Over the weekend, Chinese authorities of Sichuan province ordered crypto miners to shut down their operations.
In recent times, Beijing has intensified its effort to crack down on cryptocurrencies, which has led to crypto miners leaving China for other regions.
The country last month, called for measures to stop Bitcoin mining following concerns over its environmental impact.
Reports estimate that China’s Bitcoin mining has lost more than 90% of its capacity. The country is believed to be home to between 65% to 75% of all global Bitcoin mining.
With this situation in China, it may soon become much easier and more profitable to mine Bitcoin.
What is bitcoin mining?
Bitcoin mining is not the same as Gold mining which involves drilling the soil with picks and shovels..
Digital currencies are based on a large network of computers around the world which are positioned for different functions. In the case of Bitcoin, these computers are racing to solve complex math puzzles in order to make transactions go through. This process also generates new Bitcoins, rewarding miners in the cryptocurrency if they’re successful.
Currently, rewards to miners are capped at 6.25 BTC. It used to be 12.5 BTC, but since bitcoin’s total supply is limited to 21 million, the amount of Bitcoin rewarded to miners gets halved roughly every four years.
Alyse Killeen, founder and managing partner of Stillmark, a bitcoin-focused venture and also the first miner to mine a new block, says it is “a game of random chance”.
According to Killeen, “Network difficulty goes down the less mining equipment is online”. This effectively leads to less competition for other Bitcoin miners.
Network difficulty of Bitcoin is a measure of how hard it is to mine Bitcoin, and this went from a record above 25 trillion in May to 19.9 trillion last week.
The Beijing’s clampdown on crypto mining appears to have led to a sharp drop in the total hashrate, or processing power, of the bitcoin network.
According to Blockchain.com data, Bitcoin’s hashrate has gone down from a record 180.7 million terahashes per second, which is a measure of the speed of crypto mining hardware, in mid-May to around 116.2 million as of Wednesday.
Experts of Cryptos say that, with more bitcoin miners going offline due to China’s restrictions, other miners’ share of the network will increase, potentially making mining much more lucrative.
Kevin Zhang, vice president of Foundry, a crypto mining firm told CNBC that, “As more hashrate falls off the network, difficulty will adjust downwards, and the hashrate that remains active on the network will receive more for their proportional share of the mining rewards.”
The price of Bitcoin, is also another major factor that determines profits for Bitcoin miners. However, in recent months, the price has crashed from record highs following comments from Elon Musk and China’s crackdown on the industry.