The ban on mining in China brought the United States to first place in the hashrate of bitcoin, the income of miners set new records, but at the same time the industry faced a shortage of semiconductors. Let’s remember what 2021 was remembered for the mining sector.
- China banned mining and lost the championship to the United States.
- Manufacturers of mining equipment reported record revenues, but their work is affected by the global shortage of chips.
- A new player appeared on the world map – Salvador began to mine digital gold, but not everyone supported the use of geothermal energy sources.
China has banned mining
At the end of May, Vice Premier of the State Council of the People’s Republic of China Liu He announced the intention of the authorities to take measures regarding the mining of cryptocurrencies and bitcoin trading. He called on regulators to promote the real economy and establish tighter oversight of the crypto industry.
Almost for the first time, an official of such a high level directly proposed to ban cryptocurrency mining operations. The decisive factor could be the environment – Beijing plans to achieve carbon neutrality by 2060. For the PRC, this is more than an ambitious goal.
According to one of the studies from April, mining farms located in China on the horizon of three years could outpace the Philippines in terms of greenhouse gas emissions. Scientists claimed that the industry will come in 10th place in terms of energy consumption and carbon dioxide emissions, leaving behind the largest Chinese cities and a number of leading industries, including the production of electronics.
“Mining is nowhere counted as a separate source of carbon dioxide, which complicates the assessment of its impact on the carbon budget of the PRC. Politicians should solve this problem in the very near future, “the researchers noted then.
They proposed to limit the production of bitcoin at least in those regions where the main source of electricity is coal-fired power plants.
After Liu He’s statement, the topic was picked up by the government’s official news agency Xinhua, releasing material criticizing bitcoin and mining. The first reaction of industry players appeared – according to the media, the BTC pool. TOP and bitcoin mining company HashCow considered it a blessing to stop activities in China.
At the same time, there were signs of hashrate migration outside the country.
In early June, authorities in Xinjiang and Qinghai provinces ordered local mining companies to stop operations. Restrictions on activities have also begun in the Yunnan region.
In the autonomous region of Inner Mongolia, the fight against mining began even before the statement of the Deputy Prime Minister of the State Council.
In Sichuan, miners were ordered to stop working until June 20 and banned local energy companies from supplying them with electricity.
Chinese miners have traditionally migrated to Sichuan for a period of “high water,” which usually lasts from May to October. At this time, the capacity of local power plants increases dramatically, which ensures excess electricity and low tariffs.
Back at the beginning of the month, officials organized a seminar with bitcoin miners to discuss the scale of mining and the use of surplus electricity in case of a ban on cryptocurrency mining. According to the participants, the meeting was held in a positive way. After it, the authorities told the miners that they would allow them to work until September, but changed their minds.
By mid-July, 90% of the mining capacity in China was turned off. The main directions of relocation were the Usa, Canada and Kazakhstan.
During the same period, other countries also seriously increased their shares. In Kazakhstan, it increased from 7.4% to 18.1%, and in Canada – from 4.7% to 9.6%.
Russia’s indicator in relative terms added less – from 7.2% to 11.2%, but the country retained the third place in the ranking.
CCAF researchers noted that China’s dominance ended even before the open repression against mining began. Already in March, his hash rate for the first time was less than half of the total.
Kazakhstan, against the background of the influx of miners, began to experience a shortage of electricity, and by the end of the year, industry players began to leave the country.
In Russia, we received applications for the placement of 1.08 million ASIC miners.
In November, the Foundry USA pool briefly emerged as the leader in hashrate. At the moment, its share reached 21%.
Big day for the Foundry USA Pool. Super proud of the team @FoundryServices . #1 BTC pool in the world. We set out to be a world-class pool for the publically traded miners. So glad to support their efforts and excited to see them grow their businesses. pic.twitter.com/CfKMETNnJA— Mike Colyer (@colyermike) November 17, 2021
According to Foundry USA,19.9% of the pool’s computing power comes from New York State, 18.7% from Kentucky, 17.3% from Georgia and 14% from Texas. Castle Island Ventures co-founder Nick Carter, who conducted research for the firm, noted that this is not a complete picture of the landscape of the industry in the United States. For example, one of the largest public mining companies Riot Blockchain conducts operations in Texas, but it is not a client of Foundry, so it did not get into the indicators.
The emergence of a large number of listed companies in the industry or seeking to be listed was one of the consequences of the growth of mining in North America.
Some of them chose the IPO path, like Northern Data, Stronghold Digital Mining or Rhodium Enterprises, others – a deal with SPAC. The latest include: Cipher Mining Technologies, Gryphon Digital Mining, Core Scientific, Greenidge Generation, Prime Blockchain (PrimeBlock), GRIID and TeraWulf. And Iris Energy preferred a direct listing.
The status of a public company facilitates the attraction of financing, including from institutional investors. For example, the American Marathon Digital Holdings, listed on nasdaq, received $ 250 million at the beginning of the year through the sale of shares. In November, the firm placed convertible bonds with a nominal value of $ 500 million Shares in the company are owned by such investment giants as Fidelity Investments, Vanguard Group and Blackrock.
Private miners also actively attracted investments. In July, Genesis Digital Assets received $ 125 million in equity, and in September raised another $ 431 million. GRIID received a revolving loan of $ 525 million from Blockchain.com.
Some experts believe that migration to the United States has made mining more environmentally friendly.
