2020 saw a steady rise in Bitcoin’s hashrate. Miners rang in the 2021 New Year with stellar earnings of 22¢/TH, up from 14¢ last January, and 6¢ post-halving.
The past year also brought forth marked changes to the geographical spread of Bitcoin’s hashing power. Namely, China lost a substantial portion of its share, whilst North America, Kazakhstan, and Russia climbed rank. In this review we assess 2020’s hashrate, ASIC manufacturing, and the global spread of the network, with a focus on what’s to be expected in the coming year.
Bitcoin’s Hashrate in 2020
The Bitcoin network increased by over 30% in 2020. It went from 115 EH/s to a maximum of 147 EH/s. This jump is equivalent to just under a half-million new ASICs hitting the market last year, at an average of 80 TH/s. Although, this is hard to confirm as manufacturer sales records are secret.
MicroBT’s, Canaan’s, and Bitmain’s tera-hashing capabilities of their mining rigs, M30, Avalon 1166, and S19, rose by about 30% in 2020. New generation machine specs are up to 110 TH/s. Remember, 2019 saw the Bitcoin network double from 50 to 100 TH/s, which was also thanks to the introduction of powerful ASICs from MicroBT and Bitmain.
Miner earnings dropped significantly pre-halving, post-halving, and post- Chinese wet season to 6¢/TH. Difficulty also reached all-time highs. Luckily though, the ‘miner death spiral’ did not result, and miner profitability ended on a high. Overall earnings spanned from 6¢ to 22¢ per TH in 2020. Below is a comparison of the Bitcoin network in exahash per second, and miner earnings per terahash. Data is from Blockchain and BitInfo Charts.
Bitcoin’s Mining Geography
Bitcoin mining is a decentralized international affair. All continents make a contribution to Bitcoin’s hashrate except Greenland and Antartica. The following chart displays a distribution of 2020’s BTC network, by location and hashrate share. Due to space constraints several countries with small shares are not shown. Data is adapted from Cambridge University’s Centre for Alternative Finance, from September 2019 to April 2020, using geo-location data from IP addresses provided by three major mining pools.
Remember, this data only covers until April 2020. Between April and December 2020, Bitcoin’s hashrate grew about 20 EH/s. Twenty exahash is equivalent to the introduction of a quarter-million newer generation ASICs at an average of 80 TH/s. This infers around 10% of the location of Bitcoin’s hashrate is unaccounted for. It will be interesting to see a 2021 update from Cambridge.
It should also be noted that according to a July 2020 study by BitOda, the US controls up to 14% of Bitcoin’s hashrate, whilst Kazakhstan, Russia, and Iran have 8% each, Canada 7%, Iceland 2%, and China just 50%. Alas, the study does have sample bias.
2020 has seen a readjustment of global hashing power. Iran, Russia, and Malaysia increased their mining capabilities by 1% respectively. Notably, China lost 10% of its network share. China went from holding 75% of Bitcoin’s hashrate to 65%. The bulk of China’s loss reallocated to USA and Kazakhstan. Both countries opened new mines, imported ASICs, and doubled their network share.
Next, we will dig deeper into how 2020’s BTC hashing power evolved outside of Asia, and what it means for the hardware industry. Importantly, this migration of hashrate was not a case of Chinese miners moving away from China, rather it was due to more ASICs being purchased outside of China than within.
China Expands Mining to USA
2020 saw Americans take serious notice of the profitability of bitcoin mining on a corporate scale. USA’s easy access to investors, alongside cooperation with top ASIC manufacturers like Bitmain and MicroBT, assisted the quick expansion of mining operations. Around 15 large mines have established across several states, including Georgia, Kentucky, New York, North Carolina, Texas, and Tennessee. This year has seen America’s hashrate capacity double, to well over 7% of the global mining network.
Beside ASIC manufacturers, financiers helped to secure mining operations in North America. Foundry, for example, facilitated financing of nearly half of all ASICs purchased in America in 2020, most of which were Antminers (Bitmain). They also helped MicroBT to establish manufacturing in Southeast Asia, following Bitmain’s lead, to eliminate the 25% import tariffs otherwise imposed on American purchases of Chinese goods (Coindesk).
