China's Rise and Fall in Cryptocurrency Mining
Cryptocurrencies had a golden period in China, which led the world in Bitcoin mining due to its low energy costs and supportive regulations. By 2021, China managed about 70% of global cryptocurrency mining activities. In 2019, China's leader, Xi Jinping, encouraged the use of blockchain technology, further cementing the country's dominance. However, in May 2021, China banned cryptocurrency mining and transactions, citing concerns over criminal activities such as money laundering and potential threats to the financial system. This led to the industry's collapse in China.
Migration to Kazakhstan and Then the U.S.
The crackdown in China forced miners to relocate, with many heading to Kazakhstan due to its cheap coal energy. This move increased Kazakhstan's share of global mining from 7% to nearly 20%. However, the increased energy demand resulted in significant fuel price hikes and blackouts, leading the country to cut off miners from the national power grid by late 2021.
The United States then emerged as a new hub, taking over 40% of the world's Bitcoin hashrate by 2023. Bitcoin hashrate refers to the computing power used for mining Bitcoin. U.S.-based operations now consume about 2% of the nation's electricity, comparable to states like Utah or West Virginia. This has sparked local criticism, especially when Chinese-owned companies set up operations in America.
Local Opposition and Environmental Concerns
An example of this shift is Bit Mining, a former major player in China, which after a brief stay in Kazakhstan, moved to Akron, Ohio. These operations often settle in rural areas for cheaper electricity and land, as seen in Rockdale, Texas, and Bono, Arkansas. However, local citizens are worried about the noise, environmental impact, and the minimal job creation provided by these facilities.
Jeremy Fisher from the Sierra Club highlighted the massive energy consumption of these operations, such as the 450 megawatts used by a Riot Platforms facility in Texas, enough to power 300,000 homes. With growing climate change concerns, Fisher stressed the need for transitioning to renewable energy sources and questioned Bitcoin mining's sustainability.
Pro-Bitcoin Lobby and Political Influence
Despite opposition, a strong pro-Bitcoin lobby has emerged, pushing for industry interests. Their influence is evident in states like California, where lobbying led to the veto of a bill that aimed to regulate digital financial assets. At the federal level, over $20 million has been spent to avoid SEC regulation. Former President Trump even promised to make the U.S. the "crypto capital of the planet."
Centralization and Geopolitical Concerns
As Bitcoin mining grows, concerns about its centralization also rise. Originally meant to decentralize financial systems, mining has become concentrated, with 10% of operators controlling 90% of the capacity as of 2021. This centralization raises questions about the true decentralization of the system.
In response to these geopolitical tensions, the Biden administration has acted against foreign-owned mining businesses. For example, in May 2023, a Chinese-owned mining company was ordered to sell operations near a nuclear missile site in Wyoming for national security reasons.
The Future of Cryptocurrency Mining in the U.S.
The future of Bitcoin mining in the United States is uncertain. While the Bitcoin lobby continues to push for less regulation and growth, local communities and politicians are increasingly vocal about their concerns. People like Fisher demand stronger regulations or even a halt to new plants. If the industry’s energy-heavy activities are not properly managed, they could exacerbate existing climate issues, potentially rendering Bitcoin’s advantages less significant than its costs.
