Knowingly or not, the United States, is annually injecting billions of USD into the Chinese economy. Bitcoin (BTC) needs to be mined, which is upon exchanged mainly for USD. And the majority of the mining comes out of China, which according to latest figures hosts 65% of all the mining farms in the world.
In order to earn Bitcoin rewards, computers solve complex mathematical problems 24/7. And part of the newly mined coins go directly to crypto exchanges, while the other part remain in the miners crypto wallets, but is eventually sold into USD. On average, 900 BTC are mined daily, and the total revenue is about 31M (as the end of June 2021) USD. This means that in just a year, the miners (majority from China) have earned over 10B USD. Applying the 65% share this means over 6.5B USD in China since last year. Now, imagine with the rising popularity and scalability of Bitcoin the amounts in the next period will keep increasing and the revenue will follow suit doubling or tripling according industry pundits over the next years.
Then why is the Chinese government restricting the mining of Bitcoin? The official reasons is excessive energy consumption and carbon dioxide emissions that prevent China from reaching carbon neutrality as per international agreements, statements and objectives. Nevertheless, it seems the real situation is a bit different compared to the official statements. The Chinese miners are already sourcing cheaper hydroelectricity, which is in majority developed in its southern provinces, and only switch to fossil-fuel based during the dry winter season when they migrate to the north. Also, the authorities have not fully banned mining projects country-wide, but in three regions: Qinghai, Inner Mongolia and Xinjiang. The other provinces that are rich in hydropower resources, like Yunnah or Sichuan, are in no hurry to impose any bans, hence the mining process is in full speed.
The Chinese authorities seem to be rearranging things rather than declaring war on cryptocurrencies. It is said that technological limitations of the Bitcoin supply work in China’s favor and it will allow the country to be able to influence the price of the crypto while keeping it in miners possession. At the same time, if restrictions keep tightening and is expanded into other regions, the mining power may be redistributed to other countries as it is already happening. For example in Iran, mining has become one of the most accessible industries amid severe US sanctions. The Iranian government is applying the same stance like the Chinese government in the sense that the authorities are banning the use of cryptocurrencies generated outside the country, but they will allow paying for imported goods with domestically only mined coins. According to industry data, over the last year, Iran’s revenues related to crypto mining reached 400M USD, with the United States’ revenue being only twice as much. Another country that is planning the development of mining projects is El Salvador as emphasized in our previous newsletter sections dedicated to cryptocurrency developments. El Salvador’s President is considering capitalizing on very cheap clean and renewable energy deriving from local volcanoes!
Why then the US does not encourage local mining? The experts are saying the country does not have sufficient idle energy capacity for that. Plus, such a process involves time in order to gain competitive advantage over other more mature countries such as China. Knowing this, is it US interest to keep the cryptocurrencies prices from rising? Are Elon Musk’ Bitcoin energy comments related? Is Bitcoin 2.0 a real solution going forward?