Furthermore, abandoned warehouses and electrical power sources, remnants of America’s manufacturing past, have afforded convenient infrastructure for bitcoin mining operations. For example, Bitmain launched a farm in late 2019, which operates out of an old aluminium plant in rural Texas (Alcoa). Additionally, a derelict electricity station in Montana aims to regenerate power to mine bitcoins on behalf of Marathon (Hardin).
Moreover, Layer1 have been in the news. They are in a bid to raise funds to create a giant wind-powered mining farm in West Texas, beginning in 2021. They tout an electricity price of 2¢/kWh, but have some kinks to sort out, like backup power sources when the winds die down, as well as hardware cooling issues in the hot summer (Coindesk). Lastly, ASIC service points have also established in the States this past year (PRN).
ASIC Sales in USA
2020 was a record setting year for ASIC manufacturers. Bitmain alone sold over one-hundred-thousand miners to North American equity firms Marathon, Core Scientific, and Riot Blockchain. The majority of this hardware will arrive throughout 2021, provided there are no delays. Based on this information, America’s hashrate should exceed 10% by the end of next year.
USA’s expansion of BTC Mining is great for decentralization, yet marginalizes non-corporate miners.
But life isn’t all sunshine and rainbows. Prolonged ASIC lead times, in part, have resulted from corporate orders. Customers now have to wait until at least the summer of 2021 to receive new ASICs from manufacturer websites. On top of this, ASIC production remains threatened by future Covid pandemic shutdowns, as well as a scarcity of microprocessing chips.
Several industries use microprocessing chips, yet few suitable foundries exist. This creates competition. MicroBT experienced microchip delays from Samsung this year, mainly due to Covid-19 and a high demand for chips from other corporations. Both Canaan and Bitmain also had to compete for chip supplies from Taiwan Semiconductor Manufacturing Co. (TSMC), against companies like Apple, NVIDIA, and AMD.
Continued high demand for chips, alongside limited production capacity, may spark bottlenecks in mining rig manufacturing over the coming year. Especially as Apple announced their 5 nanometer M1 microprocessing chip last fall. Apple plans to roll out the M1 to all of their products over the next few years, booking up precious capacity at chip production plants. In response TSMC aims to establish new plants, though development will take years (The Verge).
In summary, it has already been decided that the US will receive the bulk of new ASICs throughout 2021. This will increase their Bitcoin network share considerably. Although, microchips are limited which may put a spanner in the works for machine production and scheduled deliveries. Additionally, Bitcoin mining may face regulation changes as Democrats take presidential office. Biden’s Green New Deal may trigger steep rises in electricity tariffs, and limit grid capacities. Furthermore, US or BTC market changes, or other snafus, could disrupt financing of proposed large scale mining operations. Thus, 2021 should be an interesting year for bitcoin mining in the USA.
Kazhakstan Recruits Miners
Kazakhstan, who has mined bitcoin on scale since 2017, has become an attractive destination for miners. Like the US, Kazakhstan doubled its share of Bitcoin’s hashrate in 2020. They went from 3% of the network, to over 6%. This is largely due to electricity rates under 5¢/kW, provided by plentiful surplus power.
Importantly, after years of debate, the Kazakh government made bold moves in 2020 to legalize asset-backed cryptocurrency mining. They officially classifyied mining as a technological advancement, and mines as data centers. Although, Bitcoin mining is not specifically addressed as it is not asset-backed. Mining profits became tax-free this year, unless they are exchanged for fiat, or are a from a miner hosting company (Kursiv).
Fourteen ASIC farms currently operate in Kazakhstan, and the country hopes to attract an additional quarter-billion dollars in cryptomining infrastructure in each of the next three years (Astana Times). Kazakhstan’s miner-friendly approach has pulled SHA-256 hashers and investors northeast of the Chinese border. This year was particularly enticing for miners who operate older generation rigs which neared breakeven post-halving. Machines like the S9 often move to hydro-powered facilities for half of the year in China, whereas Kazakh’s power is a steady low price year-round.
