1. Introduction

Bitcoin is a decentralized digital money structure that was introduced in 2009. The structure is set up to make new bitcoins at a fixed rate. This will continue until 21 million bitcoins have been created. This point of restriction has been incorporated into the structure by bitcoin programming that was recognized by engineers and later enshrined with the aid of a wide range of designers. A monetary unit is typically characterized as a process of allotting coins and notes to an unequivocal increase in gadgets and services. It’s a tool for various sorts of human hobbies. Bitcoin meets this definition of money in a number of ways, but a couple of perspectives set it apart from coins and customary varieties of cash. Bitcoin has different conceivable access services, and as an alternative to an extra cash, go with the flow approach, going for walks on banking servers and making use of actual coins and notes. Primarily, it exists on the planet’s broad internet. Second, it’s absolutely up to the person. An approach to coins associated with assets is through specialization at a bank or money-associated exchange end. There are noticeably a couple of visitors snared on the equal monetary development. Bitcoin replaces the bound to an online exchange; the usage of an unpredictable address for every conceivable flow and get is limitless with respect to attainment or substance. Bitcoin is a technique of coins conveyed with the aid of the overall populace. New coins are given as a prize for a person to an great diploma worked on. This motion alludes to bitcoin as a biologically positioned money. In assessment of high-quality adaptation practices, coins have as of now advanced into an period of essentially extraordinary nature. Bitcoin fulfills this sort of methodology in viewof the fact of the fact that it is conveyed via mining, but predominantly computerized server farm mining instead of the antique cozy and perilous tunneling or wellspring and mineral sifting mining. New bitcoins are made using an honestly oversaw fee; they are installed on a on a bitcoin instrument. The potential consequences of such actions and the presence of a constrained sum provide the possibility of lifting bitcoin a long way from a time-volatile option to the maximum lightweight. As befits a superior target market-led age, the greatest oversight of bitcoins is represented through records. Bitcoin has its own unmistakable stage in the form of leading the Bitcoin convention through a barely thick jungle of scripting criteria and authoritative usage of bitcoin programming. The final and, to an extraordinary degree, essential type of oversight is the person. The thought is the best authority for the accessibility of any sort of goal and is delegated to the power proper probability to figure out or stop usage of specific cash or money-related aid. Users can set bitcoin as a resizing speculation finance approach given the particular absence of swells and losses of coins.

1.1. Definition of bitcoin mining

An important term in the mining process is “difficulty.” It is a measure of how difficult it is to find a new block compared to how easy it can ever be. It uses a moving window, looking back at the previous 2016 blocks. If the block discovery rate is given as 2016 blocks should be discovered in a fortnight and blocks were discovered too quickly, then difficulty is increased. Conversely, if it took longer than a fortnight, the difficulty decreased. This mechanism will cause the time taken to find a new block to always be very close to 10 minutes. An adjustment of difficulty is carried out once every 2016 block based on the time it took to discover the previous 2016 blocks. This is useful for miners, as it allows them to make a rational assumption about expected revenue dependent on mining power. A difficulty increase will have a corresponding decrease in revenue, and activity to the extent that revenue is less than the cost of mining will cause a decrease in mining activity. The final block is expected to be an amount smaller than the current subsidy revenue plus transaction fees. A new block is worth an amount defined firstly as the subsidy and secondly as the cumulative transaction fees and the fees of the transactions in the block. This fee is paid if the miner includes that transaction in the block he has found. The transaction with higher fees will be chosen by miners to include in their block since they are effectively choosing the highest-value transactions. These two fees are the transaction fees market. Because of a fixed supply, the decreasing subsidy will cause the transaction fee market to become the main source of miner revenue in the far future of Bitcoin.

Bitcoin is based on the SHA-256 hash algorithm, which is a PoW algorithm. There are many algorithms that have been used in the past that have been considered broken because it is no longer possible to find a collision to create a double spend. Generally, it is considered that with a 6-block confirmation (where there are 6 blocks added to the blockchain after the block containing your transaction), there is a 0.1% chance of your transaction being reversed. So far, there have been no recorded double-spend incidents in Bitcoin’s history. Since the hashing of each block is done using the SHA-256 algorithm, it is trivial to verify that the data in a block has not been altered by rehashing the data and comparing it to the stored value. This is one of the defining characteristics of a PoW algorithm: it is too computationally difficult for a malicious entity to rewrite the entire blockchain. Another characteristic of Bitcoin mining is that it is profitable if done competitively, meaning that the cost of your resources (electricity, maintenance) is less than the revenue generated from Bitcoin mining. This will be further explained with a modeling of miner costs and revenue in a future article.

Decentralization and cryptographic security have attracted a lot of attention to Bitcoin. The initial design of Bitcoin mining assumed that it would be carried out mostly on general-purpose CPUs. Because of the successive introduction of ASIC chips, which outperformed the CPU and GPUs (Graphical Processing Units), it has become no longer feasible to mine Bitcoin using a CPU or GPU. As a result, the vast majority of Bitcoin mining is done on ASICs.

1.2. Importance of mining in the bitcoin network

The main reason is to protect the public ledger by making a large amount of computation so that if one block has been tampered with, then the whole blockchain is invalid. The public ledger can only be protected by this continuous computational work. It should be kept in mind that there is a limited amount of bitcoins, and hence, the more computation used to add a block, the more the difficulty will increase. It is of concern to any transaction today that an alternative using the private key can be used to change the transaction retroactively. This might be much simpler if the transaction is using unconfirmed blocks. Then, if someone is trying to double spend the coins and is successful, both transactions can get confirmed in the same block. Unconfirmed transaction success can be tracked by using the addresses. By keeping solving the problem of adding a block to the blockchain, you can protect yourself from any adversary changes.

