China’s ban on cryptocurrency mining has caused a huge problem for mining companies and pools in the country, with the effect of this ban affecting others more than some. Since this ban, bitcoin’s mining hash rate has dropped to 94 Eh/s according to data from Glassnode. This drop could lead to a 25% drop in the value of the assets.
With the hash power declining and most Chinese miners going offline, the business should become easier and potentially more profitable for miners that are still active, according to Sam Doctor. As the hash rate declines, the number of daily bitcoins earned for each unit of computational power will likely increase so there will be more bitcoin for active miners. To predict the dollar-equivalent of these bitcoins will be hard given cryptocurrency’s notorious price volatility.
But, in order to understand what we will talk about in this article, we will first explain what does that even means and how important it is for this market.
What is a BTC mining hashrate?
Probably you already know this, but in order for the Bitcoins to be mined, they need a large volume of electricity, combined with powerful computers that are used to solve the complicated crypto tasks. Every completed transaction is followed by a proof-of-work, and it should be confirmed a few times until it’s sealed in the blockchain forever. The term “hashrate” usually refers to the whole computational power used to complete this process. It’s also common with Ethereum too.
One crypto project is represented by a code that is a combination of words, messages, characters, and numbers, and the hashing algorithms help you discover which word or phrase is hidden behind that “encrypted” message, you need to discover, so you can mine that block, and get the Bitcoin as a reward.
After you (or your machine) complete that, a new block is added to the chain (blockchain, remember?), and the miners proceed to the next one, trying to use a hash that is lower than the target hash. But, no one says it’s easy, and as you can see, for beginners can be really confusing. It’s always better to ask someone to explain it to you, with practical examples, so you can understand what’s happening.
Causes of bitcoin mining hashrate
Concerns about the effect of China’s ban on bitcoin mining have led to the decline in the value of bitcoin’s price from the all-time high in April. The fall in the value of bitcoin is likely to continue due to the suspension of activities and the migration of miners. At the moment of writing, one BTC is equal to $33,139 – which is still a good price but much lower than the peak that happened in April this year.
When will the fall come to an end? Nobody knows! It all depends on how the crypto mining industry responds to China’s crackdown. According to CryptoEngine, as many more miners are on the move, it’s going to take some time for the infrastructure deployment to be complete. This will lead to more drops in the hash rate in the next 10 quarters. It’s simple just like everything else – when the demand is high and supplies are limited, it becomes pretty difficult to reach them.
With the search for a new mining rig, North America looks most likely to be the next destination due to its lower geographical risks, emphasis on environmental, social, and corporate governance, and large-scale utility network.
Challenges to bitcoin mining hashrate
The mass migration of miners to North America has seen a surge in the inbound request of megawatts. This can be a challenge considering how North America manage their electricity. If North America cannot handle the incoming number of miners that could lead to a delay in hashing.
Migration is another issue as it takes time and the infrastructure involved could be a heavy load.
A lot of machines are involved in the mining process so before it could get to the other end of the world, the hash rate is going to suffer.
Another concern is that not all miners will find hosting rigs outside of china and that could be a problem as there are not many sites available for development. Miners have to find new sites to begin production for the hash rate and price to find some form of stability.
And finally, the people around can also have issues, because the current network can’t handle that amount of consumption. In the worst-case scenario, it may lead to failures, damages, and constant issues with the electricity around the mining areas. It’s a huge challenge for the miners to do that without causing any problems.
People even call these places mining farms, because a lot of computers are connected to the sources of power, but also fans and coolers are used because the machines can easily heat up – which is another challenge in this whole process. But those who are dedicated to run this process have all these things in mind, even though they can miss something, and then fix it as needed.
How to scale through this period
To protect the system and help investors scale through this period, some anonymous creators implemented a procedure that could ultimately help called the difficulty adjustment.
Essentially, it’s a feature that occurs at every 2,016 blocks and makes it either harder or easier for miners to do their job.
In extreme cases like now, the mining becomes easier, which would mean that the network’s hash rate will recover shortly even if the number of miners doesn’t increase.
You need to know and remember that the higher this rate is, the more blocks are easily mined, and more Bitcoins are spent as a reward to the people who are doing that. But if it’s too easy to get those precious coins, it’s a sign that soon will happen a difficulty adjustment, so the “owners” of the chain can refresh and renew the network, and make the whole thing more challenging for those who are still interested to mine.
On a positive note, the movement and stability of miners will bring about a stable rating of the value of bitcoin and other cryptocurrencies. But, until then, the networks will have to readjust themselves to become more robust.