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China is mining cryptos again, becomes the second leading miner after the US

China is mining cryptos again, becomes the second leading miner after the US
Photo Credit: Pixabay
23 May, 2022
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A sudden increase in covert mining operations in China has made it the second leading crypto miner in the world after the US, shows a new report from September 2021 to January 2022, by Cambridge Centre for Alternative Finance (CCAF). China’s average monthly hash rate share went up from 0% in August 2021 to 21.11% in January 2022 after CCAF updated Cambridge Bitcoin Electricity Consumption Index (CBECI), which keeps track of average monthly hash rate.  

Hash rate is a measurement of the computational power used for processing crypto transactions. It is mostly used in proof-of-work crypto networks such as Bitcoin that use mining to validate transactions. The computing power required for crypto mining consumes large volumes of electricity, much of which is generated through fossil fuels. 

Last June, China announced a crackdown on crypto mining and trading due to its harmful impact on the environment and growing cases of fraud and money laundering. After the ban came into effect the share of crypto mining in the country fell from 34.3% in June 2021 to 0% in July 2021.  

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“This strongly suggests that significant underground mining activity has formed in the country, which empirically confirms what industry insiders have long been assuming. Access to off-grid electricity and geographically scattered small-scale operations are among the major means used by underground miners to hide their operations from authorities and circumvent the ban,” the CCAF, said in a blog post

The US accounts for 37.84% of the average monthly hash rate. Though India is a big market for crypto trading, mining activities have been limited, accounting for only 0.03% of the global hash rate.  

The pandemic-led boom in the crypto market, especially Bitcoins, has led to a massive increase in global hash rates. This is seen as a major environmental concern and was one of the reasons why the European Parliament wanted to ban all proof-of-work-based cryptocurrencies by passing the Markets in Crypto Assets (MiCA) Bill. Though the bill was passed in March, the clause was removed in the final draft.  

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According to an estimate by Cambridge Bitcoin Electricity Consumption Index, Bitcoin mining takes up more than 121.36 Terawatt Hours (Twh) per year, which is more than the annual electricity consumption of some countries like Argentina, Malaysia, and Sweden. 

Solving the problem requires a lot of computing power which consumes a lot of electricity, much of which is generated through fossil fuels. According to an estimate by the University of Cambridge, Bitcoin mining consumes 113.93 Terawatt Hours (Twh) per year, which is more than the annual electricity consumption of some countries.  

Several countries have banned crypto mining to avoid a power crisis. For instance, in January Kosovo banned crypto mining as Europe was facing an energy crisis. Kosovo also had to import electricity after its largest power plant was shut down for technical reasons. At the same time, Iran also placed a three-month ban on all crypto mining to save power.  

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The harmful impact of crypto mining on the environment is one of the reasons why several crypto networks such as Ethereum are moving from proof-of-work to proof-of-stake protocol, where miners are required to stake their cryptocurrencies to validate transactions instead of mining one.