Renewable Energies: A Glimpse into the Future of Bitcoin Mining
For many years, hashing power centralization has been considered by some people as a weakness for Bitcoin and the entire cryptocurrency market. We have recently seen wide news coverage related to mining pools exiting China and the hashing rate has certainly decreased abruptly. Although this could have a short-term negative impact on Bitcoin’s price, it could have a positive effect in the long term.
In this article, we will focus on the current situation of Bitcoin’s mining industry. We will also analyze how miners operate and which are the things they value when scouting countries to settle their operations and start mining.
Bitcoin Mining Explained
To understand the current situation of Bitcoin mining in China, we should also understand how Bitcoin mining works and its impact on BTC’s network and security. Mining activities are very important for digital cryptocurrencies but specifically for Proof of Work (PoW) networks such as Bitcoin.
Bitcoin mining is an economic activity that is processed by some individuals and companies in order to process transactions and get rewarded with BTC for the work they do. In order to process the transactions of Bitcoin’s network, these miners require specialized hardware. ASIC miners consume large amounts of energy. Due to this reason, mainstream media has attacked Bitcoin many times but as we’ve previously analyzed, there’s more myth than reality when compared to other industries.
Best Countries for Bitcoin Miners
When analyzing the potential best countries for Bitcoin miners, companies need to consider different scenarios and factors. The first variable is obviously related to energy prices and then the climate conditions. Cold locations are ideal for the bitcoin mining industry.
Another variable that mining companies analyze is the regulatory framework. The best country for a Bitcoin miner would be the one that offers miners legal security, low energy prices and low temperatures on a constant basis ideally.
Bitcoin Mining Around the World
As previously mentioned, most Bitcoin miners have historically been located in China. That means that the network became somehow centralized and dependent on a few regions of this Asian country. Although there are mining pools all over the world, most of them are still located in China.
To better understand the Bitcoin mining situation around the world, we should also acknowledge the reasons why Bitcoin miners prefer China. In the previous section, we have described why China could work as a country where miners would prefer to locate their operations. They have cheap energy, cold regions and vast resources.
However, there are two clear examples of how governments are pushing for better practices in the mining industry: Paraguay and El Salvador.
El Salvador
El Salvador became the first country in the world to make Bitcoin legal tender. That means that every single shop and company in the country should accept Bitcoin as a means of payment alongside the U.S. dollar (USD). However, this was not the only thing they planned. The local government has also analyzed the possibility of mining Bitcoin in the country with clean energy from volcanoes.
Paraguay
Paraguay is another country that could start mining Bitcoin using renewable energy sources. We are talking about the possibility that was suggested by Paraguay’s deputy Carlitos Rejala a few weeks ago. Paraguay has large hydroelectric resources that are usually sold to other countries such as Brazil. By using hydroelectric power from local dams, Paraguay could easily start mining Bitcoin using their local resources.
Although there is no clear information about the current projects, it might be possible for the government to generate incentives for mining companies to settle their operations in the country if they use energy from renewable energy sources.
If the experience of these two countries shows positive signs, we might see other governments and nations implementing similar measures to mine Bitcoin using clean energy sources, which are usually abundant and cheap.
Bitcoin Mining Situation in China
Let’s now focus on the current situation of Bitcoin miners in China. Although miners in China faced local climate issues (floods in Southern provinces), their operations went relatively smoothly for a long period of time. However, things have changed in recent months.
Some provinces in China have decided to crack down on crypto mining activities in order to slow down the expansion of cryptocurrencies. Although this could have little to no impact on the expansion of cryptocurrencies, it already had an impact on Bitcoin’s hash rate.
The Chinese government has regulated the crypto market to the point exchanges and traders had no possibility to get access to the market. We do not know what could happen in the future and which could be the new regulations implemented by the Chinese government. However, one thing is clear, regulations are coming and miners should get ready to face them.
China Mining Ban
Reports have surfaced last weeks about China shutting down a large part of its Bitcoin mining capacity. Miners in the Southwest Sichuan Province had to shut down their operations as local authorities requested crypto mining companies to stop their operations.
This comes after weeks of regulatory uncertainty linked to crypto mining operations in the country. At the same time, other provinces have taken similar steps to further control the cryptocurrency market in the country.
One of the benefits that Bitcoin miners had in the Sichuan province was related to cheap and abundant energy from hydroelectric sources. This is not the case in other provinces, where regulators tried to reduce the impact of contaminating sources of energy.
After the recent mining ban in China, the hash rate of the network has fallen drastically in the last few weeks. Mining pools are searching for other places to deploy their operations and start protecting the crypto network once again so an increased hashing rate is expected in the next months.
The China mining ban could be reverted in the future as new regulations come into place. Indeed, it might be possible for miners to invest in renewable energies and increase their presence with environmentally friendly solutions.
Searching New Alternatives
The China mining ban represents a clear opportunity for miners to search for new locations where to start operating. At the same time, it is also a good opportunity for other countries and jurisdictions to show they are interested in hosting Bitcoin miners from all over the world. Miners that ceased their operations in China have two possibilities: sell the mining equipment to the market at a discounted price or move to new locations.
Bitcoin Mining Transition into Renewable Energies
Bitcoin has another advantage that we should focus on and it’s related to its future. In order to continue operating safely around the world, Bitcoin miners will also have to focus on renewable energies and increase the investments in environmentally friendly sources of energy for their operations.
Countries such as Canada or the United States have different regulations in place for miners to start operating. Using clean energies is expected to become the standard in the coming years and Bitcoin miners are getting ready for this transition.
Miners that have adopted and invested in renewable energies have lower costs than competing mining pools. The mining ban in China is just an opportunity for miners to show that it is possible to make the mining activities eco-friendly and far more decentralized.