The mining process adds the transactions to a block that makes up the transaction register. Every block needs to be worked on for a specified amount of time before it is ready to be added to the blockchain. If your goal is to make a few digital bucks and spend them somehow, then you just might have a slow way to do that with mining. The possibility of modification is also there if anyone changes a block. It is easy to do that by changing a block because changing a block will bring a change in the current hash result, so the next block will also change. So, it will make the block invalid. Digging deeper into the main concepts behind bitcoin mining leads to an interesting revelation.

2. Factors Affecting Bitcoin Mining

Electricity is the most prominent factor in determining whether a country has favorable conditions for bitcoin mining. This can be summed up by the simple yet effective statement that the cheapest electricity in the world is found in Venezuela and subsidized by the government. Then it is also most likely the cheapest for mining bitcoin. The map below shows how much more or less electricity costs. You can find a better picture of the most recent data below, which is from 2018. Any further clarification is on the two lists on the left-hand side. The first is a long list of countries and their respective electricity production and consumption statistics, and sometimes even the percentage of this energy source as well as the region. The list to the right represents a more detailed breakdown of electricity prices per kW according to hourly rates instead of the more common monthly rates. This is important because monthly rates can fluctuate wildly and end up costing more or less, depending on the environment. More information on this can be found from the EIA and other government sites, which often provide data and reports for various applications of the energy industry in their respective countries. Additional questions can be answered by the companies that manage your energy, such as your local or national utility company. All of the data for this section can be found in the references section, with various links to this information usually available through clicking on the images.

2.1. Cost of electricity

It is important to understand the constantly changing dynamics that play into mining profitability, especially before you invest your hard-earned money. Nevertheless, there is very little public information available about the specifics of the law and its interpretation.

2.1. Cost of electricity

The production of Bitcoin relies on “mining” the digital currency by using computers to solve complex mathematical problems. Competitive Bitcoin miners will need a combination of abundant wealth and an efficient iteration of investors in order to secure one of the limited rewards given out each day. Successful Bitcoin miners need to be able to efficiently translate the relatively cheap electricity (the most abundant source of which is coal) into a secure and consistent revenue stream. Therefore, the ideal location for Bitcoin mining is a country that is rich in electricity that is priced low, so long as there is adequate technology and internet infrastructure there to allow the mining hardware to operate. Power becomes more of a factor in securing revenue in the future when there will be a limited number of Bitcoin rewards to be distributed; currently, each reward is worth $125 and is divided between the members of the group mining at the time of reward based on their individual number of shares in the mining effort. As the complexity of the math problems increases, in order to keep a steady rate of one block produced per 10 minutes, the reward will be proportionally distributed. While this will continue to promise a lucrative revenue stream compared to a steady fixed income of a given amount of Bitcoin, it will still be more costly to secure the same revenue than it is now. Fixed costs such as hardware and infrastructure will remain constant, but variable costs such as electricity will increase with a more complex reward system and ultimately need to reach a point at which the marginal cost of electricity for each unit of Bitcoin is equal to the market price. This average market price would then also be the ideal scenario for cost-effective Bitcoin mining.

2.2. Availability of mining hardware

With the remainder of electricity consumption from mining Bitcoin used in obtaining the block reward, it is clear that this is the next factor to consider. The block reward is the number of bitcoins a miner is rewarded with when they solve and publish a new block for the blockchain. This has reduced over time from 50 BTC per block down to the current reward of 12.5 and will reduce to 6.25 BTC in the next halving. This is to simulate the scarcity and value of the precious metal and is actually positive in regards to the rate of return for the environmental aspect of electricity being saved during the next stage. Now that mining hardware has moved to phase 2, electricity profitability will begin to overtake the network value of the BTC reward.

There are a number of graded categories of mining equipment. Most of them are more than capable of doing some mining but are considered budget mining equipment. This is usually because they have a low hash rate, which will result in low profits, but it can also be the case that they are less reliable. Another category would be mid-range to high-spec GPUs. These are the premium mining hardware. They have good hash rates, a good level of reliability, and are built to last. They often increase the power efficiency, which is perfect for anyone who is serious about mining and would like to benefit from economies of scale. Finally, the top-end category of hardware is ASIC mining. These are the ultimate mining equipment with the sole purpose of mining Bitcoin. They are extremely fast and provide a high level of reliability. The drawback is that they are extremely expensive and are often loud due to how hard they are working. They are said to be the future of BTC mining, and their introduction has led many to move away from mining as a hobby or small-scale to large-scale operations in order to keep up with competition from miners with more advanced hardware.

2.3. Government regulations and policies

The US has also seen various regions with differing mining incentives. Louisiana’s government-owned electricity provider subtly put out a memo in 2018 that they’d be hiking electricity costs in an attempt to push out mining holders. In contrast, places like upstate New York have a surplus of electricity and have no qualms about selling it to miners at a competitive rate.

This leads to a background of protectionist countries with stringent energy policies. A top example would be Ukraine. While Bitcoin legally sits in the grey area of Ukraine, a consensus was reached on a new electricity overhauling plan that effectively hiked energy prices for miners by 300%. The bill effectively considered the most modern mining hardware, which is the most efficient, a luxury tax.

Buying a machine specifically for Bitcoin mining needs to be lucrative, and the Chinese policy has set back a lot of investors. This has caused a mass exodus of miners in China to move their equipment elsewhere. Most notably, China’s loss has been a gain for Iran. Iran seems to be the newest Bitcoin mining hotspot, as, in late 2020, the Iranian government approved around 1000 import licenses for Bitcoin mining machinery. Given that Iran has some of the cheapest electricity prices in the world, this makes for a very profitable investment in a country where the job market is rather bleak.

