Bitcoin Mining Is Decentralizing – Right here’s Proof


There’s not less than one trade the place the US now has China beat: bitcoin mining.

After Beijing’s crackdown on crypto in September, the U.S. took the reins because the main location for bitcoin mining, in line with knowledge compiled by the Cambridge Centre for Various Finance and launched final week. Simply two years in the past, China accounted for three-quarters of all of bitcoin’s whole hashrate (the computational energy used to mine bitcoin), whereas the U.S. contributed a scant 4%. As of August, China’s bitcoin miners have been gone, whereas the Individuals have been liable for 35%.

You’re studying Crypto Lengthy & Quick, our weekly e-newsletter that includes insights, information and evaluation for the skilled investor. Enroll right here to get it in your inbox each Sunday.

A recurring criticism of bitcoin mining prior to now was that a lot of it got here from

China. As long as that was the case, the extra excessive arguments mentioned, the Chinese language authorities may one way or the other stress miners to do its bidding. Whether or not that was the case is now moot as a result of that authorities rescinded any alternative to take action by kicking its miners overseas.

Including Kazakhstan’s 18% with the U.S.’s 35% signifies that greater than half of all bitcoin mining is going on in simply two nations. That will look like bitcoin is just about as concentrated because it was when China was the dominant participant, however one index is exhibiting that focus has declined considerably with China’s exit.

Let’s get HHI

The Herfindahl–Hirschman Index (HHI) is commonly utilized by the U.S. Division of Justice and the Federal Commerce Fee to find out the focus of an trade. The upper the index, the extra management of that trade is within the arms of some gamers. It’s calculated by including up the squares of a person firm’s market share (after multiplying every by 100). Doing so amplifies the load of these companies with bigger market shares.

The DOJ places markets into three buckets primarily based on their HHI rating:

  • Unconcentrated Markets: HHI beneath 1,500
  • Reasonably Concentrated Markets: HHI between 1,500 and a pair of,500
  • Extremely Concentrated Markets: HHI above 2,500

The regulators use this as a instrument to find out whether or not to greenlight a merger or acquisition. If combining the 2 firms would elevate the HHI by greater than 100 factors in a reasonably concentrated market, that would elevate purple flags. Doing so in a extremely concentrated market considerably decreases the possibilities such an M&A deal will undergo.

Utilizing it for nations? Are you HHI?

HHI is mostly used to have a look at firms in an trade. Making use of it to nation market share isn’t fairly the identical factor. In any case, inside every nation many companies might be vigorously competing for his or her tiny slivers of the general market share. And one agency may have services in a number of nations, making this much more an apples-to-oranges comparability.

Nonetheless, developing with an HHI determine for the way concentrated bitcoin mining is by nation does give some perception into whether or not bitcoin mining is as diversified appropriately if it’s to outlive the whims of anyone authorities’s capriciousness.

Because it seems, the market because it pertains to hashrate after China’s crackdown is now right down to “reasonably concentrated,” down from “extremely concentrated,” if one have been to make use of the DOJ’s measures.

Again in September 2019, the HHI utilizing simply the highest 9 nations was an astounding 5,774 as a result of China’s share was 76%. A 12 months later, it was right down to 4,637, with China’s share falling to 67%. Whereas decrease, that’s nonetheless a quantity that will make a trustbuster apoplectic.

Curiously, a significant falloff occurred in Q3 of 2020. That’s when China made it tougher for miners to make use of over-the-counter buying and selling desks to promote their product. In November of that 12 months, China’s share of hashrate fell to 56% and the HHI of the highest 9 nations hit 3,306. Once more, that’s nonetheless extremely concentrated.

But, now with China out of the image – not less than on paper (”Whereas there are definitely ongoing covert mining operations in China, these must be small-scale to keep away from scrutiny,” tweeted CCAF’s Michel Rauch) – the HHI has fallen to “reasonably concentrated” territory. The highest 9 nations produced an HHI of 1,871 in August, primarily based on the latest knowledge accessible.

For many who marvel about the remainder of the world in addition to the highest 9, their hashrate in whole by no means amounted to greater than 9.4% (and that was in August), contributing simply 89 factors on the most if one have been to lump all of them collectively.

No matter one’s political uneasiness about anyone nation probably controlling bitcoin mining, bitcoin proponents ought to on the very least cheer any discount in focus. In any case, if bitcoin’s promise was to make finance decentralized, that ought to embrace mining, too.


Please enter your comment!
Please enter your name here