In today's craze for digital currencies, Bitcoin is undoubtedly the hottest star. However, the ensuing network hash rate problem has attracted widespread attention. According to the latest data, China's Bitcoin mining pool controls an astonishing 81% of the network hash rate, which is a shocking figure. At the same time, the huge energy consumption brought about by Bitcoin mining has also caused controversy with both advantages and disadvantages. This article will explore the monopoly status of China's Bitcoin mining pools, the relationship between network hash rate and mining energy consumption, and explore the pros and cons, as well as countermeasures.

The reason why China's Bitcoin mining pools can control such a large network hash rate is due to China's advantages in cheap electricity resources on the one hand, and the Chinese government's loose policy on the digital currency industry on the other hand. In China, a large amount of hydropower and coal-fired power resources are used for Bitcoin mining activities, making Chinese Bitcoin miners highly competitive. However, this monopoly phenomenon has also caused a series of controversies and concerns. The excessive concentration of hash rate makes the Bitcoin network more vulnerable. Once a problem occurs, the entire network will face the risk of collapse.

At the same time, Bitcoin mining activities also bring huge energy consumption problems. According to statistics, Bitcoin's annual power consumption has exceeded the total power consumption of some small countries. This huge waste of energy is worrying. A large amount of coal-fired power is used in the process of Bitcoin mining, which aggravates the problems of environmental pollution and global warming. How to reduce the energy consumption of Bitcoin while ensuring the security of the Bitcoin network has become a difficult problem facing people.

In order to solve this problem, some new consensus mechanisms such as "proof of stake" and "proof of capacity" have been proposed to try to reduce the cost of Bitcoin mining and reduce energy consumption. In addition, some green energy such as wind energy and solar energy have also been applied to Bitcoin mining activities to reduce its dependence on traditional energy and reduce environmental pollution. However, the application of these new technologies still needs time to verify their feasibility and effectiveness, and further research and practice are still needed.

In the face of the problems of network hash rate concentration and excessive mining energy consumption, we need to comprehensively consider the balance between the development of digital currency and social responsibility. The government should introduce more stringent regulatory policies to curb the monopoly of Bitcoin mining pools and promote the healthy development of the digital currency industry. At the same time, Bitcoin miners should also actively explore the application of green energy, reduce their energy consumption, and contribute to global environmental protection. Only with the joint efforts of all parties can the sustainable development of the digital currency industry be achieved and more positive energy can be injected into the future of human society.

In general, the 81% of the network hash rate controlled by Chinese Bitcoin mining pools and the energy consumption problems caused by Bitcoin mining do have both advantages and disadvantages. We need to face these problems, seek solutions, and promote the development of the digital currency industry in a more sustainable direction. I hope that more innovative technologies and policies will emerge in the future to provide more possibilities for solving these problems. Let us work together to create a better digital currency world!

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In contrast to the decentralized system established by Bitcoin, Bitcoin mining has become highly centralized in recent years due to technological advances in specialized mining hardware that have rendered commodity hardware obsolete. This centralization is caused by the rise of mining pools, where miners collaborate in groups and agree to share block rewards in proportion to the mining hash power they contribute. These mining pools control the vast majority of the Bitcoin network, with Chinese mining pools estimated to control approximately 81% of the network hash rate (Figure 1). Among the larger Chinese mining pools are BTC.com, F2Pool, and AntPool (Figure 2).

Figure 1: Geographic distribution of Bitcoin mining pools

Source: BuyBitcoinWorldwide.com “Bitcoin Mining Pools”

Figure 2: Percentage of network hash rate of top mining pools

Source: Blockchain Luxembourg S.A. “Hash rate distribution”

The reason for the high degree of centralization is that Bitcoin mining requires a large amount of electricity, which attracts miners to countries with cheap electricity (i.e. China). Other highly centralized countries include the Czech Republic, Iceland, and Japan, all due to the same pursuit of cheap electricity. Mining hardware becomes a new arena of competition

When Bitcoin (BTC) was first launched, enthusiasts could mine it simply by using their personal computers (PCs). However, doing so quickly became extremely inefficient, and hardware producers began to focus on producing specialized hardware, called application-specific integrated circuits (ASICs) (chips), which are built and optimized for the specific purpose of mining Bitcoin.

