The Chinese Miners

There is a lot of speculation about the profit margins and motivations behind the centralization of Bitcoin mining power in China. There are a lot of potential reasons for the Chinese centralization; cheap or free power, willingness to work with extremely small profit margins, subverting strict capital controls, money laundering, etc…

Realistically the reason for the proliferation of Chinese miners doesn’t matter. The question is: What can be done to change the geographic distribution of mining?

The Solution

I can see only one solution to the problem. That solution is heat. Lucky almost 100% of the electricity used to mine Bitcoin is returned in the form of heat. That leaves us with a pretty simple solution. Design electric heaters that happen to mine Bitcoin.

I can already hear the detractors. The cost of heating with electricity is much higher than natural gas (propane, fuel oil, wood, etc…) so it will never work.

I’m not proposing that you replace your current heating fuel with electricity. I’m proposing that you replace your current electric heating appliance with a Bitcoin mining appliance.

Many people have already made the decision to heat with electricity either in the form of electric hot water heaters, electric boilers, or simply electric radiators. The economics in this situation become simple, the user is already purchasing the electricity so the profit from mining only needs to exceed the capital cost of the heating appliance. Not only that, but these units would rarely be taken out of service as a result of difficulty increases. After all, they are still producing the primary product, heat.

Implementation

There are already several groups working in this direction.

Hotmine:

The Stahl brothers with their PipeMiner:

For these systems to be a success they’re going to have to be an absolutely seamless experience for the end user. Let’s face it, the number of people in this world that are willing to modify their heating appliances to mine Bitcoin is extremely small. However, I think the number of people who would like to reduce their electric heating costs is pretty large.

Also, I believe mining chip standardization will play a large part in the success of these products. If the mining chips are built to a standard form factor and power requirement etc, it will become trivial to build these heating appliances with upgrade-able mining modules.

The Fork

There has been quite a bit of talk about a hard fork happening that will possibly change the mining algorithm to something more ASIC resistant. Although I don’t think this is necessarily a bad idea, I do think it is foolish to believe that an algorithm can truly be ASIC resistant in the long term. Hopefully rising prices will cause a very large economic incentive to “build a better ASIC.”

Conclusion

No matter the mining algorithm, as long as the cost of electricity is a factor mining, you will have small pockets of mining around low cost electricity sources. Once you create methods to mine with the electricity that is already being purchased, thus separating the cost of the electricity from the mining, you will have geographically widespread mining adoption.