The amount of computing power dedicated to churning out new units of bitcoin has jumped close to an all-time high as cryptocurrency miners shift their operations to new countries following a clampdown in China.
The bitcoin hash-rate, a measure of how difficult it is to create new coins, has risen to 172m terahashes per second, the highest since May, according to data from Blockchain.com. The increase suggests digital “miners” are dedicating more computing resources to crack complex puzzles, for which they are rewarded with newly-minted bitcoin.
Miners have been moving to new geographies since May, when China outlawed the energy-intensive practice. The negative environmental impact of bitcoin mining has been a key sticking point for bitcoin critics, due to the amount of energy needed for producing new coins.
The pace of the recovery signals the difficulties authorities face in regulating the highly-mobile and global cryptocurrency industry.
“China banning mining merely prompted a geographic shift . . . we view this [move] towards other countries, including Canada and the United States, as a net positive,” said Jason Zaluski, head of technology at Toronto-headquartered Hut 8 Mining Corp.
The geographical reshuffle unlocked a profit windfall for mining companies in the US and elsewhere as activity relocated to new facilities in countries offering cheap sources of energy, such as the US, Iceland, Norway and Canada.
Bitcoin miners play a crucial role in the crypto market because they mint new coins and ensure the security of the underlying technology, which relies on powerful computers solving mathematical equations. A higher hashrate indicates it is harder to disrupt a crypto network.
Miners are incentivised to turn on as many machines as possible when the price of bitcoin is high, which partly explains the pace of the bounceback. Bitcoin was trading at $50,000 on Wednesday, down from its all-time high in May at $69,000 but still more than 50 per cent higher than the start of the year.
Despite the bounceback, China’s ban has had a lasting impact because the rate of production would be even higher without the country’s clampdown. Bitfury, one of the world’s largest mining companies, said that despite the recovery hashrates were “far below what it would have been but for the China development”.
Sam Doctor, chief strategy officer at digital asset specialist Bitooda, said the previous year-end forecast of 198m terahashes per second was “a stretch” and hashrates were now more likely to finish December between 180m to 190m terahashes per second.
But the shutdown of the industry in the Asian country has forced companies to switch on more efficient equipment, which boosted hashrates.
“Most of the recovery is attributable to new-generation equipment coming on line, not relocation of equipment from China, where much of the equipment was too inefficient to keep operating in new locations,” Bitfury told the FT in a statement.
China’s largest bitcoin-producing provinces clamped down on mining in an effort to cut down on carbon emissions and a push against private cryptocurrencies as the country works on its own official digital coin. Its crackdown rippled through the mining industry and global computing power dedicated to bitcoin mining initially halved in its immediate aftermath.
But prices of cryptocurrencies have steadily recovered in the autumn and miners have benefited from a shortage in capacity and equipment to mine more currency.
Last week Marathon Digital, a US-listed miner, forecast it would hit record levels of mining by the middle of next year when a newly-built renewable energy site in Texas becomes available to more miners. Riot Blockchain, another Nasdaq-listed miner, also raised its hashrate forecasts for next year as a new facility in Colorado goes online.