The Crypto Mining Conundrum

The reality is that crypto is pretty complicated. I am often fascinated by that level of complication and I think others are as well. I have been following the industry for a while and laugh at my my old tweets about it. Back then, I *REALLLY* had no idea what I was talking about. It was still just a magic Internet money that Mario was after.

Most recently I have been interested in mining crypto. For some reason, this does not get much attention. Cryptocurrencies do not appear out of thin air. Actually the opposite. They are mined with intensive computing.

A lot of power is needed to mine crypto, most likely from burning oil, or maybe alternative sources like turbines or power plants. That power, in turn, runs the computers that people set-up to mine coins. These computers are running 24/7, working, and working, and working. This is no small feat. There are massive warehouses set-up right now, in the middle of nowhere, for the sole purpose of arbitraging power prices in a specific region and mining crypto that they then sell for far more than the power it costs.

Current Price of Coin – Price of Power to Mine = Much Profits

The University of Cambridge built a website that monitors mining of Bitcoin around the world. Take a look at it. What I find interesting is that 65%+ of Bitcoin is mined in one country with 30%+ of that coming from a region called Xinjiang.

Crypto mining by country

Crypto mining by region in China

Now, this is where things get interesting. The regions of the world that mine the most coins are not exactly supporting the network of the coins they mine. Someone mines the coin and another supports the coin. Miners are not necessarily supporting crypto and those who support crypto are not necessarily miners.

The people who support Bitcoin, for example, run something called a node. A node is someone who hosts a copy of the entire Bitcoin blockchain so all transactions remain open, verified, and supported. A fellow Twitter friend sent me a link where you can monitor where the biggest nodes are:

The top 10 biggest Bitcoin nodes

I find this list particularly fascinating, especially how it compares and contrasts to the regions of the world with the biggest miners. Why is this interesting, you might ask?

Because the largest nodes seem to be in places furthest away from the largest miners. It’s West (nodes) vs. East (miners). This has me thinking that for miners in the East, it’s a net export for them while in the west it’s something worth supporting, but not necessarily possible to mine.

I should end this post by saying it’s not a bearish or bullish post. It’s just me thinking out loud. If mining slows down and becomes harder or more rare, perhaps it would boost the price because of scarcity. Conversely, maybe mining becomes even more energy intensive than it is today, which could slow down the entire industry.