After Beijing’s crypto crackdown in September, the US became the largest site for bitcoin mining, according to data released last week by the Cambridge Centre for Alternative Finance. Two years ago, China accounted for 75% of total bitcoin hashrate, while the US contributed only 4%. By August, China had abandoned bitcoin mining, while Americans controlled 35%.
The fact that so much of it came from
China. So long as that was true, the Chinese government could force miners to do its bidding. Whether it was the case or not is now moot because the government expelled its miners from the nation.
With Kazakhstan at 18% and the US at 35%, just two countries account for over half of all bitcoin mining. While that may appear to be the case, one statistic shows that concentration has decreased dramatically since China’s exit.
Let’s get HHI
The Herfindahl–Hirschman Index (HHI) is frequently used by the US DOJ and FTC to assess industry concentration. The higher the index, the more control a few players have over the industry. It’s computed by multiplying each company’s market share by two (after multiplying each by 100). This increases the weight of greater market share enterprises.
Regulators use this to decide whether to approve a merger or acquisition. In a moderately concentrated market, integrating the two enterprises might raise the HHI by over 100 points. Doing so in a highly concentrated market reduces the likelihood of a successful M&A deal.
Use it for nations? Is it HHI?
Generally, HHI looks at an industry’s companies. The country market share isn’t precisely the same. After all, inside each country, numerous companies may be vying for a little slice of the overall market. Also, one company may have operations in numerous nations, making this an unfair comparison.
Nonetheless, determining the HHI concentration of bitcoin mining by country provides some insight into whether bitcoin mining is as varied as it should be to withstand the whims of any one government.
According to the DOJ’s estimates, the market for hashrate is now “moderately concentrated,” down from “highly concentrated” before China’s crackdown.
In September 2019, the HHI for the top nine nations was 5,774, with China accounting for 76%. A year later, it was 4,637, with China at 67%. Even if lower, the amount would make a trustbuster ecstatic.
In Q3 2020, there was a big drop. That’s when China made it difficult for miners to sell their goods over-the-counter. Its hashrate share declined to 56% in November, and the top nine countries’ HHI reached 3,306.
“While there are undoubtedly ongoing covert mining operations in China, those would have to be small-scale to evade scrutiny,” tweeted CCAF’s Michel Rauch. The top nine countries produced 1,871 HHI in August, according to the latest figures.
The rest of the world’s hashrate never exceeded 9.4% (in August), delivering a maximum of 89 points to the top nine.
Regardless of one’s political views on a single country owning bitcoin mining, supporters should applaud any reduction in concentration. After all, if bitcoin was to decentralize money, it should also decentralize mining.