It’s a rapid comeback. In mid-July, the world’s most important cryptocurrency, Bitcoin, had temporarily plunged below the $ 30,000 mark, and its value had more than halved since the record high in mid-April. Reports that China would tighten regulation of the crypto market and ban Bitcoin mining accelerated the price slide at the time. Bitcoin disrupts the economic order and makes money laundering easier, the Chinese authorities said. As early as the end of June, Beijing pulled the plug on many server farms in the country and hit the center of Bitcoin mining hard: Almost 70 percent of all Bitcoin miners worldwide have been in China to date, but around 90 percent of all Bitcoin mining pools are now in the Middle Kingdom closed.
“Bitcoin and other crypto currencies will not disappear due to the tighter regulation,” says Susanne Fromm, CEO of the Hamburg-based crypto investment company Coinix. “The mining ban in China could even benefit Bitcoin in the long term.”
Decentralized structure ensures more security in the network
Fromm cites three arguments why the Beijing ban should be viewed as positive overall for the Bitcoin economy and the crypto market: More security through decentralization, less volatility in the long term and, in the long term, probably less use of climate-damaging energies when mining Bitcoin. According to a survey by the data analyst Statista, China has so far been responsible for 67 percent of the Bitcoin hashrate, followed by the USA (7.2 percent), Russia (6.9 percent), Kazakhstan (6.1 percent) and Malaysia (4.3 percent) ). “Many had feared that Bitcoin would fail if the Chinese miners failed,” adds crypto entrepreneur and avowed Bitcoin fan Marc Friedrich: “Now we’ve seen the opposite.”
Example of decentralization: Bitcoin miners are currently increasingly migrating to Kazakhstan or the USA. Texas, Wyoming and the Miami region are currently creating incentives for the immigration of Bitcoin miners. “In the future, the mining locations will be distributed much more decentrally than before,” says Coinix CEO Fromm. Decentralization is one of the core ideas of Bitcoin technology. If the influence of a single country decreases significantly, the security of the Bitcoin network increases too. Background: The computers (“nodes”) represented in the network must confirm the transactions in the Bitcoin network and ensure that, for example, Bitcoin amounts cannot be spent twice. “Here decentralization plays an important role: Whoever controls the majority of the network could theoretically also influence the security of Bitcoin,” says Fromm. The destruction of the mining monopoly in China has a positive effect on the security of the cryptocurrency.
Less influence from China may lead to less volatility
Take volatility, for example: the recent strong fluctuations in the price of Bitcoin could decrease with the dwindling influence of China – and investor confidence in the cryptocurrency could increase. In the past, regulatory interventions by China had regularly led to extreme price fluctuations for Bitcoin and Co: When the Chinese central bank banned Bitcoin transfers to banks at the end of 2013, the price plummeted by 50 percent within three weeks. When Beijing closed local crypto exchanges in autumn 2017, prices fell by around 30 percent within a few days.
The hope of many crypto investors: If China hardly plays a role in Bitcoin mining anymore and as long as Beijing’s central bank tolerates the unpopular Bitcoin currency at least as an “investment alternative” (as the deputy governor of the Chinese central bank, Li Bo recently put it), then one could expect the disruptive fire from China to subside. A more stable and less volatile Bitcoin course could be the result.
Bitcoin’s carbon footprint is getting a little smaller
Take energy consumption, for example: the high energy consumption of Bitcoin, which in China is still mainly fed from fossil fuels such as coal, could possibly be reduced by the departure of Bitcoin miners from the Middle Kingdom. When mining Bitcoin, large computer systems have to solve extremely complicated arithmetic tasks by merging their performance. Bitcoin miners provide enormous computing power to generate the next block on the blockchain. In this process, new Bitcoin coins are created – but this process also devours vast amounts of energy. Bitcoin mining has grown into a significant industry that requires a lot of energy, electronic equipment and space, and creates many jobs.
Part of the hash rate that went offline in China, i.e. the computing power of the Bitcoin miners, is migrating to Kazakhstan, Russia and Mongolia. This will presumably also consume predominantly electricity from fossil energy sources there. However, many miners are also drawn to other regions. Cheap, because there is an abundance of hydropower in Latin America, for example, attracts many mining entrepreneurs. Just like the favorable political framework conditions in the USA and Europe, where the energy mix is also greener than in the Far East. There is also the technological option of using excess energy from renewable energy sources such as sun and wind for Bitcoin mining.
The latest price rally in recent weeks has shown that the end of the mining farms in China did not inflict a fatal blow on Bitcoin, on the contrary, it actually made the digital currency more attractive to investors. They expect more stability, both in terms of the security of the Bitcoin network and the volatility of the Bitcoin exchange rate. “Bitcoin’s carbon footprint is of course still too big,” says Fromm. But at least the miner exodus from China has strengthened the trend towards a more sustainable electricity mix.