Bitcoin

Canada could become the world’s bitcoin mining capital as China cracks down




A chain of block erupters used for Bitcoin mining is pictured at the Plug and Play Tech Center in Sunnyvale, California October 28, 2013. Since discovering digital currency Bitcoins a few months ago, Aaron Jackson-Wilde has paid about $2,000 for
A
chain of block erupters used for Bitcoin mining is pictured at
the Plug and Play Tech Center in Sunnyvale, California October
28, 2013.


REUTERS/Stephen
Lam




  • Bitcoin transactions are enabled by so-called bitcoin
    miners, who are rewarded for digitally checking transaction
    records with newly minted bitcoins.
  • China is home to the world’s biggest bitcoin miners but
    is cracking down on the sector due to concerns about excessive
    energy usage.
  • At the same time, Canada is actively courting bitcoin
    miners as regions like Quebec have excess power
    capacity.
  • Other countries like Kazakhstan and Venezuela are also
    said to be courting miners.

LONDON — Canada is luring bitcoin mining companies to its shores
as China, the current global hub of crypto mining, looks to
crackdown on the sector’s energy usage.

Several industry sources Business Insider spoke to this week said
that bitcoin miners are thinking of moving to Canada after
lobbying from the country’s energy industry. Quebec specifically
has been wooing bitcoin miners in the hopes of boosting local
economies. 


Reuters reported on Friday
that Bitmain, the world’s biggest
blockchain mining company, is looking at moving operations to
Canada and said utility company Hydro Quebec is in talks with
around 30 large cryptocurrency miners about potential moves.
BTC.Top, another major miner,
is also setting up shop in Canada.

“We’ve seen a lot of movement towards Canada,” Chris Keshian, the
CEO of San Francisco-based Apex Token Fund, a fund of crypto
hedge funds, told Business Insider. “The Canadian government is
relatively friendly towards cryptocurrencies [and] energy is
relatively cheap there.”

Bitcoin mining explained

Bitcoin mining involves computers completing complex
cryptographic problems in return for newly “minted” bitcoins. The
process, which could theoretically be carried out by anyone, is
an essential part of the bitcoin network, allowing transactions
to happen.

To ensure transactions are not falsified or records of ownership
changed, participants of the bitcoin network must sign off on
transactions in “blocks” that are recorded in a decentralized
database known as the blockchain. These blocks are checked and
sealed by the bitcoin miners, which do the cryptographic work. In
return, they are rewarded with bitcoins.


An interior view of U.S. bitcoin mining company Bitfury's mining farm near Keflavik, Iceland, June 7, 2016. Picture taken June 7, 2016.
An
interior view of U.S. bitcoin mining company Bitfury’s mining
farm near Keflavik, Iceland, June 7, 2016. Picture taken June 7,
2016.


REUTERS/Jemima
Kelly



While the system is designed to be decentralized, around 5 large
“mining pools” controlled by a handful of companies dominate
about 75% of the market. These mining pools, the bulk of which
are in China, use huge amounts of power. The
amount of energy used by computers “mining” bitcoin last year was
greater than the annual usage of almost 160 countries.

The Financial Times reported this week that China is looking to
outlaw bitcoin mining due to
“concerns of

excessive electricity consumption and financial risk.”

Arthur Hayes, the CEO of Hong Kong-based crypto derivatives
trading platform BitMEX, told BI: “Some of the people that I’ve
spoken to, they’ve been de-risking their Chinese mining exposure
in the middle of last year.

“The large miners have been relocating operations around the
world in anticipation of a possible crackdown. Miners are
cognisant of the fact that they have too much exposure to having
operations in China and are relocating equipment and operations
to outside of China.”

‘A good parallel would be putting in oil mining rigs’

While China is cracking down, countries like Canada are looking
to lure bitcoin mining operations. They see the potential to reap
taxes, boost local economies, and use excess power.

Quebec is one of the largest hydroelectric power producers in the
world and routinely produces a surplus meaning electricity is
cheap. A cold climate also makes computer cooling costs lower and
Canada’s political stability also makes it attractive.

Hayes said: “You have idle power that’s not being used — why not
relocate a bitcoin mine there and at least you’re getting some
tax revenue?”


Chris Keshian, Apex Token Fund
Chris Keshian, CEO of Apex
Token Fund.

Apex Token
Fund


David Vincent, business development director at electricity
provider Hydro Quebec,
told CoinDesk in a recent interview
that a campaign to lure
tech giants to the region launched in 2016 in fact attracted the
bitcoin miners.

Other countries like Kazakhstan, traditionally a mining
powerhouse, and Bhutan trying to woo bitcoin miners. Hayes said.
Sources BI spoke to said South American countries such as
Venezuela and Chile are looking at the space.

Hayes said: “There are governments proactively trying to court
bitcoin mining companies because they have low power. 

“It actually makes a lot of economic sense in a lot of these
hollowed-out, commodity producing, high industrial areas. You
have power plants serving this commodity producer that can’t stay
open anymore.”

Joseph Bradley, an analyst at Apex Token Fund, told BI: “What’s
really interesting, and what we think that this signals, is that
more developed countries are starting to understand that
blockchain is infrastructure and these systems are absolutely
digital infrastructure.”

Keshian said: “This is effectively unlocking a huge amount of
value globally and the countries that learn how to unlock that
value and capture it stand to benefit substantially. A good
parallel would be putting in oil mining rigs.”

Bitcoin mining operations can cost tens or even hundreds of
millions of dollars to set up, Keshian said. 

“These guys need forecastability,” Bradley said. “It is not easy
moving mining operation.”



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