We know that Satoshi and Hal Finney were the earliest miners, with many more coming after, but the first year of Bitcoin mining was very static and boring. The network’s hash-rate was stuck at a max of 7 million hashes per second, which could have been created by no more than 100 people with CPUs. Most of the time it was probably much less than 100 people with CPUs. For a full year, anywhere from two people to a few dozen people were running the bitcoin network. Today, this number has expanded to multiple thousands, with a wide ranging geographic distribution of mining resources.

Early Miners CPU, GPU, ASIC

Not long after this, we saw the development of ASIC mining, which quickly outcompeted GPU based mining and led to the rise of our first dominant mining operation known as Ghash. Ghash was in operation from 2013 until 2016 in the state of Washington, USA and briefly controlled over 51% of the hash rate in 2014. Ghash derived its advantage from cheap and abundant hydro-electricity in the state of Washington. However, Ghash became a bane to the utility operator and was shut out from the hydro-electric supply. No pool since has climbed to their level of mining dominance, and it’s highly unlikely that any will.

Mining Pools

There have been about 4 or 5 dominant mining pools since 2013 with Antpool, F2pool, and btc.com being consistently in that top five. What concerns many is that these 3, as well as many other big pools, are based in China. Empirically this means a lot of bitcoin hash rate is aggregated by Chinese based mining pools.

Does 65% of the current hash rate being aggregated and deployed by Chinese mining pools mean that China or the Chinese Communist Party (CCP) has control of 65% of the bitcoin hash rate? No far from it, and this would only be true if all of their mining pools’ hash power came from China which isn’t the case. We’re not sure how much of that hashing power comes from other countries but it’s possible a non-negligible amount of hashing power in Chinese mining pools comes from other countries.

Chinese Mining Dominance

First, we have to realize that China, even with massive centralization of power through the CCP, its culture, its government(s), and its people are not monoliths. There are around 6 billion Chinese people that are scattered throughout China which has many regional and local stratifications of responsibilities and privileges even within a very centralized apparatus. Not all Chinese hashers are in the same region nor even in the same locality, which can add color to their willingness, ability or inability to collude at scale in a way that negatively affects the bitcoin network.

If the CCP wanted to take down bitcoin would they be able to corral all of the pools and individual miners throughout China and get them on the same page? What percentage of Chinese miners would actually go along as they’re told and not cheat the scheme? It’s very expensive to try to game the bitcoin network and very rewarding to follow its rules. The monetary incentives to cheat any collusion plan is pretty high. And how many within the CCP itself currently profit from bitcoin mining or plan to in the future? How many individual Chinese miners would and could move their capital equipment and expertise elsewhere?

These are unknowns, but should make one pause when contemplating an easy CCP takeover of Chinese hash power, and thus the Bitcoin network. Even with a significant amount of hash rate located in China and even more in Chinese mining pools, it would still be difficult and costly to coordinate an attack. It’s not impossible, but lazily thinking because a lot of hash rate is in China the CCP can easily shut down bitcoin at any time isn’t really getting into the details of how that would actually happen nor how hard it would be to actually execute successfully.

The CCP can try and we welcome them to do so. The Bitcoin network will adjust accordingly and probably get stronger and become more anti-fragile after thwarting a takeover by the CCP.

Why are Chinese Miners Dominant?

China has massive hydroelectric and coal resources that are oftentimes oversupplied given the lack of demand in their local areas relative to the power that area is able to generate. Bitcoin mining sucks up this oversupply and pays for it happily.

The existence of government energy subsidies should also put a damper on freak-outs about Chinese mining dominance. Local governments throughout China subsidize energy use that miners take advantage of. Local governments are aware of this, are supportive, and many private and public officials benefit from this arrangement. The bitcoin network effectively pays these regions in China for their competence and resources and these regions happily oblige and are rewarded handsomely for it.

In addition, China has been a dominant manufacturer for the last two and half decades and this includes being a leading manufacturer in high tech hardware. It makes sense that a dominant manufacturer of computing hardware would have the resources, supply lines, and expertise necessary to create competitive ASICs at massive scale. So Chinese miners and mining pools have first class access to massive amounts of high quality mining equipment.

And then the last advantage is expertise, knowhow, and skills. There is a lot of human capital in China that has operated very sophisticated mining related operations and businesses for quite some time now, and there’s no indication that this will slow down. You put these advantages together: subsidized energy, first class access to the latest hardware, and expertise and you have a very ideal place to mine bitcoin today and going into the future.

The Rise of North America & Eurasia

Rise of North America

Going forward we wouldn’t be surprised if the North American miners continue to increase North America’s relative mining dominance. Based on the latest hash rate trends and sales of mining equipment in North America, it’s estimated that United States and Canadian ASIC buyers bought over 20% of the newly sold ASIC machines in 2019 even though they represent only +8% of the current hash rate. And this buying spree might have even accelerated in 2020. We don’t have data on that yet, but we wouldn’t be surprised if the percentage of newly sold ASIC machines to North American miners increased in 2020 as well.

The United States and Canada have abundant energy resources, and excellent know-how, but lack cheap access to the capital equipment they need to be more competitive with their Chinese counterparts. There are efforts to decentralize the manufacturing of ASICs and other crucial capital goods, but this is going to take time. If and when this does happen, North American miners will be able to really accelerate their ascendance in a profitable way.

North America also lacks dominant mining pools but that might have changed today with the announcement of Titan, which claims to be the first enterprise-grade bitcoin mining pool in North America. Titan, if successful, could compete with the dominant Chinese mining pools and might even attract some of their hash-power as well.

Rise of Eurasia






Given hash rate trends, machine sales, government statements, and projected investments, we expect the next phase of proof of work based mining to accelerate in North America and Eurasia in the short and medium term, thus reducing the relative mining dominance seen in China over the last 4 or 5 years.

China should be the dominant player for the short and medium term but their dominance looks like it will wain precipitously over the long term and could conceivably be supplanted by economic and energy powerhouses like the United States and Russia with Iran, Canada, and Kazakstan also eating away at their dominance.



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Originally published at https://edge.app.

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