Extreme weather conditions have claimed a new victim during floods — cryptocurrency miners.
A combination of floods in Sichuan and heatwaves in Europe last week briefly dented the global “hashrate”, which measures crypto mining capacity — and offered a glimpse of what might happen if China succeeds in wiping out its bitcoin mining industry. The storms, which made hundreds of thousands of people homeless and flooded thousands of hectares of crops, also engulfed mining farms in the region, leaving owners trying to salvage what kit they could, according to photos circulating on social media and cryptocurrency websites.
“The pictures of the flooding in Sichuan are alarming and give the impression that the bitcoin hashrate must surely have taken a hit,” said Max Kortrakul, founder and chief executive of social trading platform Carboneum.
Given that Chinese miners produce between 50 and 70 per cent of the world’s bitcoins, as well as a significant amount of other major cryptocurrencies, the floods expose the sector’s vulnerability. Morgan Stanley analysts estimate that the Sichuan floods could affect up to 8-10 per cent of global bitcoin mining activity.
Miners, who solve complex maths problems to form new transactions, require hefty computing power. As a result, they tend to congregate where electricity is cheap to keep the costs of cooling their electronic equipment low. Other popular spots include Russia, Iceland and Venezuela.
Beijing, like other governments, is irked by mining’s massive power demands and is endeavouring to shut down the industry. Digiconomist, a cryptocurrency data platform, calculates that global electricity consumption used for bitcoin mining is enough to power more than 6.5m US households.
Some industry observers took a more sceptical view of Sichuan’s significance. Aaron McDonald, co-founder and chief executive of Centrality, an app store platform for decentralised applications, attributed the hashrate dip to a combination of the flooding, a heatwave in Europe and the lower price of bitcoin, which erodes returns for miners. Leo Weese, president of the Bitcoin Association in Hong Kong, said that while some published charts suggested a 30 per cent drop in the hashrate as a result of he flooding, “in reality these charts are just guesses based on how many blocks have been found in a day”. Neil Woodfine, director at trading platform Wyre, said the dip in hashrate “was really no more than standard variance”.
Moreover, the kit shown in online photos included graphics processing units, said Mr Woodfine, suggesting it was dedicated to mining other cryptocurrencies. “Typically, only bitcoin is mined on specialised hardware and the alternative currencies are mined on gaming graphics processing units.”
Some analysts doubted that even a significant hit on the Sichuan mining community would be likely to have a global effect on the hashrate, but added that Chinese miners still dominated cryptocurrency. “I think it’s still safe to claim there is a ‘key man risk’ with Chinese mining for bitcoin,” said one.