China’s 2021 Bitcoin mining ban: what happened, and where the miners went

Before 2021, most Bitcoin mining happened in China, and it moved with the rain

For most of Bitcoin’s first decade, the machines doing the mining, meaning the specialized computers that race to add the next block and earn new coins, were mostly in China. The best public measure of that is the Bitcoin Mining Map kept by the Cambridge Centre for Alternative Finance, part of the University of Cambridge’s business school. It put China’s share of the world’s mining power at 75.5% in September 2019. By April 2021, before any ban took effect, the share had already slipped to 46%, while the United States had climbed from 4.1% to 16.8% and Kazakhstan from 1.4% to 8.2%.

Those figures deserve a caveat the map’s authors make themselves. The data comes from a handful of mining pools, which are services that let many miners combine their effort and share rewards, and it has covered roughly a third of the network’s total mining power. Location is inferred from the internet addresses miners connect from, and miners who route through a VPN, a service that hides where a connection really originates, show up in the wrong country. The map is the best evidence there is, not a census.

The Chinese share also moved with the weather. Cambridge’s data shows miners migrating to Sichuan when summer rains filled hydroelectric dams and cheap surplus power was on offer, with the province’s share of Chinese mining peaking at 61.1% in the wet season while coal-heavy Xinjiang fell to 9.6%, then shifting back in the dry months. That seasonal rhythm is part of why the shutdown, when it came, was so abrupt: the industry was concentrated in a few provinces that could be switched off by a few decisions.

A single sentence in May started it

The ban began with one sentence. On 21 May 2021 the State Council’s Financial Stability and Development Committee, the body that coordinates China’s financial regulators, held its 51st meeting under Vice Premier Liu He. The readout on the central government’s website listed the usual priorities, then said the financial system should “crack down on bitcoin mining and trading behavior, and resolutely prevent individual risks from being transmitted to the social sphere.”

That was not a law and it named no agency. But a statement like that from a body chaired by a vice premier is read as an instruction, and provincial governments and power companies treated it as one. Over the following weeks mines in the main mining regions were ordered to shut. By early July, CoinDesk described a crackdown that had “forced many miners to shut down,” with Chinese operators selling their machines at steep discounts: newer models had lost about 32% of their resale value, older ones about 36%.

Hash rate fell by more than a third, and the difficulty thermostat caught it

You can see the shutdown in the network’s own numbers. Hash rate is the combined guessing speed of every mining machine in the world, and it is the best proxy for how much hardware is switched on. Cambridge’s researchers measured a 38% drop in global hash rate in June 2021. By 2 July, CoinDesk reported, the seven-day average had fallen to 84.3 exahashes per second, the lowest since September 2019, and total mining power had been cut by more than half from its record earlier in the year. Our article on hash rate explains how that figure is estimated from the chain.

Bitcoin has a thermostat for exactly this situation. At regular intervals the network re-measures how fast blocks are arriving and adjusts the difficulty of the mining puzzle so blocks return to their target pace. When half the miners vanish, blocks slow down until the next adjustment catches up. On 3 July 2021 the difficulty fell by about 28%, the largest downward adjustment in Bitcoin’s history, which is why the miners still running saw their profitability jump. The difficulty adjustment article covers the mechanism.

What the network did not do is stop. Blocks kept coming, more slowly for a few weeks, and every transaction confirmed during the slowdown is as final as any other. The episode is the clearest real-world test so far of the claim that Bitcoin’s design tolerates a large, sudden loss of miners.

In September, two notices made it official

Two formal notices followed in September, and they are the documents people mean when they say China banned crypto. The first, from the National Development and Reform Commission and ten other bodies, is dated 3 September 2021 and was published on 24 September. It describes mining as a process with “high energy consumption and carbon emissions” and “low contribution to the national economy.” It bans investment in any new mining project, orders existing projects to exit in an orderly way, adds mining to the national catalog of industries to be eliminated, and lets power companies charge mining operations an extra 0.30 yuan per kilowatt-hour.

The second is the one from the People’s Bank of China, dated 15 September 2021 and issued jointly with nine other bodies, including the Supreme People’s Court and the Supreme People’s Procuratorate. Its English text says virtual currencies “are not legal tenders, and should not and cannot be circulated as currency in the market,” and that “virtual currency-related business activities are illegal financial activities.” It adds that overseas exchanges serving residents in China over the internet are engaged in illegal financial activity too. The notice is aimed at businesses, exchanges and payment services; on its face it is not a ban on a person holding coins.

This was not Beijing’s first move against crypto, and our dossier on government policy and sovereign adoption traces the earlier rounds. What made 2021 different was that mining, the physical industry, was targeted alongside trading, at the national level, with energy policy as the stated reason.

Where the miners went: the United States, Kazakhstan and Russia

The Cambridge map’s next update, published 13 October 2021, showed where the machines had gone. By August 2021 the United States held 35.4% of the sampled hash rate, up from 16.8% in April; Kazakhstan 18.1%, up from 8.2%; Russia 11%; and Canada 9.55%. China’s share had fallen to effectively zero. A year later the White House science office reported that the United States accounted for about 38% of global Bitcoin hash rate as of August 2022, up from 3.5% in 2020.

The network recovered quickly. Cambridge recorded a 20% “bounceback” in hash rate across July and August 2021, and by early October the trajectory suggested the whole June drop would soon be made good. Michel Rauchs, the center’s digital assets lead, described the result as “an increased geographic distribution of hashrate across the world,” which he called a positive development for network security and for Bitcoin’s decentralized principles.

One more caveat. Effectively zero means invisible in the sample, not necessarily absent. The map’s own methodology warns that miners can hide behind VPNs, and a country where mining is banned is exactly where they would. Whatever remained in China after 2021 is, by construction, hard to see.