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Heavy Floods, BTC Price, and Stiff Competition Make 2020 a Tough Year for Miners in China

Despite the rising difficulty and increasing competition, cryptocurrency mining has seen incredible growth in the past several years. A place where the huge growth in the mining industry was most evident was China, where entire provinces seemed to have been swallowed by huge mining farms. But, nowhere was this more evident than in Sichuan, a landlocked province in southwestern China, where a combination of economic and geographical factors created a perfect foundation for Bitcoin mining.

Earlier this month, 8BTC visited some of the largest mining farms in the region, finding that most of the farms have invested well over 100 million Chinese yuan in the facilities. 

The reason why so many farms have set up shop in Sichuan is the region’s rainy season, which makes the province’s already cheap hydroelectric power even cheaper in the spring and summer months. Historically, this has been a major advantage for Chinese miners, who frequently accounted for more than half of Bitcoin’s total hash power. 

However, what seemed to be a fail-safe investment has now proved to be a very risky endeavor. A surge in interest last year has pushed investors to build large mining facilities they planned on renting out to companies. It was widely that this has led to a surplus of mining facilities in the region, with some reports suggesting that between 20% and 30% of the total mining facility capacity in Sichuan and Yunnan provinces will remain unused during this year’s rainy season.

Another important factor that led to the sudden increase in mining operations being set up in Sichuan was the Bitcoin halving. Many expected that the price of Bitcoin would skyrocket following the May block reward halving and were even prepared to bear the weight of increased mining difficulty.

However, as Bitcoin’s price remained flat following the halving, miners saw a significant decrease in profitability. Data from Bitinfocharts has shown that, on average, miners made $0.16 per day for 1 THash/s a day before the halving. Once the halving took place, on May 10, mining profitability dropped to $0.07 per day for 1 THash/s and struggled to remain on that level in the past three months. 

Graph showing Bitcoin mining profitability from Mar. 2020 to Aug. 2020

Graph showing Bitcoin mining profitability from Mar. 2020 to Aug. 2020. (Source: Bitinfocharts)

Miners that can bear financial losses due to increased competition and high mining difficulty might find themselves facing another, more technical problem. Namely, the powerful rivers that fuel Sichuan’s cheap electricity have a nasty tendency to flood the region. And while the country has built some of the most advanced damns and flood protection, hundreds of thousands of people and businesses have already suffered from this year’s massive floods—including Bitcoin mining facilities.

As most of them are built in the upper reaches of Sichuan’s mountain areas, not many have been directly hit with the rising water level. They did, however, suffer from power outages, as many hydroelectric plants succumbed to the water pressure and stopped working. Even after the water retreats, miners also face the danger of mudslides, with local reports showing that several mid-sized and large Bitcoin mining facilities were destroyed in mudslides at the beginning of June. 

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