In the summer of 2021, the Chinese government banned Bitcoin (BTC) mining, citing typical concerns of harmful environmental effects and money laundering. Now the Chinese government is working to establish its own digital currency, the yuan. This raises the question of whether the original reasoning was simply a Trojan horse.

This ban could easily have been a huge blow to Bitcoin’s momentum. After all, close to 75% of all Bitcoin mining had taken place in China by the end of 2019, according to Cambridge Alternative Finance Benchmarks. If the network was reeling under the weight of China’s nationwide ban, other governments might have begun to think that Bitcoin might be beaten after all.

China’s ban was Bitcoin’s stress test

For a brief period, the ban worked as intended: By the end of June 2021, the Bitcoin network hash rate had dropped to 57.47 exhashes per second (EH/s), a few multiples. However, the hash rate recovered to 193.64 EH/s in December 2021 and in February 2022 reached an all-time high of 248.11 EH/s.

The entire test was a test that Bitcoin passed with flying colors: the ban on Bitcoin mining proved just as effective as the Prohibition era was in killing the drinking culture in the United States.

In early 2022, the obvious explanation for the hash rate recovery was that miners who had settled in China had simply fled to the Western Hemisphere. There was plenty of evidence that seemed to support this hypothesis, most notably that the US share of the global hash rate skyrocketed from 4.1% at the end of 2019 to 35.4% in August 2021.

Participation in the global hashrate of Bitcoin. Source: University of Cambridge, Reuters

The ban created a decentralized black market.

However, the so-called “great migration” may not have been the only unintended consequence of China’s ban. In May 2022, miners in China accounted for 22% of the global hash rate, a figure that is not as dominant as it used to be, but it is also not a small slice of the pie.

As the Cambridge Center for Alternative Finance reports:

“It is likely that a non-trivial portion of Chinese miners quickly adapted to the new circumstances and continued to operate covertly while hiding their tracks using foreign proxy services to divert attention and scrutiny.”

In fact, it is likely that there is now a massive black market for Bitcoin mining in China.

As hard as they try, one of the most authoritarian regimes on the planet cannot stop its citizens from mining Bitcoin. In economic terms, the potential benefits to China-based miners outweigh the costs associated with being caught red-handed.

Despite the concern and skepticism that “experts” broadcast about Bitcoin, miners in China value the activity so much that they are willing to risk breaking the law to get their hands on the future world reserve asset.

Increases international competition for miners

Despite the rise of China’s black market, there is no question that the US economy benefited from China’s ban. Just outside of Kearney, Nebraska, a company called Compute North runs one of the largest data centers in the United States for cryptocurrency mining. Around the time of the China ban, the company received a flood of calls from operations trying to move their mining equipment from China to the United States.

Compute North welcomed its new partners with open arms. “We doubled the size,” said their lead technician. “We were busy nonstop all summer. […] And there continues to be more and more demand all the time.”

Other cities, such as Rockdale, Texas, and Massena, New York, are also seeing growth in their cryptocurrency mining ecosystems.

All of this migration could cause a vicious cycle for China and a virtuous cycle for the United States, meaning all sorts of other Bitcoin-related opportunities move from China to the United States as well. Lamont Black, a finance professor at DePaul University, believes the recent influx of Bitcoin mining in the United States could boost the country’s broader blockchain economy.

And that logic works both ways: as Bitcoin miners leave China, ancillary Bitcoin activities will travel with them.

Although the fleeing miners considered countries other than the United States, it appears that the miners prefer the United States because of its relatively strong respect for property rights. A miner who migrated from China said: “Maybe the governments [of countries such as Russia or Kazakhstan] they are not only closing the operation, but also taking […] all your machines. You can lose everything, so the United States is a safe option.”

The lesson for the governments of the world

This black market phenomenon should be a lesson to Western politicians: if the Chinese government can’t ban Bitcoin mining, neither can you.

As the United States moves forward in studying the regulatory implications of the industry, traditional financial institutions are keeping a close eye on its moves. Retail and institutional investors are also paying close attention to market swings as they battle inflation at home. At this point, trying to put the toothpaste back in the tube is nothing more than a waste of energy. Bitcoin mining is not going away.

The United States and other world leaders must learn from the mistakes of others so that they do not have to repeat them. China wasted its efforts so others don’t have to.

Disclaimer. Cointelegraph does not endorse any product content on this page. While our goal is to provide you with as much important information as we can obtain, readers should do their own research before taking any action related to the company and take full responsibility for their decisions, and this article cannot be considered investment advice.

William Szamosszegi is the CEO and founder of Sazmining, the world’s first clean energy Bitcoin mining platform for retail clients. He is also the host of the Sazmining podcast, and as a Bitcoin evangelist, Will is committed to improving humanity’s relationship with time, money, and energy. Will is a Bucknell Venture Grant recipient, a finalist in the SXSW Digital Entrepreneurship Tournament, a Forbes Fellow, and a regular speaker at Bitcoin mining conferences.

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