Miners Clampdown in China Good for Bitcoin in the Long Run
Recent Bitcoin predicaments have been compounded by the series of bans being carried out in China. Significant among these bans is the abolishment of mining activities within the country. The order to shut down Bitcoin mines has had a direct effect on the Bitcoin and cryptocurrency market, leading to tumbling prices and a major drop in both hashrate and market capitalization.
While the ban on mining activities in China is having an immediate negative impact on the Bitcoin and cryptocurrency market, there is the belief that it could serve as a restructuring process that will lead to a better organized and more established industry in the long term.
Bitcoin was described as a Chinese coin
Right from the early days of Bitcoin, the lion’s share of the hashrate emerged from China. This is a result of the concentration of Bitcoin mining activities in the country. Favorable weather, cheaper electricity, and a few other factors were the attraction for miners, the majority of whom settled for China as a convenient region for their mining operations.
Over the years, the lopsided nature of the mining industry in terms of regional hashrate distribution has been criticized. The situation even led to some participants in the crypto space describing Bitcoin as a Chinese coin. The underlying argument was that as long as the majority of the hashrate was domiciled in one region, Bitcoin could not be assumed to be fully decentralized.
The fear of many users at the time was that activities in China, whether political or otherwise, could send the entire market into a frenzy since the bulk of the hashrate was located there. Of course, the events of the past days and weeks seem to prove this argument right. A clampdown in China alone has impacted the Bitcoin market in such a huge manner.
Miners are relocating and restructuring
Apart from the order for banks and commercial institutions to desist from supporting cryptocurrency activities, outright shut down orders were issued towards Bitcoin and cryptocurrency mining activities. Provinces like Xinjiang and Inner Mongolia have already gone ahead with the implementation of the ban on miners.
As a result of this development, most China-based Bitcoin mining companies have already started to relocate to regions with more friendly and stable legislation. Texas in the United States has been identified as a destination for some Bitcoin mining firms. So are parts of the UK and other parts of the world, including Kazakhstan and some countries in the Nordic region.
These firms are not just relocating, but also restructuring their sources of electricity to meet up with globally accepted standards of green energy. Since one of the key reasons for the ban in China was due to the source of electricity, this new restructuring is seen as an upgrade by the industry. Therefore, Bitcoin mining, in the process will overcome one of the long-lasting barriers for which it has been criticized.
What it means for Bitcoin
Also, the exodus from China is seeing miners scattered across different parts of the world. This would in essence lead to a more distributed network that is not dependent on a particular region. Hence, there could eventually exist a more balanced ecosystem where events in a single region may not always throw the entire network into extended volatility.
The body language of major investors suggests a high level of optimism for Bitcoin. While the market seems to be tumbling, investors have continued to introduce more funds, confident that the recent crash is only temporary. Perhaps, when the miners are done with relocation, and operations revived, we might end up with a more mature and stabilized Bitcoin ecosystem, with no coloration of centralization.