Flex Yang is the CEO of Babel Finance, a leading cryptocurrency financial services provider based in Asia.
What Are Some Key Factors In “Winning” The Global Hash Power War?
In 2021, the bitcoin market is surely reaching an inflection point, as its market cap surpassed $1 trillion. Bitcoin’s ecosystem has seen evolutionary growth and structural change, but there are noticeable trends that have been disrupting Asia’s bitcoin mining industry, from the continent’s declining share of hash power to the rapidly changing regulatory environment. However, there is more to this trend than meets the eye.
To determine whether the East or the West will ultimately obtain the greatest share of the global hash rate, we need to examine not only how many new mining machines a miner is able to obtain in today’s market, but also the local regulatory environment.
Asia’s historical dominance in Bitcoin hash power is slowly declining, at least for now. The Asian mining industry’s glory days as the top player are now being challenged by Western newcomers. Although China is home to the most powerful mining machines and largest mining farms, Chinese Bitcoin infrastructure is at a crossroads in its development. On the one hand, Asia’s hash power is still topping the charts globally, whereas the U.S. and Canada accounted for less than 10% of global hash power in 2020. On the other hand, the shortage of mining machines has beleaguered the majority of Asian miners, and they have lost out on hundreds of millions of dollars in profit by continuing to mine on older machines.
Since the second quarter of 2020, most new mining machine orders have been placed by foreign mining companies in the U.S. and Europe. Many Asian miners did not react quickly enough to the shock of the March 12 bitcoin flash crash, and their deteriorating finances and a bleak industry outlook left them unable to place orders for newer machines. Today, many small miners are now struggling to compete with larger institutional mining firms, not just in China, but also in the U.S. This trend is reflected in the rise in demand for Babel Finance’s mining machine loans, of which $40 million in machine-backed loans were distributed in March 2021 alone. This gives miners a capital edge when they purchase new machines.
To see that bitcoin mining is surging in popularity, we don’t have to look any further than Digital Currency Group’s subsidiary Foundry, which secured a landmark deal with Chinese mining manufacturer MicroBT. The deal involves co-locating 14,000 units of MicroBT’s latest WhatMiner M30S for institutional investors in the North American region. The deal was announced after MicroBT set up its first offshore (outside of China) manufacturing facility to cater to the increasing demand from the West.
So far, global hash power has mainly been driven by the availability of mining machines, but ultimately, a larger driving force behind how hash power is distributed globally may be a regulators’ outlook on Bitcoin’s future potential and their willingness to play along.
The attitudes of government regulators can have dramatic effects on how competitive the top players are globally. The outcome of the global hash war has yet to be determined: although the U.S. might be catching up, the results are not certain. A warmer attitude and flexible regulatory environment could maximize the country’s Bitcoin infrastructure growth success, or government stifling could risk losing the biggest fintech innovation and any future lead.
Canada’s leading position in Bitcoin ETFs (Evolve Funds Group and Purpose Investment) and U.S.-based Coinbase’s IPO are great examples of what regulators can do to promote or hamper the growth of a region’s bitcoin markets. In addition, across the Pacific, at the local government level in China’s Sichuan and Yunan Provinces, officials encourage the use of energy that would otherwise be wasted in the region.
In Sichuan Province, the wet season starts in May and runs through October. Roughly 60–90 kWh that would have gone to waste because of inefficiencies in local power transmission and conversion were instead used for bitcoin mining. Mining farms in China tend to be established in a way that not only prevents energy waste but also creates economic opportunities and benefits both local citizens and governments.
The daily miner revenue hit an all-time high of $77,500,000 on April 16, 2021 according to a recent story published by Bitcoin Magazine. The support of the mining industry at the provincial level in China has been responsible for boosting and securing the country’s hash power dominance, but for now, the U.S. is managing to secure the lion’s share of the new mining machines. In the future, concerns over environmental pollution could become a thorny issue for U.S. firms. Clear, flexible government guidance on bitcoin mining will pave the way for miners to operate without regulatory risks.
In the long run, widening the distribution of hash power is positive for the industry’s development. Satoshi’s design of Bitcoin is based on the premise of a fully decentralized system. Although the Asian miners’ hash power dominance once stirred unease in the West, the current shift in market dominance has reestablished confidence in the system, ironically, thanks to international differences in the regulatory environment.
This is a guest post by Flex Yang (with contributions by Yiwei Wang). Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
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