With Bitcoin mining in China going dark, it has become considerably easier and profitable to mine Bitcoin.
It has come as no surprise that half the world’s Bitcoin miners would be closed out as China pulled the plug on Bitcoin mining operations in the country. What the industry has known for months has now come true. The algorithm has been adjusted accordingly, ensuring that mining productivity does not collapse.
The adjustment happened last Saturday (July 3). It not only takes China out of the loop, but it also puts more cash in the hands of those miners who remain online. Brandon Arvanaghi, a Bitcoin mining engineer, was quoted as saying, “This happening is additional revenue for Bitcoin miners. Those that continue mining now have a bigger “slice of the pie” which, in turn, leads to increased earnings.”
Mining Has Become Easier
Bitcoin mining is akin to winning a race, a race towards solving a problem before others do. When solved, the block creates new Bitcoin as well as updating the digital ledger that maintains all transactions.
For years, China was the epicenter of Bitcoin mining. Estimates vary, but it is generally agreed that between 65 and 75 percent of the world’s total Bitcoin mining to place in the PRC. A recent crackdown by the central government has effectively put an end to this, and banished the country’s crypto-miners.
Darien Feinstein, founder of Blackcap and Core Scientific notes that the first time, there is a complete shutdown of Bitcoin mining in a specific region, a shutdown that has impacted more than half the network. Since hitting its market peak in May, more than half the hashrate has disappeared.
With fewer miners, fewer blocks are solved every day. On average, it takes some 10 minutes to complete a block, however, the Bitcoin network has slowed to as long as a 19-minute block time.
Bitcoin recalibrates every 2016 blocks, which on average takes about two weeks. The recalibration resets the level of difficulty for miners. The ban in China has resulted in a significant drop in difficulty, approximately 28 percent less difficult.
The algorithm can handle an increase or decrease in the number of mining machines. The system is self-regulating; it does not require any outside influence to determine what to do. Mike Colyer, CEO of Foundry, a digital currency company, suggests this to be a very powerful concept. With fewer miners and less difficulty in mining, the result will be an increase in miner’s profitability along with more predictable income.
How Long Will the Surge Last?
It is very difficult to predict the length of the hashrate deficit. Some are predicting that Beijing may reverse its policy, making the current interruption a short-term event.
If not, the majority of crypto mining experts see anywhere from six months to over a year for the idle mining hardware to migrate. Regardless of the timing, it is agreed that it will take a long time for the large surplus of mining machines to find a new home. It is anticipated that miners will see an increase in revenue through the end of this year.
According to Colyer, there is limited space available at the moment for the displaced Chinese miners to restart their mining machines. Feinstein suggests that part of the problem is a lack of infrastructure needed to house the over-supply of mining rigs, many of which are new generation machines built by China-based Bitmain.
At the moment, it is difficult to say how quickly countries will absorb the influx of equipment. Some companies were ready for the shift, others are finding themselves faced with building new facilities and ramping up their power capacity. It is not expected that the hashrate will return to what it was quickly, although it is expected to go back up over the next few months.
The United States seems well-positioned to absorb the hashrate. Major Bitcoin mining operations in the U.S. are already cementing deals to absorb some of these homeless miners.
Bitcoin mining in the U.S. is booming. With venture capital flowing into the industry, miners are poised to take full advantage of the migration.
Many Bitcoin miners in the U.S. were funded when the price of Bitcoin began going up in late 2020. They had the means then to build their power demands, and were ready when the ban on mining in China was announced. The timing, according to miners, is great.
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