A few days ago, a mysterious dip in Bitcoin mining power coincided with a significant price drop.
The Bitcoin network suddenly retreated from peak mining prices, losing around 25% of the hashrate in a short period. BTC mining was above 44 million TH/s, when it fell toward 34 million within days. The period also coincided with price weakness on the markets, as BTC slid toward $5,800. According to some charts, the hashrate fell as low as 30 million TH/s.
But the reason for the drop turned out to be straightforward, and dramatic – a series of floods in Sichuan province wiped out mining farms in Sichuan, destroying ASIC machines.
China has been a powerhouse of mining, and many new facilities make use of the country’s hydroelectric power. In the past, talks of a Chinese mining ban in fact related to the limitations of constructing mining facilities downstream from large hydroelectric power centrals, to use the remaining water power.
The lowered mining power has not affected the BTC network, where there is the habitual number of a few thousand pending transactions. But the large effect shows how much of the mining power is concentrated in China.
Additional accusations surfaced a few days ago, stating that Bitmain was the largest mining entity, using the newest rigs to mine in secret even before re-selling them to users. According to Cobra, a prominent Bitcoin community figure and founder of the Bitcointalk forum, the usage of new machines lifts the hashrate, and when the machines come to market, they are already almost obsolete.
In fact, Bitmain may not own 51% of the actual mining hardware. However, Bitmain owns the mining pools Antpool and BTC.com. This means that hashing power operators choose to pool their resources into the Bitmain-owned pools. But in a recent blog, Cobra stated Bitmain is adding raw hashing power to its pools from brand-new machines.
In the past six months, despite the deep price losses, mining power has almost tripled as many promised mining farms came online all over the world. Despite the price drop, miners have their breakeven at lower prices, and some turn out profit even if BTC prices drift sideways. Cheap electricity is a key component to achieve that goal. The Bitcoin network has significantly increased its energy usage, to be comparable to the electric grid of Switzerland.