Chinese bitcoin miners found ways to adapt to last year’s ban, using foreign proxy services to maintain low-key mining activity.
China’s resurgence as a major bitcoin mining hub has come despite Beijing’s complete ban on cryptocurrency mining a year ago, according to data from the Cambridge Centre for Alternative Finance (CCAF) on Tuesday.
From last September to this January, China accounted for nearly 20 percent of bitcoin’s total hash rate – a measure of the network’s processing power for verifying transactions and mining new crypto tokens on a blockchain – making it second only to the US.
Following the crackdown on bitcoin mining in the country last May, China’s share had fallen to 0 percent in July and August. However, the CCAF’s latest data shows that the figure was up to 22.3 percent in September – coming in only behind the US, which was at 27.7 percent the same month.
China’s rate then fluctuated around 20 percent from October 2021 to January 2022.
At 13.2 percent of the global hash rate, Kazakhstan comes in third. Canada and Russia, at 6.5 and 4.6 percent respectively, round out the top five.
The data “strongly suggests that significant underground mining activity has formed in the country,” the CCAF said in a statement. “Access to off-grid electricity and geographically scattered small-scale operations are among the major means used by underground miners to hide their operations from authorities and circumvent the ban”.
The sudden drop to 0 percent in July and August last year followed by a swift increase in the subsequent months suggests mining firms may have been operating covertly and concealing their locations while using foreign proxies to circumvent scrutiny.
“It takes time to find existing or build new non-traceable hosting facilities at that scale,” CCAF said. “It is probable that a non-trivial share of Chinese miners quickly adapted to the new circumstances and continued operating covertly while hiding their tracks using foreign proxy services to deflect attention”.
“As the ban has set in and time has passed, it appears that underground miners have grown more confident and seem content with the protection offered by local proxy services,” CCAF added.
Prior to the ban, China had been the leading global bitcoin mining hub since data started being collected in September 2019. The US overtook China last year, surging from 35.1 percent last June to 37.8 percent of the hash rate in January.
Even before China’s ban took effect, US-based miners were outpacing overall network growth. The US doubled its share of the bitcoin network hash rate, from 11 to 22 percent in the first half of 2021. Within the US, Georgia (31 percent), Texas (11 percent), and Kentucky (11 percent) combined to account for over half the country’s overall hash rate.
Apart from the US, one of the countries that benefited from China’s mining ban last year was Kazakhstan. The central Asian country saw a surge from 7.3 percent in May to 18.1 percent in August and peaked at 18.3 percent in October.
Since then, however, the country has been beleaguered by power outages and internet shutdowns, followed by the government adopting a stricter stance on mining, increased taxation, and cracking down on non-registered miners.
Regarding the methodology, that a country’s share of hash rate goes down doesn’t have to mean that the number of miners or mining capacity has decreased, rather it is that capacity hasn’t grown at the same rate as other parts of the world.
CCAF also reported that it is starting to work on a model to estimate the Bitcoin network’s greenhouse gas emissions after finding that last year’s ban in China might have worsened mining’s environmental impact.