On the other hand, some countries have taken a more hard-line stand in opposition to Bitcoin. The obvious example is China. In early 2018, a multitude of Bitcoin company bank accounts in Shanghai were frozen without warning, and news reports from reputable sources allege that certain company executives were informed that their funds were taken in an attempt to stifle out Bitcoin funding. This was a result of the Chinese government issuing an ultimate ban on cryptocurrencies. While the general population can still use Bitcoin between each other, this essentially meant that they’d no longer be able to convert it into fiat currency, which is a huge blow to the mining industry.

A government’s stance on Bitcoin greatly depends on the state and region in question. Canada is the first country to come up with Bitcoin regulations. In article 23, it states that while Bitcoin and other cryptocurrencies aren’t legal tender, they can be used for the purpose of buying goods and services. This is a big step for a relatively developed country in the Bitcoin world, as it clears up a lot of grey areas surrounding the use of the currency. Japan and Australia also made moves to remove the ambiguity about Bitcoin in their respective countries. Japan, in particular, is a Bitcoin-friendly nation since its government approved the currency as legal in 2017.

3. Top Countries for Bitcoin Mining

China has been a conducive country for Bitcoin miners as it has been the biggest player in the industry due to the low operational cost of mining. China has the advantage of cheap labour and cheap electricity. Bitcoin mining is popular in the United States because it is considered a legal activity. The high cost involved in mining will not be too much of a concern if the Bitcoin miners are able to mine coins that are going up in value. Russia has two extremes in climatic conditions, which serve as an advantage for Bitcoin miners. In the summer, the climate is warm, and it becomes extremely cold in the winter. With the extreme drop in temperature, it may save electricity costs as cooling appliances may not be necessary and could be substituted with the natural cold climate, working to cool off the mining hardware. Kazakhstan does not have very stringent laws on Bitcoin mining. With a low electricity cost and a climate that is favourable for cooling mining hardware, it is no surprise that there are an increasing number of Bitcoin mining operations being set up in Kazakhstan. Iran has become a hotbed for Bitcoin mining activities. It has a good relationship with China and has been benefiting by getting a chunk of Chinese Bitcoin miners to set up operations in Iran. This has led to the growth of the Iranian economy as these miners are able to provide job employment to the locals. It is also noteworthy that the president of Iran has enacted a law to allow Bitcoin and cryptocurrency miners to legally mine and carry out their activities. With different countries having different aces up the sleeve, a major reason why the big players in the industry are thinking of relocating is the enforcement of harsh regulations and the non-favourable environment towards Bitcoin mining operations in their country. This increasingly leaves us with countries such as the United States and Russia being a more favourable environment to move Bitcoin mining operations to as they start to think and plan for the future.

3.1. China

Other nations tied to China may offer potential places for Bitcoin mining due to similar reasons why China itself would offer a good location. Inner Mongolia is autonomous and runs very similar to a province in China, so incentives for companies to set up data centers or mining farms there would be very similar to those in China, and there is also a region called XUAR (Xinjiang Uighur Autonomous Region) in Kazakhstan where there is potential for miners to invest in mining Bitcoin as the Chinese government has been cracking down on any separatist or extremist movements in the area.

Considering coal is a widely used fuel in China and supplies around 70% of the nation’s energy, a lot of the electricity available to miners is going to be fairly cheap. However, the negative externalities that burning coal offers, in addition to the fact that China has been investing in renewable energy and banning the construction of new coal power plants, may mean this situation won’t last indefinitely. Measures to prevent capital flight may also cause difficulty for miners trying to exchange Bitcoin for local currency, and with the concern of regulatory crackdowns always present, it may not be as safe an investment compared to mining in other countries.

China has been and still continues to be one of the biggest destinations for mining Bitcoin. In a global perspective, this may be due to everyone around the world knowing China as a country with vast resources, and due to the combination of low-cost electricity, cheap labor, and manufacturers, one of the optimum locations for Bitcoin mining could be within the industrial areas of Sichuan or even further north within the regions of Inner Mongolia and Xinjiang, where there are massive wind farms or coal reserves.

3.2. United States

The Bitcoin mining map has undergone a lot of changes over the years. With the concerns regarding COVID and increased inflation rates in several countries, it has opened up a lot of new windows for the Bitcoin mining industry. Countries like the United States are now looking to increase their efforts to capture the industry by providing incentives and newer, more efficient power sources. With the increased support and interest among companies, Bitcoin mining is set to become a much more globalized industry.

The USA is also home to a large number of bitcoin miners. The North American nation’s relatively cheap electricity costs and cold climate encourage the activity. Electricity costs can go as low as 3 cents per kilowatt hour in the US. This may rise in the future, especially due to the increasing interest in Bitcoin mining among visionaries and entrepreneurs. The state of Washington, for example, houses a lot of hydropower, which is a highly efficient and cheap power source.

