Devastating Floods in China Raise Questions About Bitcoin Mining Too
With cities under water, billions in damages already reported, and the amount of flooding that China hasn't seen in years putting an increasing pressure on the world's largest hydropower station, there is reasonable concern that mining facilities are in danger as well - in the country that hosts the majority of the world's Bitcoin (BTC) hashrate, or the computational power.
Because of the monsoon season and torrential rains, and the country facing "the worst flood since 1998," accompanied with landslides, according to Forbes Senior Contributor Kenneth Rapoza, many dams are suffering major stress - and these are at the higher elevation than the world’s largest hydroelectric power station, the Three Gorges Dam, meaning more water for the giant.
"If the Three Gorges Dam did break, it would certainly be a horrible event, but it's extremely unlikely," Daniel Frumkin, researcher and tech writer Braiins, the company behind Slush Pool and the Stratum V2 protocol for pooled mining, told Cryptonews.com. He argued that many members of the Communist Party of China (CPC) have degrees in hydro-engineering, but also that "the discipline dates back many hundreds of years."
Furthermore, as much water as possible is seemingly being discharged from the sluices, which is causing flooding downstream on the one hand, while attempting to prevent a disaster if the dam were to break on the other. However, in the case of other dams, the CPC is blasting the dams to discharge the water, said the researcher. Rapoza also cited reports that entire dams were "blasted down" to release the massive influx of water.
"For China to lose face internationally with the collapse of the world's largest dam would be devastating, so it's likely they'll do anything possible to ensure that doesn't happen. The most likely scenario is that the flooding continues for the next month or more of the rainy season, but the dam ultimately holds," Frumkin said.
Also, the stress on the dam is expected to ease if the heaviest rains indeed end this week.
Miners seemingly not impacted (yet)
While Bitcoin mining in China has been "somewhat" impacted by what many called the worst flooding in decades, TokenInsight senior analyst Johnson Xu told Cryptonews.com he believes that major Bitcoin miners have been affected very little.
"They have a comprehensive understanding of the risks during the rainy season including potential flooding, mudslide, etc," said Xu. "Although they might have limited ways to hedge those risks (e.g. insurance), they can well capitalize their local networks which can directly help them to mitigate these risks in a way that have limited impact on their Bitcoin mining operations."
The flood and the potential catastrophic collapse of the Three Gorges Dam have been a common topic in mining groups for the last couple of months, said Frumkin. Nic Carter, Partner at Castle Island Ventures and Co-founder of crypto market analysis firm Coin Metrics, stressed that the discussion on the issue needs to be larger and wider - "proportionate to the threat."
Another example of the separation between mining and the rest of the Bitcoin industry. With ~50% of BTC's hashrate located in Sichuan, the implications of serious flooding and dam failures are potentially huge. It's been a major topic in the mining bubble for weeks. https://t.co/ZoiFOnWozn— Daniel Frumkin (@dfrumps) July 21, 2020
Frumkin added that there's still very little information available about what is actually happening or how many miners in China have been impacted exactly.
"The best we can do is keep an eye on block times and speculate that Bitcoin mining isn't being impacted significantly as long as hashrate remains above c. 110 EH/s with current BTC price," he said.
Xu added that some Bitcoin mining farms "are located in "secret" locations in China" and it's difficult to locate them without "an introduction."
And speaking of hashrate, Frumkin also suggested that these events and discussions had "little effect" on the mining industry, if we take into account that the flooding and concerns about Three Gorges Dam started back in early June - and total network hashrate was increasing throughout most of June and July before dropping in the past week.
Bitcoin hashrate chart
"An important point is that most Chinese mining operations are located west of Chengdu in Sichuan, which is far upstream of Three Gorges Dam. There are plenty of other dams in that region which supply the power for miners in Sichuan, but perhaps the flooding is less severe there or the mining farms are purposely set up on high ground," Frumkin said.
Earlier this month, HASHR8 analyzed the impact of the floods on mining, given that some 65% of Bitcoin hashrate is estimated to be in China. They wrote that the conditions for BTC miners are "less lucrative than the previous [mining] difficulty epoch," but that the hashrate and mining difficulty have been going up.
"One reason behind the increasing hashrate may be Chinese miners securing latest-[generation] [mining] rigs," they said. "These powerful rigs turning online for the first time is likely enough to outweigh the less lucrative conditions and facilities being destroyed."
Mining facilities are naturally in the firing line with many setting up close to hydropower stations during rainy season.— HASHR8 ⛏️ (@H4SHR8) July 9, 2020
However, hashrate estimates are at record highs despite reports surfacing that some facilities have been impacted. pic.twitter.com/U8nrxKeSfi
HASHR8 expects more damage to occur in the coming months, while Xu too expects some negative impact. The senior analyst said:
"I do expect some miners will get impacted negatively due to the flooding, however, the experienced ones may only be impacted very little or even not at all. The competitive landscape for Bitcoin mining is in the process to become the survival of the fittest."
At the time of writing (16:29 UTC), BTC trades at USD 9,357 and is unchanged in a day. The price is up by 1% in a week, trimming monthly losses to 2%.
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