China is second-biggest bitcoin mining hub as miners go underground

Bitcoin miners aren’t giving up in China despite Beijing’s ban on the practice.

China was once the world’s biggest crypto mining hub, accounting for between 65% to 75% of the total “hash rate” — or processing power — of the bitcoin network.

But the country’s share of global bitcoin mining capacity plummeted to zero in July and August 2021, according to Cambridge University data, after authorities launched a fresh crackdown on cryptocurrencies.

Among the steps China took was to abolish crypto mining, the power-intensive process that leads to the creation of new digital currency. That resulted in several miners fleeing to other countries, including the U.S. and Kazakhstan, which borders China.

But, as CNBC has previously reported, several underground mining operations have since emerged in China, with miners taking care to work around Beijing’s ban.

Now, new research from the Cambridge Centre for Alternative Finance shows that Chinese bitcoin mining activity has quickly rebounded. By September 2021, China made up just over 22% of the total bitcoin mining market, data from Cambridge researchers show.

It means China is once again a top global player in bitcoin mining — second only to the U.S., which eclipsed China as the largest destination for the sector last year.

There is one caveat: The research methodology relies on aggregate geolocation from huge bitcoin mining “pools” — which combine computing resources to more effectively mine new tokens — to determine where activity is concentrated in different countries.

This approach may be vulnerable to “deliberate obfuscation” by some bitcoin miners using a virtual private network (VPN) to conceal their location, researchers said. VPNs make it possible for users to route their traffic through a server in another country, making them handy tools for people in countries like China, where internet usage is heavily restricted.

Nevertheless, they added this limitation would “only moderately impact” the accuracy of the analysis.

Unlike traditional currencies, cryptocurrencies are decentralized. That means the work of processing transactions and minting new units of currency is handled by a distributed network of computers instead of banks and other intermediaries.

To facilitate a bitcoin payment, so-called miners need to agree that the transaction is valid. That process entails making complex calculations to work out a puzzle that increases in difficulty as more and more miners join the network, known as the blockchain.

Whoever is first to solve the puzzle gets to add a new batch of transactions to the blockchain and is rewarded with some bitcoin for their effort.

This method of reaching consensus, known as “proof of work” consumes a lot of energy…