3.3. Russia

Russia is another source of cheap electric power and has more capacity. It is estimated that Russia accounts for up to 20% of total mining capacity. Gabriel Rubin of First Bridge Strategy believes that the cold climate is helping miners, which enhances their equipment lifespan and reduces costs to cool their mine. While the government’s stance on cryptocurrency is not concrete, it has been reported that the Ministry of Finance is drafting a bill to outlaw cryptocurrency payments. However, this bill will reportedly include an exception for B2B transactions and will not affect peer-to-peer transactions. Russia has also appeared to shift its stance on cryptocurrency, as the Central Bank of Russia has put the idea of a national cryptocurrency on hold to a more distant status. This is due to pressure from the west in the form of economic sanctions and the fear of losing business connections with western financial institutions. Russia has also put in place laws regarding mining that have not been strictly enforced, and there is a belief that the government wishes to use mining as a way to do state-sanctioned capital flight. This comes after a recent wave of cryptocurrency mining malware that infected Russian businesses and was used to mine during working hours. Overall, these countries have started to become havens for people who wish to profit from cryptocurrency. With the ability to obtain cheaper electricity, miners have been moving their operations to areas where they could maximize their profits. As governments around the world continue to struggle to come up with a clear stance on cryptocurrency, there will most likely be more shifting in terms of where the cryptocurrency mining landscape is in different countries.

3.4. Kazakhstan

The government of Kazakhstan is very friendly towards blockchain technology. In 2017, it provided financial subsidies to a large number of entrepreneurs as an incentive to start technology-focused businesses based on blockchain technologies. This is important as miners represent one of the most important employee groups in blockchain technology, helping to secure blockchain networks and getting newly minted digital assets in return. In 2018, national leadership went a notch higher with an official statement by the president calling for placing the most talented IT specialists on the planet in the service of Kazakhstani citizens. The cherry on top for Bitcoin miners is the moderate climate of Kazakhstan, which keeps the energy requirement for cooling low. The landlocked country also has surplus electricity, which they are looking to export, and this plays very well for foreign mining companies looking to secure long-term power contracts at attractive rates. These were some of the factors that led the Chinese mining giant Bitmain to build a mining farm in the Akmola region.

3.5. Iran

In 2019, Iran officially recognized cryptocurrency mining as an industry that needed to be regulated. It announced a tariff scheme for mining bitcoins and said that these tariffs would apply to those who are transferring the digital currencies abroad. Around the same time, some years later, Iran’s Ministry of Energy was proactively discussing power “pricing” for foreigners. This power pricing news itself was nothing less than a euphoric announcement for foreign investors. As we mentioned earlier, the major share of cryptocurrency mining expenses is contributed by power bills. If a country offers good electricity at a cheap rate, it becomes a lucrative prospect for miners. This is exactly when, in May 2020, Iran gave a go-ahead on crypto mining with the condition of using the country’s vast electricity for the expansion of the industry. To effectively generate revenue inside the country and also allow for the currency to be mined within Iranian boundaries, hence encouraging progression in the industry while ensuring that national interests aren’t overlooked. A year later, in May 2021, Iran imposed a 4-month ban on Bitcoin mining, the cause being major power outages due to surging consumption by miners. The aforementioned regulations for the usage of Iran’s electricity in mining came up due to this very same reason. However, in the over two years’ duration since legitimizing crypto mining in the nation, the industry has seen a continually growing trend for miners on a global scale. This was for various reasons that Iran promised to bring with it, such as the use of very strong economic power, government assistance in the form of loans for mining endeavors, and a clear commitment to integrate mining with the global economy through various methods of selling the mined coins and even commodities. With respect to Iran’s energy pricing for currency miners, we can break it down into numbers. In Sep 2019, Iran Energy Exchange set the tariff for electricity export between 7 and 11 cents per kilowatt per hour. Now this may seem average or expensive to some of our global audience, but when we mention that energy for immediate NIOC clients was provided at a mere 1 cent,. Now we have experienced over 2 years’ duration of pulling the industry into Iran, within a short word count. Why? Because the writer wants to do justice to all the readers who have heard little about Iran in global crypto mining, despite the positive prospects it has offered. The major reasons for less prevalent information on this topic could be the recent ban and the fact that western media sources have no visible content discussing cryptocurrency in Iran. However, a writer with interest and knowledge in crypto mining knows what Iran brings for him and has already made up his mind to explore an industry that “exists without actually existing,” in a nation that is way more discussed amidst fluctuating relations with the US, potential wars and embargoes, et al. Step 1 in writing this article or narrating the experience of cryptocurrency enthusiasts who have witnessed the crypto scene firsthand in Iran is to understand what environment, climate, and society offer the miner who contemplates, day and night, “What future will my machines have in Iran?” Iran has a temperate climate, with more than 50 percent of days considered sunny. This is great for hydroelectric and solar energy generation. Iran has been a global gas and fuel exporter, having large gas reserves. This has significance in the context of energy rates for miners. Electricity in Iran is derived mainly from natural gas. And the cost of that translates to about 2.5 cents per kilowatt per hour. Now hold on; there’s an even cheaper method. Hydroelectric power! Let’s take Iran’s western province of Khuzestan, for example, where abundant rivers and good rainfall promise even lesser costs in the future. Now the writer’s inner devil is fantasizing about large farms and even water-cooled PCs.

4. China’s Dominance in Bitcoin Mining

4.3 That said, the long-term change in the price of Bitcoin due to the change in availability and costs of mining in China is usually short-lived. This is due to the potential for rollback attacks to alter a confirmed transaction. As the cost of temporarily controlling more than 50% of the network is around, the threat of doing this to a Chinese-controlled network to reverse Yuan to Bitcoin exchanges can lead to offshore trading of Bitcoin to counter the attack. Fearing speculative dives in price due to threatened network security, the Chinese miners would avoid such an event by increasing network decentralization by selling some of their mining resources to foreign entities.

4.2 It is estimated that 70% of all mining resources are in China, leading to a large reduction in the global costs of mining. This large presence of mining in China can reduce the price of Bitcoin. This is because the initial investment by Chinese miners to protect themselves from exchange rate fluctuations of local currency to Bitcoin will cause an oversupply of Bitcoin in attempts to regain costs.

