mining "plant" owners may know IRL the hardware and/or electricity producers, you have the winning combination.

Obviously, if you think in "official prices" for everything, you cannot get this kind of results.

[ranochigo]

Miners will always flock to places with lower operation cost to maximize their profit margin. There is really no telling as to which country will dominate Bitcoin mining in the future. If certain countries subsidize it for some reason, then people would just flock there.

Honestly, China probably wouldn't bother about Bitcoin mining. Bitcoin is already restrictive enough in the country. Trying to drive out the miners would result them losing potential revenue in multiple levels, from the profits to the capital gains and to the ASIC producers. The benefit of the operations outweigh the cons by far. If China wants to launch their own coin, they wouldn't have any problems with adoption within the country and the western countries wouldn't even think about using it. Trying to drive out the miners to weaken Bitcoin doesn't do anything beneficial for them.

Anyhow, centralization is probably a problem but not anywhere near the more pressing ones that we currently have.

[tranthidung]

The biggest reason is cheap electricity. Hydroelectric power, wind farms, and energy produced from burning coal. The electricity produced by these facilities is more than the supply demands. A lot of it would have been wasted if the produced energy wasn’t directed towards mining bitcoin.

Wind or fossing fuels are not sort of power to use for bitcoin mining farms in my opinion. The hydro power is used for farms and it is affected by seasons. There is a theory that mining farms are mostly built in areas with available hydro power facilities and can provide cheap electricity costs.

As seasonal effects, hydro power facilities can be shutdown or minimize activities in serious winter seasons. The difficulty adjustments on bitcoin network often are corrected most seriously in December or January of each year.

Notes:

• The chart is taken from The history of Bitcoin difficulty adjustment (in percent)
• The spike with value at 300% is replaced to 16.42% (by my mistake as it should be replace to ~ 93%) to make the chart more readable for eyes. To get the original chart, please take it at OP of that thread.

[stompix]

Honestly, China probably wouldn't bother about Bitcoin mining. Bitcoin is already restrictive enough in the country. Trying to drive out the miners would result them losing potential revenue in multiple levels, from the profits to the capital gains and to the ASIC producers.

Never underestimate them:
China's Inner Mongolia to end cryptocurrency mining, ban new steel, coke projects

Grabbing popcorn as this is going to be interesting, there is already no gear on the market so those miners (who make insane profits right now)  will try to relocate as fast as they can. Interesting, since the hashrate is almost flat and they are forced to move out of in less than one month we will finally get some clues on exactly how much gear was in that region, especially since one of Bitmain's farms was there near Ordos.

Wind or fossing fuels are not sort of power to use for bitcoin mining farms in my opinion.

Coal energy is the cheapest energy you can get constantly (not alternating seasons) in China, that's why they have built those farms there is a region full of coal and coal powerplants, you can see that every drop is immediately followed by a spike as the equipment is relocated, without coal there would be no blue lines for the whole year.

[TribalBob]

Do you see China as a treat to decentralization?

I guess I haven't seen that yet,

I conclude that electricity costs are not yet a major factor in bitcoin mining, but you don't see / and calculate the hardware and maintenance costs
not if you want to get a profit from all gross expenses calculated and deducted by the income obtained, then we will only see the net interest from what we earn

So in my opinion, you only count electricity, it can't be said that China is mining cheaply

[tranthidung]

Grabbing popcorn as this is going to be interesting, there is already no gear on the market so those miners (who make insane profits right now)  will try to relocate as fast as they can. Interesting, since the hashrate is almost flat and they are forced to move out of in less than one month we will finally get some clues on exactly how much gear was in that region, especially since one of Bitmain's farms was there near Ordos.

Wind or fossing fuels are not sort of power to use for bitcoin mining farms in my opinion.

Coal energy is the cheapest energy you can get constantly (not alternating seasons) in China, that's why they have built those farms there is a region full of coal and coal powerplants, you can see that every drop is immediately followed by a spike as the equipment is relocated, without coal there would be no blue lines for the whole year.

I don't dig for details on the locations of big mining farms and their power resources (coal, fossil fuels, hydro, etc.) but your theory can be right as the chart shows difficulty adjustment probably has a seasonal pattern (probably by floods, winter, etc.) like a sinusoidal pattern with ups and peaks in middle of years whilst bottoms at the end and begin of years.

Hydro power is the second biggest energy sources in China. ^[2] but in ^[3], it is the third biggest source, after coal and natural gas. I guess in the ^[2], both coal and natural gas are considered as Thermal category.

Sources:

• Explore energy data by category, indicator, country or region
• Monthly Statistics of China Power Industry (Jan-Nov, 2020)
• Total energy supply (TES) by source, People's Republic of China 1990-2018
• EIA.gov's resource for China's Energy generation by sources
• CoinShares research: The Bitcoin mining network - Trends, Average creation costs, electricity consumptions and sources

[Lorence.xD]

To answer the question about China being a leader in the mining race is because the government itself sponsors the mining AFAIK that is the reason that they banned the use of bitcoin and other cryptocurrency in their country so that they can monopolize owning bitcoin. Other countries can take over the race if they wanted too but I don't think that they will be doing that because they don't find a long term viability in building bitcoin mines to get ahead of the game, the taxes will have to go somewhere the people can benefit from in a long term scenario.

[rodskee]

How i wish that our country has this cheaper electricity so we can at least mine ourselves with profit not like now that Mining will only kills you having here.

but the problem i guess arise in chinese territory because of their cheap electricity because Mongolia seems to be banning crypto in their region

An interesting one .


China’s Inner Mongolia has banned cryptocurrency mining and declared it will shut all such projects by April, spurring fears that the country will take more steps to eradicate the power-hungry practice. It also banned new digital coin projects. The region — which
http://lifestyle24.site/chinas-inner-mongolia-has-banned-cryptocurrency/

so all in all? it is not that really advantageous having this .

[Pmalek]

but you don't see / and calculate the hardware and maintenance costs

Even if you look at it that way, China would be ahead compared to countries in the West. Bitmain is located in Beijing (parts of its operations have been reallocated to Singapore) and is the biggest producer of ASIC miners. It's cheaper for China-based mining firms to purchase these compared to operations located in North America, for example. No import taxes or expensive shipping fees to cut into the profit.   

[Pmalek]

Bump