Following heavy rain between the 27th and the 28th of June, China’s Sichuan province experienced floods, with a mining farm affected.
Eric Meltzer, a partner at one of the biggest crypto investment firms in China, INBlockchain, said there were “rumors that a huge flood in Sichuan took out a bunch of BTC mines.” The picture he shared says it all:
Bitcoin’s hashrate initially dropped considerably from some 43 million Terahertz (TH) to 30 million on June 27th 2018.
It then recovered and pretty quickly, up the next day to 39 million as miners presumably brought on old gear which may have now become profitable to run again.
Yet as it stands it is still lower at 37 million, with some hashrate clearly permanently taken out due to the flood damage.
The zig zag like movement above is probably due to variance. Although bitcoin blocks are on average found every 10 minutes, sometime they are found every 5 minutes and sometime there is none for an hour.
Some of the fall in hashrate, therefore, would have been due to variance, but as it hasn’t quite recovered then some was due to the flood. Ethereum, in contrast, has seen no change and even a slight increase in hashrate.
That may be because ethereum runs on GPUs, which might be slightly more distributed even though there are huge GPU mining farms in China.
While bitcoin runs on Application Specific Integrated Circuits (ASICS), which, as the name suggests, is hardware that is specific to an application, in this case bitcoin’s Proof of Work (PoW) algorithm.
Bitcoin, as such, probably has a higher concentration of hardware running in mining farms with some 70% of it concentrated in China.
As we are seeing, they are clearly vulnerable to floods. Nor is this the first time, there are indications or rumors every 4-5 months of a flood in China somewhere that takes out some gear.
Which suggests geographical centralization can be a problem if it becomes more clustered. This flood didn’t really have much of an effect, but an earthquake potentially could.
Earlier in the year China implicitly ordered their miners to leave the country, after some criticism they were acting in a protectionist manner in keeping the mining exporting industry while banning the crypto exchanges. Yet clearly they do not appear in a rush to move them out.
Some are however leaving, with some remote regions in America attracting interest and debate regarding potential increases in energy costs weighed against potential benefits in new investment and business opportunities.
Bitcoin’s PoW mining, therefore, might become slightly more decentralized geographically, but economies of scale tend to lead to concentration, visibly in mining pools and less visibly in one entity controlling more and more of the hardware.