China’s pending bitcoin “mining catastrophe”

China is slowly picking itself up from the covid-19 outbreak and businesses nationwide are also slowly recovering. Yet bitcoin mining, though it initially appeared to be virus-proof, has suffered—and could be in for way more pain.

That’s partly because, thanks to quarantines, mining rig manufacturers, such as Beijing-based Bitmain and Shenzhen-based MicroBT, were unable to ship new equipment to mining farms, which are mostly in the northwest of the country (where hydroelectricity is abundant.) Coindesk says that the supply-chain hiccup could have caused BTC’s hash rate to stagnate last month.

Unrelated, but also problematic, was the shipping delay of 7-nanometer chips from Taiwan-based manufacturer TSMC. High demand from the likes of Apple and Huawei caused the chip maker to postpone its delivery from 2019 to early 2020. The new chips are denser, more powerful and require less power, and are in high demand among miners.

The elephant in the waiting room

But as things return to business-as-usual, miners are facing a bigger elephant that has been lingering in the waiting room: The so-called “矿难 mining catastrophe.” The term refers to a scenario that many believe will cause a massive shutdown of many smaller mining farms in China.

If the price of bitcoin stays flat or drops further, mining becomes less profitable, putting unbearable pressure on independent miners and smaller operations. That comes at a time—the “halving,” expected in May 2020—when miners will want to upgrade to those 7-nm chips to handle the more complex and computationally intensive proof of work.

This looks like a perfect storm for everyone except the big mining operations. The virus and its consequences caught lots of miners by surprise. Those who didn’t upgrade earlier enough are now facing dire consequences. Some observers say that this collective upgrade will  result in a mining catastrophe for many farms, which are still recouping capital expenditures from the…

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