The first company to enter this field was Bitmain, which has achieved stunning success over the years by selling AntMiner. According to its 2018 disclosure documents, Bitmain's revenue in 2017 was $2,517,719,000, far higher than the $277,612,000 revenue in 2016. Although the details of the overall performance in 2018 have not been disclosed, there are reports that there was a loss of $500 million in the third quarter of 2018 as BTC fell in 2018. In addition, Bitmain also suffered significant losses on its big bet on Bitcoin Cash.

Image source: Internet

In recent years, another hardware company, Canaan Creative, has also gained attention and become the world's second largest ASIC mining hardware producer. While it is far from Bitmain’s revenue, its AvalonMiner product is very popular with industry insiders and has a good balance between hash rate and energy efficiency. In addition, Canaan’s profits have grown at an astonishing rate in the past few years and are likely to continue to grow at this rate (Figure 3).

Figure 3: Canaan Creative’s profits

Source: Quartz, “Canaan Creative Seeks IPO”

Another company in the arena is Hwalong Mining, which produces Dragonmint models that are actually more efficient than Bitmain’s hardware in terms of hash rate.

Finally, Bitfury is a hardware company that is mainly focused on providing larger-scale solutions, segmenting the market and finding ways to beat Bitmain in that market.

Overall, while Bitmain still has a clear advantage in the hardware market for Bitcoin mining, it is also facing competition from many other talented companies.

Energy consumption has both advantages and disadvantages

Currently, there are a total of 17.82 million Bitcoins in existence, with 3.18 million remaining to be mined. With about 1,800 new Bitcoins mined every day, the energy consumption is getting bigger and bigger. According to the Cambridge Bitcoin Electricity Consumption Index (CBECI), the global Bitcoin network consumes more than 7 gigawatts of electricity, or 64 kWh of energy. This makes Bitcoin's energy consumption higher than Switzerland, which is an astonishing amount of electricity consumption and is currently on a one-way growth trend (Figure 4).

Figure 4: National comparison of Bitcoin energy consumption

Source: The Verge (an American technology media website founded in 2011 in Manhattan, New York) "Bitcoin Energy Consumption"

In addition, the Bitcoin network only processes 100 million transactions per year, which pales in comparison to the 500 billion transactions processed by the traditional financial industry. If Bitcoin can catch up with the financial services industry, the energy consumption will be astronomical.

However, Bitcoin supporters believe that most of this energy comes from renewable resources. Since miners position themselves as the cheapest source of energy in the world, they often tend to accumulate renewable energy sources that lack their own energy needs. For example, China uses the rainy season in its southwest region to generate hydroelectric power, which in turn is used heavily by Chinese mining pools.

In fact, CoinShares' latest research shows that 74% of mining activities rely on renewable energy, "and the Bitcoin mining industry drives more renewable energy than almost any other large industry in the world."

National stance is key Bitcoin mining has become a booming industry due to the high returns in the mining industry. It has driven media attention and adoption of cryptocurrencies and strengthened the network systems that can protect network security. However, some governments are opposed to the adoption of cryptocurrencies in their countries and have policies to prevent their spread.

Bolivia has banned the use of Bitcoin and other cryptocurrencies. Colombia does not allow Bitcoin use or investment, while Ecuador has taken a similar stance in banning cryptocurrencies. In Russia, Bitcoin is unregulated, but its use as a means of payment for goods or services is illegal. Iranian authorities recently seized 1,000 Bitcoin mining machines, saying it is illegal to use the country's national grid to power crypto mining.

Countries including the United States, Canada, Australia, the European Union and Finland currently have a friendly stance on cryptocurrencies, while adopting varying degrees of regulation to avoid money laundering and tax evasion.

Future leaders emerge35 cryptocurrency mining organizations are currently in talks with Hydro
Quebec, a hydroelectric power company in Canada, about setting up operations there. The location will provide abundant cheap energy in a stable government environment that is friendly to crypto businesses. In addition, Canada's cold climate is particularly beneficial for ASIC machines, which can run better and last longer in cold environments.