China is the undisputed world leader in Bitcoin mining.
Chinese mining pools control more than 60% of the Bitcoin network’s collective hashrate.
Not only does China manufacture most of the world’s mining equipment, but massive mining farms are located there to take advantage of extremely cheap electricity prices.
China also accounts for hefty Bitcoin trading volumes. Chinese exchanges used to lead the world in terms of volume.
Chinese volume has fallen substantially since the PBOC decreed that exchanges could no longer offer 0% trading fees. This ruling flushed a lot of wash trading from the Chinese exchanges.
So, just why is China the world’s leader in Bitcoin mining?
Reason #1: Cheap Electricity
Electricity cost is the most important factor for a profitable mining operation. As mining difficulty increases, the least efficient miners are forced to shut down first.
Electricity in China is extremely cheap compared to most other countries. Chinese electricity in industrial regions is either supplied by hydro-electric facilities or subsidized by the state.
China’s cheap electricity keeps Chinese miners at peak efficiency and allows them to outlast their foreign competitors.
Reason #2: Excess Coal
Coal is the cheapest power source but also the dirtiest. It’s well-known that China has comparatively lax environmental policies. Major cities like Beijing are notorious for their high levels of smog, produced mostly by burning coal.
Energy producers can freely burn coal and use the energy for Bitcoin mining. Instead of physically transporting the coal, it’s easier and more cost-effective to establish a Bitcoin mining operation near a source of coal and convert carbon directly to crypto.
#Bitcoin enables Chinese entrepreneurs to export coal by burning it and using the energy to mine.
— Emin Gün Sirer (@el33th4xor) July 20, 2015
Reason #3: Leading Bitcoin Mining Pools
Mining pools, as the name implies, are collaborations between individual miners and, frequently, major mining companies. Their hashrate is combined so that the pool has a better chance of finding a block. The block reward is then shared among all contributing members, according to their proportional hashrate.
The result is that many miners outside of China are attracted to Chinese mining pools due to their size. The bigger a pool, the more steady and predictable a member’s earnings. Many miners are lured by the prospect of small, steady earnings as part of a major pool, as opposed to the high- reward-but-low-odds lottery which is solo or small-pool mining.
China is home to four of the five largest Bitcoin mining pools over the past year. As of the 29th of March, 2017, the distribution of hashrate was as follows:
Antpool is another Chinese based mining pool, maintained by the ASIC manufacturer, BitMain. Antpool has mined nearly 20% of all blocks over the past year. Antpool currently has a hashrate of about 675 Petahash per second (PH/s).
There is some speculation that AntPool disguises its true hashrate by running subsidiary pools. These are said to include ViaBTC, BTC.com, GBMiners, CANOE and possibly others.
- F2Pool / DiscusFish
F2Pool, also known as DiscusFish, is based in China. F2Pool has mined about 18.5% of all blocks over the past twelve months. At the time of writing, it controlled about 380 PH/s.
BTCC is China’s third largest Bitcoin exchange and also operates a large mining pool. The BTCC pool has mined about 11% of all blocks over the past year. It controls about 240 PH/s.
- BW Pool
BW, established in 2014, is another mining company based in China. BW’s pool has mined about 10% of all blocks over the last year. It controls in the region of 225 PH/s.
So, what does this situation mean for Bitcoin? Sadly, nothing good:
There’s a definite downside to China’s mining dominance:
Having so much mining power centralized in any single country exposes the Bitcoin network to a worrying degree of political risk.
Should the Chinese government decide to crack down on Bitcoin, perhaps seeing it as a threat to their economy or a competitor to their own planned digital currency, they could wreak untold havoc in the Bitcoin ecosystem.
Inside a Chinese Bitcoin Mining Operation
The video below offers an inside look at how Bitcoin mining farms in China operate:
More Insight on Bitcoin Mining in China
If you want even more information about the Chinese Bitcoin mining scene, watch this speech by Jihan Wu’s (Co-founder of BITMAIN) Presentation at the Israeli Bitcoin Conference.