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The estimated BTC hash rate has seen a significant drop over the weekend as authorities in China’s Sichuan region ordered BTC mining operations to shut down.
On Friday, authorities in Sichuan ordered mines in the region to shut down by Sunday. The Cambridge Centre for Alternative Finance reports that the province accounted for roughly 9.66% of China’s hash rate as of April 2020.
According to a statement from the region’s authorities, 26 enterprises identified as mining operations had to cease operating by the Sunday deadline. Electricity providers in Sichuan are now also required to investigate clients and cease providing electricity if they’re found to be mining BTC.
The anti-mining efforts in Sichuan follow similar policies that have emerged over the past 3 months in other Chinese provinces and regions, including Xinjiang, the largest contributor to China’s total hash rate.
Despite the sustained anti-mining rhetoric, the network’s hash rate has largely performed in line with historical precedent where drops in the hash rate were associated with sharp BTC sell-offs. For example, both BTC's price and hash rate simultaneously dropped just days after reaching all-time highs in April. The same pattern persisted this weekend as BTC's price fell as low as about USD 33,000 on Sunday.
A number of videos purporting to show Chinese miners shutting down operations have circulated on social media over the weekend. Chinese authorities have previously enacted a range of measures in order to limit the adoption of BTC and crypto. For example, as early as 2013, regulators ordered local banks to cease offering all services to crypto-related businesses.
In April, the UK’s Sky News interviewed operators of a “grey” BTC mining facility working out of an “existing factory” in order to “piggyback off the existing industrial energy supply, without authorities noticing a new source of energy demand.” According to that miner, “there are hundreds of grey sites like his across China.”
It isn’t clear what proportion of Chinese BTC miners operate as formal entities or as “underground” and informal facilities, which may continue to operate despite official bans. Such sites may cushion the impact of shutdowns of formal miners in China.
As such, headlines such as “Chinese [BTC] mining pools see further hash rate plunge on Sichuan shutdown order” are oversimplified and suggest that aggressive drops in hash rate are an inevitable result of anti-mining policies. In reality, the way these policies will manifest in the hash rate is unclear at this point.
At the same time, the network continues to function optimally, and the hash rate drop is nowhere near a point that could represent a threat to the network’s security.