The sharp drop in hash rate caused by the large number of miners leaving China shows that large-scale proof-of-work mining facilities are easily regulated.
As Bitcoin grew reliant on large-scale mining infrastructure and furthermore on geographic concentration, the recent mining crackdown in China has thrown things into disarray. In May of this year, China announced that it would take tough measures against cryptocurrency mining and trading to deal with financial risks. The country’s crackdown on cryptocurrencies is not new. Instead it is a continuation of its previous stance on the risks of digital currencies to economic stability, especially in response to recent price fluctuations.
For the first time, cryptocurrency miners are the target of implementing existing guidelines. Even if mining moves to other locations, the mining hardware still has potential risks. This can prove that the Ethereum blockchain’s shift to Proof of Stake (PoS) that can be run on consumer-grade devices, which is a more reliable way to decentralize.
Bitcoin (BTC) mining relies on large-scale industrial cryptocurrency mining farms, and is mainly concentrated in China, which accounts for 65% of the global hash rate. This trend is supported by manufacturing and acquisition of customized hardware in China, as 50% of the ASIC mining machines produced are distributed to Chinese miners. The crackdown caused major upheaval in the Bitcoin market. The hash rate of the Bitcoin network has fallen to its lowest point in 12 months, and more provinces are requiring miners to shut down.
China’s policy stance on Bitcoin seeks “financial stability and social order”, which may be the result of geopolitical interests, in addition to its established reduction of carbon emissions and the shift of energy to other industries. The downfall prooves Bitcoin’s dependancy on industrial-scale mines, hardware supply chains, and electricity.
Miners are now seeking new horizons with friendlier views on cryptocurrency mining. This may open up healthy competition for other cryptocurrency-friendly policy positions in other jurisdictions to attract industry participants-for example, as we have seen, Wyoming is friendly to decentralized autonomous organizations and general cryptocurrency Supported by the legislation. However, it is not clear whether mobile hardware will make it immune to policy blows.
Hardware has always been the main point of vulnerability of decentralized infrastructure. In cryptocurrency networks based on the Proof of Work (PoW) algorithm, such as Bitcoin, the generally recognized transaction records rely on distributed computer networks. This is easily affected by structural development, including mining concentrated in in certain regions or using upgraded hardware that have not yet been provided to the wider market to “pre-mine” cryptocurrency, or delays in the supply chain.
The concentration of computing power in one place, relying on massive mining hardware centers and being vulnerable to regulatory crackdowns is contrary to the idea of decentralization. Now, as the infrastructure is concentrated and not run only be individual peer-to-peer systems on general purpose computers, entire network can be damaged by single point of failure. This may also explain why it is important for Ethereum to switch to PoS consensus. Attacking a PoS network is more costly in terms of time and money than hiring or purchasing hardware to attack a PoW blockchain.
In addition, running a PoS validator node on a laptop is far less conspicuous than running a large-scale hardware mining operation. If anyone can use consumer-grade equipment to run nodes from anywhere, more people can participate in the verification network, making it more decentralized, and regulators will find it almost impossible to prevent people from running nodes. In contrast, the Bitcoin mining conglomerates are easier to find due to enormous electricity consumption.
Kazakhstan and Russia are seeing an influx of cryptocurrency miners from nearby regions. Texas and other cryptocurrency friendly regions are providing legal clarity to attract more miners from around the world. Hardware is also being sold, and logistics companies report that thousands of pounds of mining machines have been shipped to the United States for sale.
Although China’s policy has caused some fear, uncertainty and suspicion in the market, it may help eliminate structural loopholes in the network, which is why some Bitcoin supporters have welcomed the crackdown. The goal of Bitcoiners is long-term decentralization. However, mobile hardware is not the same as further decentralizing the network and eliminating the loopholes in the regulatory crackdown on miners.