4.1 Today, large mining farms in China’s Sichuan province combined have power that can total 20,000 of the same Antminer 9s. They are attracted to this province due to the availability of cheap electricity and the cold weather, which would reduce costs for cooling facilities. Scattered remote provinces are attractive for building mining farms as the huge resource of water can be used to run hydroelectric dams. Techniques for mining Bitcoin are becoming more efficient by using BIP 310 to decrease power usage or the potential development of more efficient mining algorithms. Improvements in technology to reduce the electrical cost of mining may be irrelevant in the absence of a drop in the cost of electricity.

The term “bitcoin mining” is misleading. No one swings a pick-axe into rough boulders at regular intervals. Rather, Bitcoin mining involves computers solving complex math problems. When solved, the miners are rewarded with either Bitcoin or sometimes even 50 coins in one solve. The difficulty of the math problem depends on the computing power of the network, ending the work of the solution algorithm when it becomes hard to find another solution. The complexity of the current math problem is determined by a difficulty target that is adjusted every two weeks (2016 blocks) by the work of the data in the past two weeks. This ensures the level of difficulty remains the same. The increase in difficulty of solving these problems increases the computing power required to solve the problem, which will increase the electrical costs of ongoing efforts to solve manageable problems.

4.1. Massive mining farms in China

Next, Chinese miners have been able to gain access to lower electricity prices, given that they are the first to have taken advantage of the excess electricity from hydropower stations and then reallocated that power to remote areas for a higher price. Sichuan province has over 130 hydropower stations and is home to one of China’s most dense mining farm operations. This abundance of cheap hydroelectric electricity and a cool climate make the cost of power the single most significant factor in determining which firm will win the mining race. With power comprising between 60 and 70% of the total costs of a mining farm, it is safe to say that in China, electricity will be able to attract the capital that is needed to build a successful mining operation.

Mining farms are concentrated in various regions of mainland China. Due to its cheap labor, cool climate, and economies of scale, China has a competitive edge when it comes to mining operations. The biggest mining farm in China is actually a data center in Inner Mongolia, which has 25,000 servers. This alone represents almost 4% of the current global hashrate. This data center is said to be powered exclusively by wind and coal power and can therefore predictably generate around 20% of all the bitcoins being mined at any given time. Another enormous mining farm can be found on the Tibetan plateau, created by Kangding Ltd. and hosting 10,000 mining units. Kangding Ltd. plans to increase the size of its farm fivefold over the next year.

There are not many cryptocurrency enthusiasts who are surprised to learn that the majority of the world’s bitcoins come from China. Let us take a look at exactly what is going on there. Mining farms represent the very foundation of the Bitcoin network, and China is the leading contributor in this respect. There are more Bitcoin transactions in Chinese Yuan than any other currency around the globe.

4.2. Cheap electricity rates in China

It is reported that China has very cheap electricity costs as well as a surplus of electricity. This is due to the country building vast amounts of electrical grid infrastructure in a bid to bring power to its expansive rural areas. It has been documented that one of the largest mining farms, located in Erdors, Inner Mongolia, consumes 39,000 kWh of electricity. Inner Mongolia is on a mission to get rid of high-energy users. It’s reported that 30% of the region’s electricity over the coming years will be used to replace high-energy systems with low-energy systems, over a 5-year plan. A consequence of this is that high-energy users, the mining farms, will receive cut-priced electricity from the region. Sichuan is famous for hydropower, with some reports suggesting it accounts for as much as 50% of the region’s electricity. This leads to the region having an excess of electricity, with some reports suggesting it reaches 80% over the wet season. High and excess energy is beneficial to Bitcoin mining. This is where we would expect miners to begin to flock to these regions, but under further examination, there are better places to be. Yunnan also has abundant hydropower, but there are reports suggesting electricity prices are the cheapest in China. In May 2020, reports stated that the Yunnan government wanted to reduce electricity costs for companies by 20% for two years. Given such cost savings, it is likely miners will be flocking to the region in droves.

4.3. Impact of Chinese mining on the global bitcoin market

It’s not clear why electricity consumption specifically is expected to have a negative impact. The theory seems to be that an increase in electricity usage by Bitcoin miners will lead to an increase in the generation and distribution of electricity, which will inevitably lead to an increase in pollution. This assumption is interesting to explore. For the most part, electricity usage that leads to increased demand is generated using methods that are relatively inexpensive. The cheaper the resource, the more of it tends to be used. If Bitcoin miners in China are consuming a large percentage of the world’s electricity in order to secure a financial gain, it is an economic inevitability that they are using resources that are abundant and relatively inexpensive. This is because efficiency in electricity usage must actually decrease if the cost of electricity is higher. Thus, it is fair to say that if the cost of the majority of global electricity is lower than the profit margin obtained by selling mined bitcoins, an increase in global electricity usage by Bitcoin miners will result in the deployment of more resources to generate and distribute electricity. Since the lowest-hanging fruit of electricity resources is usually abundant and cheap, it is likely that an increase in electricity usage by Bitcoin miners will lead to an increase in the global usage of such resources. The increase in the deployment of abundant and inexpensive resources to generate electricity will lead to an increase in pollution, and it is this increase in pollution that is harmful to the environment. Thus, we can conclude that if the profit margin on selling mined bitcoins is higher than the cost of the majority of global electricity, an increase in electricity usage by bitcoin miners will lead to an increase in pollution due to the nature of how resources are allocated in a free market for electricity.

