China’s Bitcoin Mining Collapse Is Kazakhstan’s Boon

It has been a tough couple of years for Chinese bitcoin miners. The Chinese government’s crackdown on bitcoin mining and growing power costs caused China’s share of global electricity usage for bitcoin mining to fall under 50% for the first time this April. This article looks into which countries host the largest bitcoin mining operations and the lengths crypto mining operations will go in their search for cheap electricity.

China’s share of the global hashrate — the computational power required to mine bitcoins — fell from over 75% to 46% of the global total from September 2019 to April 2021, according to data from the Cambridge Centre for Alternative Finance. In contrast, Kazakhstan’s share catapulted to third place as its share of bitcoin mining increased sixfold (from 1.4% to 8.2%).

Since April, China has escalated its crackdown on crypto miners and traders, which has forced them to either go further underground or move to crypto-friendly countries that are happy to take the slack.

Kazakhstan’s crypto-friendly government and cheap electricity make it an ideal destination for crypto mining investors from a financial perspective. But not necessarily from an environmental perspective.

In Kazakhstan, the crypto mining industry relies mainly on electricity generated by fossil fuels, which generate nearly 87% of its electricity, according to the US Department of Commerce. There is a good reason for this. The country is the largest oil producer in Central Asia, with the 12th-highest proven crude oil reserves in the world.

The United States increased its output four-fold and became the world’s second-largest bitcoin miner (from 4.1% to 16.8%). Bitcoin mining in the United States is also being linked to fossil fuel power plants. Across the United States, aging fossil-fuel power plants are being squeezed out of business by renewable energy. However, some coal plants are being reopened to mine bitcoin (source).

Russia and Iran are the fourth and fifth countries, respectively, with the largest bitcoin mining industries.

Iran has become a popular destination for crypto miners because it offers cheap power and allows cryptocurrencies mined in Iran to be used to purchase authorized imports. The prospect of inexpensive power has attracted miners, particularly from China. However, recent power blackouts in many cities caused the government to ban mining operations from May 26 to September 22. President Hassan Rouhani announced the ban in a televised speech where he also explained that “85% of the current mining in Iran is unlicensed,” according to a report by Reuters.

Mining bitcoin is a profitable business in China because of its cheap hydroelectricity—as long as it rains.

The data provided by Cambridge Centre for Alternative Finance also sheds light on Chinese crypto miners’ seasonal migration from the western province of Xinjiang, which mainly uses coal-powered plants, to the southern regions of China to take advantage of cheap hydroelectric power during the wet season.

To illustrate, Sichuan’s share of bitcoin mining power increased to 61.1% (from 14.9%) from the beginning of the wet season to the peak. On the other hand, Xinjiang’s share dropped from 55.1% to 9.6% in the same period.

China is still the world’s largest cryptocurrency market for trading and mining. However, the criminalization of crypto mining in China will make it harder to track hashrate because many new mining operations involve private deals with off-grid power stations.

However, the Chinese government’s latest move against crypto traders and miners could change that quickly. If recent history is any indication, mining investors will continue to migrate to other countries, such as Kazakhstan and the United States, that are open to the crypto industry and provide access to low-cost electricity.