Friday, March 31, 2023

What if China bans bitcoin mining?


The National Development and Reform Commission of China (NDRC) wants to ban bitcoin mining. The corresponding document appeared on the website of the organization. How will it possibly influence bitcoin?

Well, let’s figure out what possible outcome this decision might give to bitcoin network – this will reduce the hashpower of the network, blocks will be harder to be confirmed, it will take longer to calculate one block.

This situation might look as a disaster, considering the fact that by some calculations, up to 60% of the hashpower of the entire network is currently located in China. According to the logic of an average human-being, we imagine a huge factory with some production lines that are constantly printing bitcoins as the reward for the product, coming out of these lines. Just imagine now that half of the lines suddenly disappeared. Less product is coming out of the factory, less profit and the whole factory is now struggling for its existence. What a terrible picture!

Do you even remember that bitcoin was created by clever people and the outstanding set of awesome ideas is inside of its code? This is the proper time to remind you about that. Every 2016 blocks, the average hashrate during that period is measured, and the difficulty is adjusted based on that. Voila!

This is how this adjusting process looks like at charts:

The sheer beauty, is it?

Let’s figure out, what this beauty means for the miners that will be still online. The current reward for each block mined is 12,5 BTC per block, excluding transaction fees. What does that mean? If hashpower drops, the reward stays the same, difficulty drops soon, but the reward stays the same.

It’s like, our factory with half of the production line being down, keeps receiving the same profit and at some point in the nearest future, the price of the raw materials, used by the factory, drops in half! Good times for the factory.

Let’s look at this situation under a different angle: former Chinese miners want to return their investments and sell their equipment with the good discount or move their farms to another country (apparently, not India with their uncertainty to cryptocurrencies).

This possible decision of the authorities of China will actually solve another problem – centralisation of bitcoin mining. Now it looks like a win/win situation for bitcoin, but not for the miners from China, unfortunately.

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