China has played a dominant role in Bitcoin for much of the crypto-asset’s short life. But the hold of the world’s No. 2 economy over the fast-growing industry faces a major challenge this year. As millions of Chinese are set to begin their own winter holiday season to celebrate the New Year, 2018 could mark the shift of Bitcoin mining power to North America.

China’s outsized influence over Bitcoin is one of the many ways the digital currency defies conventional wisdom. Massively popular platforms have dominated worldwide only to stumble in China, often outflanked by local rivals and even imitators. But where Google, Facebook, Twitter, Uber and eBay have fallen short due to regulatory prohibitions, Bitcoin is a technology upstart that has swept around the planet and managed to take hold in China — so much so that Bitcoin developments in China drove global industry trends.

First, each year, the Lunar New Year is considered something of a cooling period on BItcoin mining expansion across China because so many people are on holiday. Also, the crypto-asset world saw billions of dollars raised last year through Initial Coin Offerings (ICOs). But the worst month for the new financing phenomenon came after China banned its citizens from participating in these digital token sales. And China’s periodic moves against local Bitcoin trading exchanges have caused some of the wildest price swings in markets around the world.

The main area where Chinese companies clearly out-rank their global Bitcoin competitors is mining. It is estimated that nearly two-thirds of all the world’s mining is in China. This concentration is important. Not only do miners produce new Bitcoins for the market, the mining process essentially dictates the governance model for software operation and security for the Bitcoin network.

But the miners’ dominance from China is now eroding.

The Chinese government has begun eliminating electricity subsidies. These had underpinned mining profitability by containing one of the biggest costs in the massive operations. As previously seen, when China adjusts policy, the Bitcoin world shudders. Now, faced with up to a tripling in their electricity bills, some Chinese miners are contemplating shutting down.

Losing their competitive edge means they are sending their equipment abroad, and some miners have already begun shipping their servers to North America. The increasing flow of these specialized second-hand computers has already begun outstripping capacity, meaning some servers are simply placed in storage until hosting space can be built or found. The secondary market for mining servers will likely explode this year, impacting manufacturers as demand for new machines slows.

The total Bitcoin mining network is estimated at about 2,000 megawatts at present. If China shuts mining down, then the rest of the world’s output would have to triple in size — from something like 700 megawatts to 2,000 megawatts — just to hold the global mining network steady. North America is rushing to fill the gap, although it will not be easy.

For years, Chinese mining companies have dominated the industry. As well as their subsidized energy, they have benefited from low labor costs and relatively lax building codes for crypto-asset datacenters, or mining farms, as they’re called locally. Now, as operations begin closing and servers embark across the Pacific, North America may begin flexing its muscles at last.

As we enter the Year of the Dog, perhaps 2018 will be remembered for how the Chinese miners lost their bite.    

Sean Walsh is the Founder of Redwood City Ventures and the CEO of Hyperblock Technologies Corp, a North America-based cryptocurrency mining operation. This article reflects the opinions of the author and is not intended to be financial counsel.

bitcoin This year could mark the shift of Bitcoin mining power to North America. Photo: Pixabay