Newer generation rigs were also destine for Kazakhstan in 2020. Canaan delivered over 20,000 AvalonMiners to AQ Group Limited last year. In September, Enegix LLC established a huge purpose-built cryptomining facility in the north of the country. If all goes according to plan, up to 50,000 machines should be installed in their 180 megawatt farm over 2021. Thus, by the end of next year Kazakhstan’s hashrate should increase to at least 7% of the network. MicroBT, in partnership with Enegix, also announced plans to open WhatsMiner service centers in Kazakhstan in 2021.
2021 may be the year Kazakhstan and Russia battle it out for third position of the Bitcoin hashrate.
In summary, Kazakhstan’s network share will increase in the next annum if their bitcoin mining development stays the course. Although, over 90% of Kazakhstan’s energy source is fossil-fueled coal, and hydro contributes to only 2% of the nation’s power. Yet, the government recently commissioned the expansion of renewables by 3 billion kilowatts (Kapital). If successful this project could stabilize the Kazakh grid, secure low tariffs, and potentially attract more miners.
Russia, Malaysia, and Iran Mine More
Russia, Malaysia, and Iran have all increased their mining capacities by at least 1% in 2020. Let’s take a closer at these regions.
Russia is renowned for its access to reasonably priced hydro power in northern Siberian regions, but regulations from the Kremlin may have hindered hashrate growth. Russia has only increased its Bitcoin network share from six to seven percent in 2020.
The Digital Assets and Currency law, signed July 2020, comes into effect this month. Digital currencies are now properties, and residents must declare all transactions to tax authorities.
Confusingly, the law stipulates that crypto may be used for payment, if recorded, yet individuals must not promote or action crypto payments for goods, work, or services. Furthermore, anybody using digital assets must provide KYC information to prevent money laundering. No advice was given for mining, but it can be assumed that identification of miners and records of their income are required. For example, this was actioned by the custodial mining farm and reseller Cryptouniverse of St Petersburg, who introduced full KYC for all customers in November 2020. Before patrons only needed to provide KYC after a €1,000 limit was reached.
Despite the legislation, Russian mining farms report expansion. Gazprom and its subsidiary Gazpromneft have begun transforming waste gas from their oil drilling processes into cheap electricity to power ASICs in Siberia. Repurposing the gas tailings eases liability on drilling operations, which normally burn it at the risk of fines. As of now only one ASIC hosting firm, Vekus, manages 150 older generation Antminers here. Gazpromneft hopes to recruit more in 2021 (Coindesk).
Additionally, Rosatom State Atomic Energy Corporation opened a 30 MW mining farm near the Kalinin nuclear plant outside of Moscow last year, offering rates around 5¢/kWh. Like Gazprom, Rosenergoatom does not mine itself. They sell excess nuclear energy to Bitcoin mines and data centers. If all goes well, Rosatom, a subsidiary of Rosenergoatom, plan to open an additional four nuclear-powered farms in the coming years located in Siberia, Murmansk, and Kaliningrad (Coindesk).
Lastly, cryptominers in Siberia’s Irkutsk province reported to Coindesk that 2020 saw continued recruitment from within Russia, as well as from international players. Old infrastructure and power plants, remnants of USSR’s past, provide good locations for bitcoin mines. Most of the electricity is hydro, and the region hopes to see more mining sector growth in 2021. Yet, stricter domestic regulations, and political tensions, particularly between Russia and the West, may deter some miners.
Malaysia’s central bank, Bank Negar Malaysia (BNM), declared cryptocurrency was not a legal tender back in 2014. BNM chooses to focus on exchanges to prevent fraud and money laundering, rather than monitor businesses or individuals who use crypto. As of yet, the legality of cryptomining remains in the gray (Wikipedia).
For bitcoin miners, Malaysia is known for its cheap electricity sourced from coal, natural gas, and diesel. It is also known that Bitmain contracts hardware production there. However, information about why 2020 bore witness to Malaysia’s share of the network rise from four to five percent is not available. Perhaps the increase was relative to the rise of organized illegal mining (Sun Daily).
In November a couple were arrested for ‘mining without registering with BNM’, alongside charges for online gambling, and money laundering. This couple’s arrest was the tip of the iceberg, uncovering an underworld of such syndicates illegally mining bitcoin in Malaysia.
