When central banks and world governments want to create more money, they fire up the printing presses. We saw this most recently during the depths of the Great Recession when the Federal Reserve created trillions of dollars seemingly out of thin air. This so-called quantitative easing (QE) program was hugely controversial, with some predicting it would lead to runaway inflation and others arguing the move was needed to protect the world economy from imminent collapse.
Only time will tell which side was right, but government printing presses around the world are still going strong. Those fiat currencies can be created on demand, and the amount that can be printed or otherwise generated is nearly unlimited.
A Different Kind of Currency
The cryptocurrency market is a far different place, one that is governed by its own set of rules and restrictions. Unlike the open-ended nature of most fiat currencies, there is a limited supply of Bitcoin and other popular cryptocurrencies.
When Bitcoin first came on the scene, its developers announced that there would only ever be 21 million Bitcoins in the world. Once those 21 Bitcoins were all mined, there would be no more, and the price of the popular cryptocurrency would be governed by supply and demand alone.
A Different Kind of Mining
So where will those 21 million Bitcoins come from, and how are they created? Unlike fiat currencies, which are made on government printing presses, Bitcoins and other cryptocurrencies are mined, but the process is an entirely different kind of mining.
Cryptocurrency mining is different, and these days it is mostly the purview of enormous mining operations – vast factories filled with high-end computing equipment. Many of the biggest cryptocurrency mining operations are located in China, while others are scattered around the world.
While Bitcoin mining operations exist all over the world, China is by far the largest player in the world of cryptocurrency mining. As of June 2017, China controlled some 71% of the cryptocurrency mining market. The second largest player, India, barely registers at just 4% of the worldwide mining market.
China’s status in the world of cryptocurrency mining is made possible by meager prices for electricity. Those low electricity prices are used to power substantial mining farms, which consist of enormous rooms filled with state-of-the-art computer equipment.
Other factors help make China the number one cryptocurrency miner in the world. The country has an excess of coal, and largely unregulated utility companies are free to burn that coal without much oversight. That glut of coal, along with lax environmental regulations, allows miners for cryptocurrency to set up their operations near these rich coal sources, further lowering their costs and boosting their profits.
China is also a rich source of mining pools, collaborations between major mining companies and individual miners with computer expertise and their own equipment. These large mining pools combine the talents and the equipment of hundreds, or even thousands, or individual miners, significantly increasing the odds that their block-finding attempts will pay off. When those blocks are discovered, the profits are distributed among the members of the mining pool.
It is easy to see how a confluence of factors has come together to make China the leading country for cryptocurrency mining operations. The combination of cheap electricity, abundant coal, technical expertise and readily available labor has made China the cryptocurrency mining capital of the world, something that even an ongoing government crackdown seems unable to change.