Chinese bitcoin miners control 65% of the world’s hash rate, reaching its highest in 2 years, according to a recent report by Coinshares Research.
Analysts have expressed concerns over decentralization of cryptocurrency. Increase in hash rate means increased opportunity of mining and receiving block rewards, which means more dominance of cryptocurrency market.
According to economist Nouriel Roubin, there is a massive centralization of power among miners and the blockchain is not even close to decentralization and democracy.
Coinshares report says 54% of global hash rate is in China’s Sichuan province alone. However, this is attributed to natural factors due to the abundance in cheap hydropower in the province.
The surge in bitcoin mining power is caused by sharp increase in profitability as prices reached $13,000 in July. “More than anything miners have been taking advantage of increased cashflows, especially in spring and summer”, says Chris Bendiksen, Head of Research at CoinShares.
Data from CoinMetrics.io show that bitcoin miners received $5.5 billion in total block rewards. With this year’s average bitcoin price, expectations of total revenue mount to $5.4 billion.
According to RRMine analysts, increase in using high-power miners comes amidst expectations of further price surge ahead of the May 2020 reward halving. The halving will reduce the reward per block mined from current 12.5 BTC to 6.25 BTC.
However, CoinShares’ Christopher Bendiksen and Samuel Gibbons both foresee a likely fall in China’s hash rate dominance in the long run, as the latest generation hardware is expected to make an entry into the non-Chinese market.
“If our estimates are correct, this suggests that, at current bitcoin prices ($7,300), the average miner is profitable”, says Bendiksen and Gibbons.
“However, going into the reward halving in the spring of 2020, older gear such as the venerable Antminer S9, which is still widely deployed in the network, will likely be approaching the end of its useful lifetime unless the price of Bitcoin rises dramatically”, they added.
Bitmain is already building the world’s largest bitcoin mining farm in Texas, which has abundant power resources. Meanwhile, countries like Norway, with abundant hydropower potential, are likely to become mining powerhouses.