Malaysian authorities discovered that criminal gangs scatter cryptomining operations to avoid detection by police. They use rental properties and shopfronts as farms. They bypass electrical meters in order to gain free electricity. The profits from illegal mining of Bitcoin in 2020, as well as the cost of stolen power, were estimated to be in the millions of dollars (Free Malaysia Today).
Due to plentiful oil and gas reserves, and government subsidies on power, Iran’s electricity is affordable for bitcoin miners. Thus, Iran’s mining sector grew by 1% in 2020. But new regulations, and the government’s open interest in using cryptocurrencies to circumnavigate sanctions, may halt future expansion of the industry (Mehr News).
Crypto mining became legal in Iran in 2019, but trading of digital currencies remains illegal. Miners must report themselves, their earnings, and mining gear to authorities, and pay tax on their income (Decrypt). But, as many illegal mines exist, whistleblowers can receive financial rewards for reporting them. Thus, over 1,000 illicit mining farms were identified and seized in 2020. However, rather than press charges some operations were issued licenses to legitimize their efforts (Mehr News).
2020 also saw Iranian officials open three natural gas power plants to cryptominers in Ramin, Neka, and Shahid Montazeri. Leases were auctioned off to potential miners by Iran’s Thermal Power Plant Holding Company, the largest share bought by Turkish mining company iMiner. So long as Bitcoin miners are complaint to regulations, and do not utilize subsidized electricity, they may operate on expansion turbines. Such turbines are separate from those used to power the country’s national grid (Decrypt).
Due to sanctions and the pandemic Iran’s economy is hurting. The Iranian regime’s continuing struggle to sell oil, and to acquire foreign currency, led them to take drastic actions last fall. Regulations were ratified to require miners to sell their crypto directly to the central bank (CBI). Mining revenue collected by the CBI is now utilized to pay for imports like machinery, industrial inputs, and consumer goods. Iran’s move is reminiscent of Venezuela who are also under US sanction, and rely heavily on cryptocurrencies to transact and move goods (Decrypt). It will be interesting to see what unfolds in 2021 in this region.
China Remains Number One
As explored, much of Bitcoin’s hashrate gains over the course of the past year were due to new machines being shipped out to destinations other than China, particularly the US and Kazakhstan. This fact alone accounts for a majority of China’s 10% network loss. Despite the decline China remains far in the lead, controlling over half of the hashrate in 2020. China are set to continue their hashrate dominance in 2021.
Setbacks this past year included the bankruptcy of over-abundant mines in the Southwest provinces, including Sichuan and Yunnan. Yunnan also blocked access to the grid, driving some SHA-256 hashers out of the area (CoinGeek). Further, large rainstorms caused flooding and downtime during the hydro season, which hurt already low profits of 6¢-11¢ per terahash. As a result, many older generation machines were switched off in the fall. It was also rumored that some Chinese miners had difficulty paying electricity bills this past year, as OTC trader platforms were shutdown by Chinese officials.
But, the verdict is that unless regulations change, most Chinese miners are staying put. Earnings have shot up to over 20¢/TH this year, leaving large profit margins for Chinese miners who pay between 3¢-6¢/kWh, depending on the season. With the year-ending BTC price hikes, older generation machines are joining back onto the network and secondhand ASIC markets are booming.
Lastly, in spite of reports that China’s coal supplies are dwindling, threatening bitcoin miners (OilPrice), Chinese power grids are in fact undergoing enormous restructuring projects. In actuality, China holds one of the world’s largest coal reserves. Yet, coal supplies are short because the government has reduced production inline with their pledge to the 2015 Paris Agreement.
China depends on over 60% coal-fueled power, but aims to become entirely green by 2060. Under much scrutiny they have had to build new coal power plants to meet immediate energy demands, nevertheless the nation is working hard to catch up to their green promise by creating multiple wind, solar, and nuclear power plants. By 2050, clean power supplies should result in a doubling of China’s grid capacity, which may in turn drive down electricity costs (Nature). Bitcoin miners may benefit.
What a year it’s been. Can’t wait to see what 2021 has in store for Bitcoin’s hashrate.