Elon Musk revived the environmental discussion around mining
At the beginning of the year, researchers from the CCAF reported that the annual energy consumption of digital gold mining reached 121.36 TWh, surpassing that of Argentina. Since the end of 2015, the figure has increased 66 times.
Critics of bitcoin constantly point out that generating electricity for mining leads to an increase in greenhouse gas emissions, contributing to global warming. Proponents of cryptocurrency believe that the network largely uses renewable energy, and its impact on the environment is exaggerated.
At the same time, according to the non-profit organization of the National Bureau of Economic Research from the United States, 10% of the largest miners control 90% of mining capacities,and 0.1% (about 50 companies) account for 50% of the hashrate.
Such consolidation carries systemic risks, since it theoretically allows the organization of an attack of 51%. When the price of bitcoin falls, the concentration of power tends to increase, experts added.
Manufacturers of mining equipment reported record sales
At the end of the third quarter, Canaan reported record revenue of $ 204.5 million Year-on-year, an increase of 708.2%, and compared to the previous quarter increased by 21.8%.
At the end of 2020, the manufacturer of mining equipment recorded a loss of $ 33 million, but for the first three months of 2021 it received a profit of $ 72.5 million.
The firm also reported cash reserves of $263.2 million, which have more than tripled since the beginning of the year, mainly due to customer advances.
Ebang generated revenue of $18.3 million in the first six months of the fiscal year — plus 65.7% year-on-year. The loss for the period decreased from $ 6.96 million to $ 4.26 million.
MicroBT and Bitmain did not disclose financial results. Among the known major sales of the latter:
Bitfarms bought 48,000 miners from MicroBT with a delivery schedule from January to December 2022, and Core Scientific supplemented the fleet with 6,000 devices from Canaan.
In September, Bitmain stopped selling equipment to Chinese customers, Canaan previously reported that sales abroad bring more than 78% of revenue.
Of the major manufacturers, only Bitmain introduced a new bitcoin miner model within a year.
Bitmain officially announced the new mining machine S19 XP, which is slightly different than the previous Thai supplier's disclosure: 21.5J/T, 140T, and 3010W. pic.twitter.com/Ai7yv7L4dn— Wu Blockchain (@WuBlockchain) November 10, 2021
Antminer S19XP is built on the basis of 5-nm chips, has a computing power of 140 TH / s with an energy efficiency of 21.5 J / TH. The current flagship S19j Pro has indicators of 110 TH/ s and 29.5 J / TH, respectively. Presumably, the beginning of deliveries of S19XP is expected from July to September 2022.
The pandemic provoked a logistics crisis and a shortage of chips
In the autumn, supply disruptions due to the global crisis in logistics were reported by American companies waiting for large batches of equipment. Riot Blockchain called the problems “insignificant”, but Marathon Digital admitted that it resorted to air transportation to deliver devices.
Experts also drew attention to the shortage of chips, which arose due to a decrease in production volumes and changes in the supply schedule during the pandemic. The shortage of semiconductors had an impact, among other things, on the manufacturers of miners.
Experts suggest that the deficit will continue in 2022, which will affect the supply of equipment and its prices.
Meanwhile, plans to start production of devices for bitcoin mining were announced by non-core companies, such as jack Dorsey’s payment firm Square and Sino-Global Shipping America, which works in the field of maritime logistics.
Against the background of the popularity of mining, more and more companies from other spheres entered the industry. In January, quotes of the Chinese The9 traded on nasdaq soared by 140% after the announcement. Following the plans to engage in cryptocurrency mining, public companies Urban Tea and Powerbridge Technologies unveiled, and the Japanese financial conglomerate SBI Holdings announced the launch of a mining pool.
Interest in the industry was shown by the authorities of some countries. The government of khyber Pakhtunkhwa province in Pakistan decided to create two enterprises for bitcoin mining.
El Salvador has started volcanic mining
After the legalization of bitcoin in October, the Salvadoran authorities launched a mining farm at a geothermal power plant near the Tecapa volcano. It has 300 devices installed on it.
To start mining the first cryptocurrency on environmentally friendly volcanic energy, President Naib Bukele proposed on June 10. At the same time, he announced plans to attract miners to the country with cheap electricity.
El Salvador imports between a quarter and a third of the electricity it consumes, and tariffs for both the population and businesses are above the global average. In addition, miners prefer to place farms in cooler climates, and El Salvador is located in the tropics.
Experts agreed that geothermal energy in the country has prospects, but its development will require years and millions of investments. At the same time, the environmental friendliness of volcanic energy has raised questions – drilling wells to access underground heat can damage aquifers, which are in short supply in El Salvador.
Most likely, the influx of miners to the United States will continue – there is sufficient capacity at low tariffs and suitable climatic zones. Market players are actively building infrastructure, and the institutionalization of the industry helps to attract investment and loyal attitude of regulators.
For Western companies, it is important to comply with the principles of sustainable development (ESG), which has already improved the environmental friendliness of mining. This trend will continue, given the carbon neutrality goals of many countries.
Bitmain has pulled ahead in the technology race of manufacturers, but the shortage of chips and the possible continuation of the crisis in global logistics affect the timing of deliveries. Competitors also suffer from this, who still have to catch up with the leader in terms of energy efficiency of devices.
Given the high demand for equipment from North American companies, the emergence of new manufacturers, primarily in the United States, is not far off.