How important is China’s electric power supply for the bitcoin ecosystem?
At first glance, the connection between those two disparate entities may not be evident. But bitcoin mining requires specially configured rigs that consume enormous power. According to some estimates, one bitcoin transaction sucks up as much power as an average American home consumes in a week. Bitcoin mining is responsible for a majority of power consumed during the process. (See also: How Does Bitcoin Mining Work?)
For the most part, a majority of that power is consumed in China. The Asian powerhouse is an important player in the bitcoin ecosystem and reportedly makes two-thirds of all coins issued daily. Most of its mines for the cryptocurrency are located in Sichuan province, a region with plentiful hydropower.
That is why a recent news report about Sichuan Electric Power Company banning bitcoin production caused a stir within cryptocurrency circles. The utility circulated a note entitled “An Emergency Notice on Banning Bitcoin Production." The note asked power companies, which typically have special arrangements with bitcoin mining companies for power, to stop servicing bitcoin miners because “bitcoin mining is an illegal activity.” Earlier this year, China had banned bitcoin exchanges and initial coin offerings (ICOs). (See also: NEO Cryptocurrency Suffers As China Bans ICOs.)
The power company issued clarifications later. According to an official, the note was meant for internal circulation and was not a policy document. It was meant to provide a case to “prioritize supplying electricity for civil use.” Six out of the nine hydropower facilities within Sichuan have prioritized power supply to bitcoin miners over residents and local businesses.
Cheap hydropower has fueled rising supplies of bitcoins in the market. More importantly, it has made bitcoin mining economical by tamping down power costs required to solve difficult algorithmic problems. The State Grid official said that the notice, which made news, was “drafted in a rush.”
Still, the incident highlights two factors that might play an increasingly important role in bitcoin’s future: power and China.