China is the second largest bitcoin mining hub as miners go underground

In September 2021, China accounted for just over 22% of the total bitcoin mining market, according to research from the University of Cambridge.

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Bitcoin miners are not giving up in China despite Beijing banning the practice.

China was once the world’s largest crypto mining hub, accounting for between 65% and 75% of the total “hash rate” – or processing power – of the bitcoin network.

But the country’s share of global bitcoin mining capacity fell to zero in July and August 2021, according to data from the University of Cambridge, after authorities launched a new crackdown on cryptocurrencies.

Among the measures taken by China was the abolition of crypto-mining, the energy-intensive process that leads to the creation of a new digital currency. This has led several miners to flee to other countries, including the United States and Kazakhstan, which borders China.

But, as CNBC previously reported, several underground mining operations have since sprung up in China, with miners taking care to circumvent Beijing’s ban.

Now, new research from the Cambridge Center for Alternative Finance shows that Chinese bitcoin mining activity has rebounded rapidly. In September 2021, China accounted for just over 22% of the total bitcoin mining market, according to data from Cambridge researchers.

This means that China is once again one of the world’s top bitcoin mining players, second only to the United States, which eclipsed China as the industry’s top destination last year.

There is a caveat: the research methodology relies on the aggregated geolocation of huge bitcoin mining “pools” — which combine computing resources to more efficiently mine new tokens — to determine where activity is concentrated. in different countries.

This approach may be vulnerable to “deliberate obfuscation” by some bitcoin miners using a virtual private network (VPN) to disguise their location, researchers said. VPNs allow users to route their traffic through a server in another country, making them handy tools for people in countries like China, where internet usage is heavily restricted.

Nevertheless, they added that this limitation would have “only a moderate impact” on the accuracy of the analysis.

What is bitcoin mining?

Unlike traditional currencies, cryptocurrencies are decentralized. This means that the job of processing transactions and minting new currency units is handled by a distributed network of computers instead of banks and other intermediaries.

To facilitate a payment in bitcoin, the so-called miners must agree that the transaction is valid. This process involves making complex calculations to solve a puzzle that increases in difficulty as more miners join the network, known as the blockchain.

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Whoever is the first to solve the puzzle can add a new batch of transactions to the blockchain and is rewarded with bitcoins for their efforts.

Why is Beijing worried?

This method of reaching consensus, known as “proof of work”, consumes a lot of energy – about as much as entire countries, such as Sweden and Norway.

China has frequently issued crypto warnings. But his most recent crackdown was arguably the most severe.

Last year, the world’s second-largest economy faced a months-long power shortage that led to numerous power outages.

China is still heavily dependent on coal and is increasing its investments in renewable energy with the aim of becoming carbon neutral by 2060. Authorities see crypto mining as a potential obstacle to this plan.

Now, a resurgence in bitcoin production in China has catapulted the country to second place among destinations for people hoping to find a new digital currency – there are still 2 million bitcoins to be mined. However, it could be a less profitable business now, with the price of bitcoin down more than 50% from its November peak.

China’s National Development and Reform Commission and the People’s Bank of China – both of which have issued stern warnings against crypto mining and trading – were not immediately available for comment when contacted by CNBC.

– CNBC’s Mackenzie Sigalos and Evelyn Cheng contributed to this report

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