China’s enormous energy usage has caused some to worry about its impact on the world’s environmental health. Specifically, it has been posited that the majority of Bitcoin mining could eventually lead to an energy consumption level that is detrimental to the planet. The assumption is based on the belief that Bitcoin mining in general has a negative external cost to the environment due to the electricity it consumes.

The impact of Chinese mining on the global Bitcoin market

5. Rise of Bitcoin Mining in the United States

Behind China, the US stands as the next most probable place for Bitcoin mining. The US government has already confirmed that it will be selling Bitcoin software and hardware adopted from the confiscated state of a dark web marketplace. In comparison to China’s 80%, this is relatively small, but the trend is on the rise, especially with the top 2 mining hardware companies, Bitfury and Bitmain, opening offices in the US. At the end of 2014, overseas buyers bought US$370 million worth of US-mined Bitcoins, a 2.3-fold increase over the previous year. With the trend set in place, the number of mining facilities to be increased in the US will prove to be a game changer. This increase in the number of mining facilities is largely due to the abundance of energy resources found within the US. Among them, shale gas has provided a cheap and abundant source of power. It is for this reason that Bitmain has decided to place their new mining facility in Texas. With an intention to power their operations 100% by renewable energy, their investment in solar panels and setup in Texas has potential to set a new trend within the industry in the future. Wind power and hydropower are two other low-cost, renewable energy sources that have been used to power successful mining operations. With a focus on decentralizing the network and ensuring the security and prosperity of the Bitcoin network, these types of mining methods will prove to be highly beneficial in the long run.

5.1. Growing number of mining facilities in the US

After the Chinese ban, bitcoin mining facilities have been migrating to different locations, and at present, the US is the main destination. This migration is partially due to the increasing hostility shown by that country’s government against industries that have high energy consumption. However, significant mining business concerns are now placing operations in the United States as they foresee a regulation-friendly environment on the horizon. The US is becoming an attractive location because of that possibility and its access to reliable electricity. And in 2021, it is estimated that it will have captured more bitcoin mining power than any other country. The first significant evidence of a migration resulted from the US-China trade war and the resulting tariffs placed on mining hardware. The recent announcement that BIT Mining, a China-based mining pool, is extending its operations into Texas is a direct result of this. The company stated that they have invested over 25 million USD into a 57-megawatt data center that should be operational by the end of this year. As China has been home to over 65% of the bitcoin network’s mining power, this movement is likely just the beginning of a sweeping change in mining power distribution that has been a point of concern due to its centralization. A more recent example of China-based mining companies looking to establish new operations in the US comes from Bitmain, the world’s largest producer of cryptocurrency mining hardware. They are suspending sales of their product in the international open market with a view to instead dominating sales to their chains of mining farms across the US, Canada, Europe, and Australia.

5.2. Renewable energy sources powering mining operations

According to a US-registered investment advisory company, the increase in energy efficiency and a higher proportion of sustainable energy are becoming key factors in the survival of bitcoin mining in the United States, with miners being able to negotiate to purchase energy directly from energy producers. An instance of this energy migration is Great American Mining, which has looked to use excess gas that would have rather been burned off into the atmosphere. Due to lower costs and lower risks, Great American Mining, which had begun operations in Canada, found it more financially worthwhile for the company to move energy to mine bitcoin in the US. With the production of solar, wind, and natural gas energy rising in recent years and the government trying to find demand to meet its overproduction, this has laid the framework for a renewables boom in bitcoin mining. The opportunity for a renewable energy transition is extremely viable with bitcoin mining, with the energy production industry as a whole known to be cyclical and at times unsustainable, with a major issue being the lack of storage and maintainable methods for excess energy, which has seen certain US energy companies forced into negative pricing to avoid permanent damage to their infrastructure. This presents the perfect condition for the fixed demand of around-the-clock energy usage from mining operations, which does not make or sell a product that has to be affected by price volatility in energy. Fixed-rate energy contracts from renewable energy sources (which will be the future of all renewable energy as storage technology improves) will also be highly viable, as the correlation between energy production and Bitcoin’s market price is extremely positive at the current speculative phase in the commodity’s lifespan.

5.3. Potential for the US to become a major player in bitcoin mining

The United States is now expected to also see increasing prominence in bitcoin mining and could potentially challenge China’s dominance. A mixture of favorable regulatory environments, abundant land, rich resources, and innovation in technology and energy production will be a catalyst for a new phase of growth in various industries, including mining. Recent investments in mining hardware and contracts from North American companies are a positive indicator of the shift toward more decentralized mining and the outlook on the potential to attain majority control over network hashing power. This will become increasingly desirable as the halving approaches, with the expectation that the scarcity of bitcoin will drive the price up, leading to increased revenue for miners. Mining being an industry with thin margins, the higher price will be a critical factor in determining profitability.

6. Other Notable Countries for Bitcoin Mining

Lesotho Lesotho is known for its friendly skies and stunning beauty. It is also home to one of the largest populations of Basotho, the people known for their distinctive culture and traditions. The fact that Lesotho is a monarchy and has a parliamentary representative democratic government is not all that interesting. What makes Lesotho notable for bitcoin mining is that the electricity in Lesotho is cheap. This is mainly due to Lesotho being rich in water resources. As a matter of fact, it is estimated that Lesotho’s water supply potential could be able to generate 6600 GWh per year. This is huge, and it is only using 10% of that potential at the moment. In the years to come, Lesotho has plans to export its excess electricity potential to South Africa.

