In addition to the fall in the bitcoin price, the closing of mining companies in China caused another effect: reducing the hashrate – a metric that indicates all the computing power capacity to validate transactions. Since China accounted for about 65% of mining across the globe, the shutdown of mining companies decreased the capacity of the entire network, directly impacting this rate.
To better understand hashrate, you need to know that operations in data centers target two rewards: the set of all fees paid for each transaction block and the reward scheduled in the block.
“Today, about 900 bitcoins are generated per day, and all that computing power is competing for that reward. So, a drop in hashrate leads to less competition for the same reward”, explains Transfero’s Director of Products and Partnerships, Safiri Felix. As a result, according to him, the network becomes less efficient.
“However, there is a self-adjustment protocol. There is an adjustment of the difficulty every two weeks, adjusting the reward for this new hashrate” Felix said. The next adjustment should take place on June 30
Migration of mining plants
In addition, the director of Transfero mentions that while China is repressing the activity, other countries are stimulating it, bringing balance to the market. In other words, the miners that shut down their equipment due to the restrictions should relocate it to other places where they are welcome.
“Obviously, the process of migrating mining plants will not be simple. But there are alternatives like the United States, Canada, some Eastern European countries and now El Salvador, which have no restrictions and still have a greater diversity of energy supply sources”, Safiri notes.
Renewable energy stimulus
Another detail, according to Safiri, is that with this movement in China, the issue of non-renewable energy use is also solved, since the country had several mining plants that used coal as an energy source.
“The prospect is that mining will increase energy consumption. However, outside China, the chance of using renewable sources is much higher”, he explained, noting that higher energy consumption does not necessarily mean increased carbon emissions.