With China cracking down on cryptocurrencies, mining bitcoin could become lot easier — and more profitable — in the near future.
Authorities in the hydropower-rich Chinese province of Sichuan ordered crypto miners to shut down operations over the weekend, intensifying China's crackdown.
More than 90% of China's bitcoin mining capacity, according to rumours, is expected to be shut down. China is considered to be responsible for 65 percent to 75 percent of all worldwide bitcoin mining.
What is bitcoin mining, and how does it work?
The image of a gold mine with picks and shovels is probably the first thing that springs to mind when you think of mining. Bitcoin mining, on the other hand, is nothing like prospecting for gold or other precious metals.
A large network of computers all around the world supports digital currency. In the case of bitcoin, these computers are competing to solve complex arithmetic riddles so that transactions may be completed. This process also creates new bitcoins, rewarding successful miners in the cryptocurrency.
Miner rewards are now capped at 6.25 BTC. It used to be 12.5 BTC, but because bitcoin's total supply is limited to 21 million, the quantity of bitcoin mined is half every four years.
It's "a game of random chance" to be the first miner to mine a new block, which is effectively a list of bitcoin transactions explains Alyse Killeen, founder & managing partner of the bitcoin-focused venture firm Stillmark.
It's about to get a whole lot easier.
Following Beijing's crackdown, the bitcoin network's total hashrate, or processing power, appears to have plummeted.
Bitcoin's hashrate has dropped significantly in the previous month, from a high of 180.7 million terahashes per second in mid-May to roughly 116.2 million as of Wednesday, according to data from Blockchain.com.
Crypto experts say that, as more bitcoin miners go offline as a result of China's limitations, the network's proportion of the market will grow, potentially making mining much more profitable.
“As more hashrate leaves the network, the difficulty will decrease, and the hashrate that remains active on the network will receive more for their proportional share of the mining rewards,” Kevin Zhang, vice president of crypto mining firm Foundry, explains.
Meanwhile, bitcoin's network difficulty — a metric for how difficult it is to mine bitcoin — dropped from a high of over 25 trillion in May to 19.9 trillion last week. There is a temporal lag in the statistics because the mining difficulty is modified roughly every two weeks.
“The less mining equipment online, the lower the network difficulty,” Killeen explained. As a result, other bitcoin miners will face less competition.
However, the price of bitcoin, which has fallen from record highs in recent months as a result of harsh comments from Tesla CEO Elon Musk and China's crackdown on the industry, is another important element that impacts bitcoin miners' income.
Since reaching a record high of nearly $65,000 in April, the value of Bitcoin has nearly halved. On Tuesday, the cryptocurrency fell below $30,000, wiping out its 2021 gains, but has since recovered to trade above $34,000.