After rising electricity demand and low rain, bitcoin mining operations in Sichuan, China have been restricted. How is the network responding?
According to local news outlet China Times, the state grid in Sichuan's Aba county issued a notice on May 16 demanding energy-intensive enterprises in the area to temporarily cut down their power consumption, effectively rationing energy usage of any bitcoin mining operations in the region.
The local government set up the Sichuan hydropower grid to attract power-intensive industries to utilize excess electricity produced by the heavy regional rains during the Southwestern Chinese summer. Consequently, the region has become a hotbed for bitcoin mining operations and many mining farms are usually transferred from Northern fossil fuel power plants to Sichuan to take advantage of energy excesses.
But this year's unusually warm month of May, coupled with the current low volume of rain in the area, results in a rapid increase in electricity demand from the general public — taking a toll on the grid's power supply capacity.
As a result, the state grid has demanded that enterprises cut down on their energy consumption until further notice. Therefore, Bitcoin mining operations, which are abundant in Sichuan for its highly available and inexpensive hydroelectricity, have been operating with limited capacity since that state grid request.
Although the correlation is hard to prove as causation, the Bitcoin network's hash rate has dropped by more than 20% in the two days following the notice, according to data from Glassnode. However, Bitcoin's hash rate almost fully recovered by the next day, and it is now just 5% below the pre-notice levels.
The possible impact of Sichuan's power rationing on the Bitcoin network's hash rate over the coming months is uncertain. It is unknown when the state grid will lift the limits, but it is reasonable to expect it to happen soon as the rainy season in the region gradually reaches its peak from June to September. Furthermore, China Times reported that miners in the Sichuan area expect the situation to improve after May 25.
Incidents like this recent one in Sichuan often raise questions as to whether bitcoin mining is too concentrated in China and the associated risks that would come with that concentration. However, there has been a trend toward greater decentralization of bitcoin mining as it slowly moves away from China. In particular, the North American bitcoin mining scene has been heating up, with opportunities arising in different places across the U.S. and Canada.
As Bitcoin's hash rate further decentralizes, the more resilient and resistant the network becomes to regional-specific incidents and the less the hash rate will drop due to such events.