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Why is China’s anti-mining crackdown really good for Bitcoin?

China’s crackdown on proof-of-work mining over the past year has put the security of the Bitcoin network to the test, showing it’s a lot more resilient than people thought.

Analysts expected Bitcoin’s hashrate to take over a year to recover, but the network managed to recoup losses in less than a month.

The mining ban in China has made Bitcoin more resilient than ever

The Bitcoin network suffered its heaviest losses last May, when several provinces in China began implementing policies to shut down PoW mining. Citing environmental concerns and energy production thresholds, they ousted almost all bitcoin mining and most crypto companies from the country.

With over 75% of bitcoin mining located in China, the ban has caused panic in the industry as many believe the network will suffer a devastating blow if enforced.

As expected, the network lost over 40% of its hashrate between May and July 2021, but recovered faster than expected.

Bitcoin Hashrate (30-day MA) | Source: fidelity

Many analysts believe it will take more than a year for the hashrate to reach its previous highs as all massive mining in China has to be postponed. Those who can’t move are expected to sell their hardware, putting even more pressure on the network.

However, the network recovered in less than a month and maintained its upward trend throughout 2021. In December of last year, the 30-day hashrate was 5% above the previous year’s high.

In summary Digital Asset 2021, Fidelity Investments notes that China’s ban has eliminated major investment and operational risks for Bitcoin from the possibility of the country’s network being hacked.

“Since 75% of the network’s computing power was previously in China, we believe there is a significant risk that China will take control of much of that power and thus potentially capture more than 50% of the network’s power,” noted Fidelity Report.

Although there is little evidence that China intends to do so, all the mining activities that have moved away from the world’s most populous country suggest that this will not happen in the future.

Because China’s ban has forced miners to spread their operations around the world, making Bitcoin’s hashrate more decentralized than ever.

Ultimately, Fidelity’s key assessment is that the mass migration of miners will have a profoundly positive impact on Bitcoin. Moving large mining operations offshore is a very costly process and being undertaken on such a large scale shows that miners are investing for the long term rather than looking for quick profits.

Fidelity concludes that this has strengthened and will continue to strengthen the resilience and reliability of the Bitcoin network.

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Annie

Championing positive change through finance, I've dedicated over eight years to sustainability and environmental journalism. My passion lies in uncovering companies that make a real difference in the world and guiding investors towards them. My expertise lies in navigating the world of sustainable investing, analyzing ESG (Environmental, Social, and Governance) criteria, and exploring the exciting field of impact investing. "Invest in a better future," I often say. That's the driving force behind my work at Coincu – to empower readers with knowledge and insights to make investment decisions that create a positive impact.

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