Tajikistan Tajikistan is a country rich in minerals and relies on exports to make itself sustainable. The consumption of electricity in Tajikistan is usually much less than the production levels. In 2016, wintertime led to shortages of electricity, and the government imposed restrictions and banned exports to neighboring countries. Mining is an industry that is accepted in Tajikistan, and there are no restrictions on importing miners and equipment. This makes it particularly notable in the cryptocurrency mining industry because, compared to its neighbors, the electricity in Tajikistan is cheaper. This is good news for the locals, as it was reported that the winter had led to disruptions for heating and lighting in households.

6.1. Russia’s increasing mining activities

Russia has gone through a number of fluctuations in terms of Bitcoin currency. Bitcoin is now widely being used in Russia to evade capital controls. The increasing demand for Bitcoin has led to its increased prices as well. However, with increasing usage of Bitcoin, Russians today have realized that it is a better investment to put their money into mining rigs and earn their own Bitcoin.

Many Russians are aware of how much additional income can be generated from mining. It can be of easy access to those who work part-time and PC idle time as well. With the recent increase in prices, miners find the activity even more attractive and profitable. Some parts of Russia have now become well-known locations for mining. A particular example is the city of Gubakha, which is situated in the Perm Krai. In this small city, there is 40-acre-wide land that has become a village of GPU mines. These mines have given jobs to hundreds of people in this city and to those living in nearby areas.

In a recent news conference that took place in Russia, the Russian Minister of Communications and Mass Media, Nikolai Nikiforov, stated that “Russia is the next best place after China to mine Bitcoin.”. This was an indication that efforts from the Russian government are likely to remove any sort of restriction on mining in the coming future. With globalization, the world is becoming more dependent on the internet, and Russia today has some of the best internet infrastructures available.

Russia is indeed a large country and has many places with cold climatic conditions, especially in the northern region. Cryptocurrency mining requires a lot of power consumption, so cooling is needed. The cool climate and cheap electricity provide Russians with an option to maximize the electricity output generated from their mining rigs. Although many might say it isn’t adequate to use electrical resources from the power grid, the revenue generated from utilizing cheap electricity is far greater. Today, the revenue made from using electrical resources even exceeds traditional ways of stealing electricity in Russia. Word of mouth has now spread, and Russians believe there is potential in hosting large-scale data centers and renting out equipment to foreign miners.

6.2. Kazakhstan’s favorable mining conditions

Due to global hydropower surpluses and favorable energy prices, cryptocurrency mining operations are increasingly looking to locate their mining investment in Kazakhstan. The country is currently receiving a large boost to its economic sector due to the demand in the energy market. “Kazakhstan produces nearly 100 billion KWh of electrical energy from various sources, including coal, oil, natural gas, and nuclear power.”

This has allowed for a surplus of energy from its hydropower stations to be sold to neighboring states such as China, Kyrgyzstan, Uzbekistan, and Russia. This surplus of energy and varying types of energy production allow electricity to be obtained for as low as $0.03 and $0.04 USD per KWh. This is a huge incentive for mining since the costs of operations are significantly lower. It has been noted by the Minister of Energy, Bozumbayev, that “currently, our power is in high demand in the southern part of our country, as well as in our neighboring countries… We currently export to China and are now preparing to connect our energy to the system of Russia.” (source).

Steppe Cement Ltd. in Karaganda is an example of a company seeking foreign investment through the capital gained via selling energy. Steppe Cement announces that it “successfully raised a Kazakh tenge (KZT) 1.3 billion loan to finance its new dry clinker production in Karaganda using environmentally friendly energy.”

6.3. Iran’s embrace of bitcoin mining

Although few details have been released, as it stands, Iranian miners will be paid 1 rial for every kilowatt hour, with an additional payment owed if they export their earnings. The price of electricity is currently set at around 4-5 cents per kW/h, meaning that they would be able to profit by exporting electricity. The general consensus among Iranians is that the deal is a positive step for Iran, even if it means that they are effectively subsidizing foreign investment. However, amassing political tension could alienate Chinese investors and miners, and this policy could easily be reversed or updated.

Should the tariff savior miners decide to go ahead with this deal, it would be a major coup for an Iranian mining industry that has had its share of ups and downs over the past several years. In April 2017, there were reports that there were over 1000 mining farms in the country, and the government itself was getting involved, with former president Mahmoud Ahmadinejad calling for a unified Islamic cryptocurrency for Muslim countries. However, things took a swift downturn in May of that year when Iran’s Cyber Police began a crackdown on cryptocurrency miners, with officers actively seeking out mining rigs and, in some cases, tearing down power lines to homes and farms running miners. The reasoning behind this move was an electricity shortage that was amplified by a drought and exacerbated by the demands of an overpopulated and underdeveloped nation still suffering from foreign sanctions. By May of this year, an Iranian Energy Ministry announcement reaffirmed that not only was cryptocurrency mining illegal and banned, but that it would not be possible to supply the necessary extra power, indicating that there were no immediate plans to address the electricity shortage. By August, an Iranian national was arrested for trying to smuggle ASIC rigs across the border from Armenia, yet even in this troubled period, questions were being asked in Majlis about making a legal framework for cryptocurrency.

