Trade and economic growth historical evidence of exodus
33 comments
Bitcoin blockchain growth
This piece explores why China appears to dominate the Bitcoin mining industry. Chinese Bitcoin mining could be the inadvertent beneficiary of a massive boom and over-investment in hydro power, linked to aluminum production, in remote regions in China over the last 10 years. One question often asked by some in the Bitcoin community is Why are so many mining pools and miners based in China?
The most basic response to this question is: China is not just some random country. It is a global economic powerhouse, dominant in most industrial and energy sectors. China is unquestionably already the dominant driver of the global energy industry, and perhaps it is no surprise that China is dominant in Bitcoin mining, an industry that is strongly related to energy generation.
One of the largest and most discussed advantages for China is the local infrastructure and expertise that enables mining farms to quickly set up as soon as the mining chips are available. This setup process is said to be much slower in other regions. Being able to quickly set up can be crucial, as new more efficient chips are developed all the time. China also has geographical proximity to where the specialist chips are manufactured. Another alleged advantage is corruption in the power industry in China, with some Bitcoin miners perhaps able to pay power-plant owners for the right to place mining equipment inside or near to the power facilities.
As the chart above shows, China has been the dominant driver in world hydro-power growth in the last 10 years. Hydro power is a good energy source for Bitcoin mining, since the marginal cost of power generation is very low, with most of the costs related to the initial investment.
In addition, hydro power is reliable and stable. The facility will have 16 turbines of 3. The project began in and is expected to be complete in The Wudongde project on the Jinsha River in the southwest is the most recent large project and will provide It began construction in , and the first generator is scheduled to be complete in The whole Wudongde project is expected to be complete in It will be the sixth-largest hydro-power facility in the world.
The projects mentioned above are far too large for Bitcoin mining. The guidelines outlined plans to develop and grow the small-scale hydro-power industry in China by Because smaller facilities are more likely to power Bitcoin mines, this could be an interesting development. Typically, hydro power is associated with aluminium production. Steel making does not require electrical energy to the same extent. Over-investment in hydro power and the aluminium market cycle. One could argue that China has over-invested in the development of hydro power.
In recent years, this investment has slowed down, as most major sites have been identified and explored. Despite this, China still commissioned more new capacity in than any other country. China invested considerably in aluminium-related hydro power in to , a period that was followed by significant weakening in the price of aluminum in and , as the chart below shows.
Bitcoin mining may be one of the only suitable consumers of the energy in such circumstances. Without UHV lines, much energy is lost to resistance during electrical transmission. Bitcoin miners with access to this cheap electricity from captive plants may demand and receive lower prices of power than they could find in urban areas. Of course, this process only works if there is demand for Bitcoin in the cities, which in the last few years appears to have been true. This is also part of a wider push to protect the environment and improve the air quality in China.
The chart below indicates that China has undergone a massive boom in aluminium production, from almost none of the global market 20 years ago to being globally dominant. Although production growth has slowed in recent years as a result of massive over-investment and significant under-utilisation, as the second chart illustrates.
The third chart indicates the scale of the overcapacity in China, with China having the least utilisation apart from the United States, which is also reducing production. Global aluminium production by country from to in million tonnes of aluminium.
Surplus aluminium production capacity by region from to in million tonnes. Aluminium production capacity utilisation. After analyzing the aluminium production overcapacity data, we multiplied this by the percentage of aluminum smelting powered by hydro power in each region to calculate an approximation of the surplus hydro-power capacity related to aluminium.
This may be an overestimate, as the coal-powered smelters may have been disproportionately shut down. Implied under-utilized hydro-power facilities from to in million tonnes of aluminium equivalent. Much of the non-Chinese surplus capacity is concentrated in North America and Europe near regions of higher population density with stronger UHV transmission-line infrastructure. China has several UHV transmission-line projects underway, which will deliver energy from rural regions to cities in the east.
Many lines are due to be complete in the coming years and it will be interesting to see if this has any impact on Bitcoin mining. Global aluminum production consumes about TWh of electricity, around 3. Based on the latest estimates, Bitcoin mining consumes around 2. However, because of its greater flexibility with respect to where it needs the electricity, aluminium electricity is expected to cost far less than 3.
Similarly, Bitcoin mining is expected to cost even less than 2. We appreciate that the situation can be looked at from many angles and perhaps other explanations have more direct relevance to Bitcoin mining. Skip to content Abstract: China globally dominates most energy related fields One question often asked by some in the Bitcoin community is Why are so many mining pools and miners based in China?
Reasons typically cited for Chinese dominance One of the largest and most discussed advantages for China is the local infrastructure and expertise that enables mining farms to quickly set up as soon as the mining chips are available. BP Statistical Review of World Energy June As the chart above shows, China has been the dominant driver in world hydro-power growth in the last 10 years.
Wikipedia The projects mentioned above are far too large for Bitcoin mining. Aluminium production Typically, hydro power is associated with aluminium production. Over-investment in hydro power and the aluminium market cycle One could argue that China has over-invested in the development of hydro power.
London Metal Exchange Capacity utilization of aluminium producers The chart below indicates that China has undergone a massive boom in aluminium production, from almost none of the global market 20 years ago to being globally dominant. Rio Tinto The implied hydro-power over-capacity After analyzing the aluminium production overcapacity data, we multiplied this by the percentage of aluminum smelting powered by hydro power in each region to calculate an approximation of the surplus hydro-power capacity related to aluminium.
Global electricity consumption Global aluminum production consumes about TWh of electricity, around 3.