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Why China’s Pressure Might Favor Bitcoin Mining By Investing.com

© Reuters.

In Laura Sanchez

Investing.com – Last month, Beijing imposed new measures to crack down on mining after concerns about the environmental impact of cryptocurrencies, prompting so-called “miners” to flee China to other regions such as North America.

However, the Chinese crackdown intensified over the weekend after authorities in China’s hydropower-rich province of Sichuan closed operations at mining sites in the region.

According to the state-run Global Times, more than 90% of China’s bitcoin mining capacity will be affected by the new pressure, with 65%/75% of all global bitcoin mining taking place in the Chinese mainland.

However, while Beijing’s actions may not be good news for “miners,” there are other players who could benefit from them.

What is bitcoin mining?

When thinking about mining, the image of a gold mine with picks and shovels is probably the first thing that comes to mind. But mining bitcoin is not the same as searching for gold or other precious metals.

Cryptocurrencies are supported by an extensive network of computers around the world. In the case of Bitcoin, these computing centers validate transactions by generating a new amount of BTC added to the global valuation base, rewarding the site from which the coin was created.

Why does bitcoin consume so much energy?

At the moment, the miners’ premium is limited to 6.25 bitcoins, while in the past it was 12.5 bitcoins. This is because the total supply of bitcoins is limited to 21 million, and the amount allocated to those who mine the token almost halves every four years.

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“Being the first miner to mine a new slate of bitcoin transactions is an adventure,” explains Alice Keelen, founder and managing partner of venture capital firm Steelmark.

Mining will become easier

The processing power (hash rate) of the Bitcoin network has dropped dramatically after the Beijing crackdown. Over the past month, the hash rate fell from 180.7 million terahashes per second (a measure of the speed of mining hardware), to about 116.2 million on Wednesday, according to data from Blockchain.com.

But with more mining sites shutting down as a result of the Chinese restrictions, experts say, “more miners’ participation on the network will increase, which could make mining more profitable.”

“As the hash rate drops, the mining difficulty will match the downside, and the hash rate that remains active on the network will receive more of its relative share of the mining rewards,” said Kevin Chang, Vice President of Mining Foundry cryptocurrencies.