Canada could become the world's bitcoin mining capital as China cracks down

Bitcoin transactions are enabled by so-called bitcoin miners, who are rewarded for digitally checking transaction records with newly minted bitcoins.
China is home to the world's biggest bitcoin miners but is cracking down on the sector due to concerns about excessive energy usage.
At the same time, Canada is actively courting bitcoin miners as regions like Quebec have excess power capacity.
Other countries like Kazakhstan and Venezuela are also said to be courting miners.

LONDON — Canada is luring bitcoin mining companies to its shores as China, the current global hub of crypto mining, looks to crackdown on the sector's energy usage.

Several industry sources Business Insider spoke to this week said that bitcoin miners are thinking of moving to Canada after lobbying from the country's energy industry. Quebec specifically has been wooing bitcoin miners in the hopes of boosting local economies.

Reuters reported on Friday that Bitmain, the world's biggest blockchain mining company, is looking at moving operations to Canada and said utility company Hydro Quebec is in talks with around 30 large cryptocurrency miners about potential moves. BTC.Top, another major miner, is also setting up shop in Canada.

"We’ve seen a lot of movement towards Canada," Chris Keshian, the CEO of San Francisco-based Apex Token Fund, a fund of crypto hedge funds, told Business Insider. "The Canadian government is relatively friendly towards cryptocurrencies [and] energy is relatively cheap there."

Bitcoin mining explained

Bitcoin mining involves computers completing complex cryptographic problems in return for newly "minted" bitcoins. The process, which could theoretically be carried out by anyone, is an essential part of the bitcoin network, allowing transactions to happen.

To ensure transactions are not falsified or records of ownership changed, participants of the bitcoin network must sign off on transactions in "blocks" that are recorded in a decentralized database known as the blockchain. These blocks are checked and sealed by the bitcoin miners, which do the cryptographic work. In return, they are rewarded with bitcoins.

An interior view of U.S. bitcoin mining company Bitfury's mining farm near Keflavik, Iceland, June 7, 2016. Picture taken June 7, 2016.

While the system is designed to be decentralized, around 5 large "mining pools" controlled by a handful of companies dominate about 75% of the market. These mining pools, the bulk of which are in China, use huge amounts of power. The amount of energy used by computers "mining" bitcoin last year was greater than the annual usage of almost 160 countries.

The Financial Times reported this week that China is looking to outlaw bitcoin mining due to "concerns of excessive electricity consumption and financial risk."

Arthur Hayes, the CEO of Hong Kong-based crypto derivatives trading platform BitMEX, told BI: "Some of the people that I've spoken to, they've been de-risking their Chinese mining exposure in the middle of last year.

"The large miners have been relocating operations around the world in anticipation of a possible crackdown. Miners are cognisant of the fact that they have too much exposure to having operations in China and are relocating equipment and operations to outside of China."

'A good parallel would be putting in oil mining rigs'

While China is cracking down, countries like Canada are looking to lure bitcoin mining operations. They see the potential to reap taxes, boost local economies, and use excess power.

Quebec is one of the largest hydroelectric power producers in the world and routinely produces a surplus meaning electricity is cheap. A cold climate also makes computer cooling costs lower and Canada's political stability also makes it attractive.

Hayes said: "You have idle power that's not being used — why not relocate a bitcoin mine there and at least you're getting some tax revenue?"

Chris Keshian, Apex Token Fund

David Vincent, business development director at electricity provider Hydro Quebec, told CoinDesk in a recent interview that a campaign to lure tech giants to the region launched in 2016 in fact attracted the bitcoin miners.

Other countries like Kazakhstan, traditionally a mining powerhouse, and Bhutan trying to woo bitcoin miners. Hayes said. Sources BI spoke to said South American countries such as Venezuela and Chile are looking at the space.

Hayes said: "There are governments proactively trying to court bitcoin mining companies because they have low power.

"It actually makes a lot of economic sense in a lot of these hollowed-out, commodity producing, high industrial areas. You have power plants serving this commodity producer that can't stay open anymore."

Joseph Bradley, an analyst at Apex Token Fund, told BI: "What’s really interesting, and what we think that this signals, is that more developed countries are starting to understand that blockchain is infrastructure and these systems are absolutely digital infrastructure."

Keshian said: "This is effectively unlocking a huge amount of value globally and the countries that learn how to unlock that value and capture it stand to benefit substantially. A good parallel would be putting in oil mining rigs."

Bitcoin mining operations can cost tens or even hundreds of millions of dollars to set up, Keshian said.

"These guys need forecastability," Bradley said. "It is not easy moving mining operation."

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