Why China’s Crackdown On Mining Is Really Good For Bitcoin

China’s crackdown on proof-of-work mining last year tested the security of the Bitcoin network and proved it to be far more resilient than previously thought.

Analysts expected that it would take more than a year for the Bitcoin hash rate to recover, but the network managed to recover in less than a month.

China’s Mining Ban Has Made Bitcoin More Resilient Than Ever

The Bitcoin network took its biggest hit in May of last year when several provinces in China began implementing policies designed to shut down proof-of-stake mining. Citing environmental concerns and energy production thresholds, the policies succeeded in eliminating almost all Bitcoin mining operations and most cryptocurrency companies in the country.

With over 75% of Bitcoin mining located in China, the bans caused a panic in the industry as many believed the network would suffer a devastating blow if they were implemented.

The network suffered a huge blow: it lost more than 40% of its hash rate between May and July 2021, but managed to recover faster than anyone had thought.

bitcoin hash rate
Bitcoin hash rate (30-day MA) (Source: Fidelity)

Many analysts expected that it would take more than a year for the hash rate to reach its previous highs, as all of China’s massive mining operations had to be packed up and moved. Those who did not relocate were expected to sell their hardware, creating even more pressure on the network.

However, the network rebounded in less than a month and maintained the increasing trend throughout 2021. In December of last year, the 30-day hash rate stood at 5% above the previous year’s high.

In its 2021 Digital Asset Summary, Fidelity Investments noted that China’s ban removed a major investment and operational risk to Bitcoin: the potential for a nation-state attack on the network.

“Because up to 75% of the network’s computing power was previously in China, in our view there was a credible threat of China taking control of the majority of this power, and thus the potential to gain more than 50% of the network power. Fidelity noted in the report.

And while there was little evidence to suggest that this was China’s intention, the fact that all mining operations have moved out of the country shows that this will not happen in the future.

This is due to the fact that China’s ban has forced miners to spread their operations around the world, making the Bitcoin hash rate more decentralized than ever.

Finally, the most important conclusion of the Fidelity report is that the massive migration of miners will have a profound positive impact on Bitcoin. Moving large mining operations offshore is a very expensive undertaking and the fact that it has been done on such a large scale shows that miners are making long-term investments rather than looking for a quick profit.

And this is what has strengthened and will continue to strengthen the resilience and reliability of the Bitcoin network, Fidelity concluded.

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Source: https://cryptoslate.com/why-chinas-crackdown-on-mining-is-actually-good-for-bitcoin/

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