On April 9th Reuters reported that China’s state planner wants to eliminate bitcoin mining in the country, according to a draft list of industrial activities the National Development and Reform Commission (NDRC) is seeking to stop in a sign of growing government pressure on the cryptocurrency sector. The document did not stipulate a target date or plan for how to eliminate bitcoin mining, meaning that such activities should be phased out immediately. In this article we try to predict the impact of such an instantaneous ban, if it happens.
Bitcoin Proof-of-Work Consensus Algorithm Difficulty is adjusted every 2016 blocks to match the current Bitcoin Mining Network capacity (Hashrate). Currently the Bitcoin Network has an (effective) Hashrate of 45 EH/s (45 followed by 18 zeros). Four out of the top five mining pools operate out of China: BTC.com (15%), F2Pool (13%), Poolin(12%), and AntPool(8%). The total amount of Bitcoin Hashing power coming out of China is estimated to be between 50–80%. The Network Hashrate can drop instantaneously from 45 EH/s to 10 to 20 EH/s on the day of the ban. With a sudden huge drop in Network Hashrate, it will take two adjustments to Difficulty to match the post-ban Network Hashrate. Each adjustment or 2016 blocks, is expected to take 2 weeks. However, due to the huge discrepancy between the Difficulty and the actual Network Hashrate, these two adjustments will take 6 to 12 weeks — instead of the expected 4 weeks. During this time period the average delay in finding a new block will go from 10 min to 20–50 mins. The transaction confirmation delays will be especially bad during the first adjustment period. After two adjustments, the Difficulty will be in-line with Network Hashrate and new blocks can be expected every 10 min, on the average. …