Throughout 2018, there were multiple conflicting reports regarding a government decision to let cryptocurrency mining become a sanctioned industry with regulated power prices. A notable instance was a bill aimed at the regulation of cryptocurrency drafted by a Majlis representative, though it was one of many and did not see any immediate success. There were also reports that Iran was considering a nationwide ban on cryptocurrencies, or at least a sanctions avoidance scheme using its own state-backed digital currency. Yet the turning point came in July, with a significant change in rhetoric marked by a speech from Central Bank Governor Abdolnaser Hemati stating that the government intended to legalize cryptocurrencies and that it would become a major topic in the future. An announcement from the secretary of the Iranian Supreme Cyberspace Council’s Regulations Committee echoed this, stating that the Iranian National Cyberspace Center was planning a platform to regulate and control cryptocurrencies, hinting at the lifting of the ban on a technology that the Rial has been losing ground to in a nation with high inflation and capital controls. An August announcement from an official at the Ministry of Communications and Information Technology finally indicated that the power needed to be supplied at a higher rate and a new price but was a green light for miners, as he stated that cryptocurrencies were a legal issue separate from electricity prices and monitors would show if miners were taking power out of the grid. High-ranking officials have since stated that Iran will unveil its legal framework for cryptocurrencies in the next year to act against Trump administration sanctions, which have made it difficult for Iranian and even foreign tech enterprises.

7. Future Trends in Bitcoin Mining

Emergence of new mining hotspots As mentioned in section 4.2, the competitive nature of bitcoin mining means that it is likely only profitable for companies with access to the cheapest possible energy resources. This has led to intense competition to establish locations with the most favorable conditions for mining. Although China still dominates the mining industry, increases in competition have led to the emergence of mining “hotspots” in other countries, such as the USA and Canada, and it is likely that this trend will continue.

Impact of regulatory changes on mining activities Mining activities are an easy target for government authorities that want to increase their monetary revenue without raising taxes, and as a result, there is a constantly shifting political and regulatory landscape on a regional basis. An example of this is a recent decision in Quebec, Canada, to offer discounted electricity rates to blockchain technology companies in an effort to boost the economy within the province. This move will likely attract more mining operations to Quebec and is a good demonstration of how the impact of regulation on mining activities can have both positive and negative effects.

Shift towards renewable energy in mining operations The finite nature of non-renewable energy resources such as coal increases the cost of production for mine operators, and many of them find that it isn’t feasible to mine in these circumstances. There have been few studies on the energy cost of bitcoin mining; however, it is widely believed that the cost is significant and is one of the major hurdles for new mine operators. This has given rise to a search for more sustainable alternatives and has led to an increase in the use of renewable energy in mining operations, both hydroelectric and wind-based. Going forward, it is likely that the trend of mining operations using renewable energy will continue, and providing that energy storage technology continues to make progress, it is possible that the mining industry may one day become dominated by renewable energy.

7.1. Shift towards renewable energy in mining operations

In recent years, there has been a move to mining bitcoins using mining pools in locations that have a source of renewable energy. Hydropower and geothermal power are abundant sources of renewable energy in countries such as Canada and Iceland. This is due to the reduced cost of hydropower, which has a lower opportunity cost as it is able to remain in dams and pumped storage schemes. At the same time, the use of renewable energy has moved from just being a business tactic to being a news story to satisfy ESG (environmental social governance) investors who wish to buy bitcoin but have increased concerns over environmental impacts. An example of this is London-based ESG company Rize, which aim to give wallet-to-wallet traceability on CO2 usage when they unveil their bitcoin EFT. Another factor to this is shareholder pressure. In an interview with Navigating the Rise of Institutional Bitcoin from Bitcoin Magazine, US mining company Riot Blockchain revealed they are seeking to increase their use of renewable energy and aim to be run on 50% renewable by 2022 due to pressure from investors and ESG rating agencies. Steps taken can also involve purchasing blockchain-verified renewable energy. An example of this is Swiss company 21Shares, which has recently begun offsetting their CO2 usage using an application developed by Pure App GmbH, which supports selected climate projects using bitcoin revenue generated by their HODL ETP.

7.2. Impact of regulatory changes on mining activities

In a recent move, the state of California attempted to pass a bill that would effectively ban the use of any cryptocurrency that did not have a central issuing authority, citing the need to prevent money laundering and terrorism financing and protections for consumers as the reasons for this.

Even in countries where there is no Bitcoin ban, there can still be many regulations that can inhibit the growth of mining operations or force the closure of existing mines. Cryptocurrencies operate in a legal vacuum in many areas, and unless laws are explicitly amended to include them in a positive framework, they can be treated under regulations that were implemented long before the creation of blockchain technology. An example is the 2014 IRS tax ruling, which classified cryptocurrencies as a form of property and not legitimate currency. This heavily burdens Bitcoin users with the requirement to keep track of every transaction for capital gains tax purposes, effectively inhibiting its use in everyday transactions and creating uncertainty about its future as a legitimate alternative to national currencies.

Regulatory changes in different countries can have a significant impact on Bitcoin mining. An example of this is the recent announcement by the Chinese NEA to undertake inspections on the power usage of some of China’s largest Bitcoin mines. The announcement caused a temporary crash in the Bitcoin price, as can be seen in the chart below. The rules and regulations imposed on Bitcoin mining can have a profound effect on the centralization of mining, as smaller miners can be priced out of the market.

7.3. Emergence of new mining hotspots

The increasing demand for cryptocurrencies has further led to a wider global interest, with more countries increasingly participating in the industry. This growth has been given attention as a detrimental factor contributing to possible environmental effects through increased electricity usage. This has been a hot topic for the European Union, which has recently proposed a ban on mined cryptocurrencies with a carbon intensity higher than that of 130g of CO2 equivalent per Kwh, equating to BTC being mined with an energy source more carbon intensive than 450 g of CO2 per Kwh. This would effectively make Bitcoin mined using any fossil fuel-based energy source illegal to use in the EU. While this would have severe implications for the current market, it opens up a wide array of opportunities for Bitcoin miners using renewable energy and more carbon-neutral energy sources. This would likely cause a demand for Bitcoin mined using such methods and would increase the incentive to both move to or establish mining operations in countries with a more renewable energy source.