Bitcoin’s hash rate drops to a six-month low after China shuts nearly 90% of its bitcoin mining

• After years of extravagant mining, China has decided to clamp down on miners who consume a tremendous amount of energy.
  
• Bitcoin’s hash rate has hit a six-month low since China contributed a majority of it.
  
• The consequences are visible globally as Bitcoin's value dropped by 8% in a day.
  
• China has vowed to reduce its carbon dioxide emissions by at least 65% by 2030, prompting it to consider mining a threat.
  

Bitcoin, the most popular cryptocurrency, has hit a massive roadblock in China. After years of extravagant mining, the country has decided to clamp down on miners who consume a tremendous amount of energy. While Beijing unveiled its new policy in May, local authorities were yet to act on it and enforce a closure. China hosts around 70% of the world's Bitcoin mining capacity, called the hash rate. Now, 90% of Chinese miners have shut shop after authorities closed the supply of electricity amid a nationwide crackdown on cryptocurrencies.


Bitcoin’s hash rate has hit a six-month low since China contributed a majority of it. From a peak of 180.66m (tera hashes per second), it has now corrected to 127m.


The consequences are visible globally as Bitcoin's value dropped by 8% in a day. It was valued at more than $40,000 in mid-June but is now barely able to maintain $33,000. Ether, Dogecoin, and other cryptocurrencies have also witnessed a drop in their worth as stormy clouds continue to envelop the industry.


The Chinese Communist Party (CCP) firmly believes that cryptocurrency can pose a potential risk to the country's financial stability.



What is a hash rate?

In simpler words, hash rate is a measure of the computational power per second used when mining. It also helps us understand the speed at which each block is being processed.


The hash rate relies on the performance of the processors used, hence miners prefer a collective effort via remote computing or create huge farms with hundreds or even thousands of computers working together. A higher hash rate means more resources are being devoted to processing transactions on the blockchain.


The total hash rate is determined by gathering connections from miners that could be all over the world. Whether someone wants to try mining as a hobby that may not bear fruits, or they want to run several large mining computers at once and try to make some serious coin, a pool fits everyone.


China clamps down on Bitcoin mining

On May 21, the State Council's Financial Stability Committee resolved to "crackdown on Bitcoin mining and trading" to curb related financial risk at a meeting chaired by Vice Premier Liu He, according to a statement released late the same evening.


Bitcoin mining is concentrated in four regions of China -- Xinjiang, Inner Mongolia, Sichuan, and Yunnan. The first two are home to some of China's largest coal-based electricity plants, and mining operations were stopped there a few weeks ago. The latter two are significantly green and dependent on hydropower.


The Sichuan Provincial Development and Reform Commission and the Sichuan Energy Bureau issued a joint notice to 26 cryptocurrency projects. State-run electricity companies have been asked to carry out inspections to ensure crypto mining projects are no longer receiving energy.


Sichuan's initiative makes it the latest cryptocurrency mining hotspot in China to clamp down on the activity. The government, which has banned financial transactions of Bitcoin and other digital tokens since 2019, turned a blind eye to mining farms up till now. But, China has vowed to reduce its carbon dioxide emissions by at least 65% by 2030, prompting it to consider mining a threat.


Miners are scrambling for an alternative to China

For the crypto community, it's a worrying sign. Bitcoin has been criticised by many for its energy-intensive design, which is backed by consuming fossil fuels. Sichuan going offline means the token further relies on fossil fuels in regions like Iran, Kazakhstan, and even the US. The clampdown forced cryptocurrency exchange Huobi to suspend bitcoin mining services and sales of mining equipment in the country. Similarly, services like HashCow and BTC.TOP have stopped operations.


The latest moves are likely to accelerate the process of Chinese crypto miners moving overseas, with Central Asia, North America, and Paraguay touted as potential new homes for their operations. Several large-scale mining firms are considering moving out from China and opening shops in the US or Canada. While nearby Asian countries make logistical sense, Bitcoin mining is a location-agnostic process that only requires a connection to the internet.