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More than half of the world's bitcoin miners are being kicked out of China, and a whole lot of them could be headed to Texas.

The government announced a crackdown on bitcoin mining and trading in May, sparking what has been nicknamed "the great mining migration" in crypto circles. This exodus is already started, and it has the potential to transform Texas.

Mining is an energy-intensive process that both creates new currencies and keeps track of all existing digital token transactions.

Despite a lack of reserves that resulted in days-long blackouts last winter, Texas has some of the lowest energy prices in the world, and its share of renewables is increasing with time, with wind power accounting for 20% of the state's power in 2019. It has a deregulated power grid that allows customers can pick between power providers, and its political leaders are strongly pro-crypto – ideal conditions for a miner searching for a warm welcome and inexpensive energy supplies.

“Over the next few months, you will witness a tremendous shift,” said Brandon Arvanaghi, a former security engineer at cryptocurrency exchange Gemini. “In Texas, we have governors like Greg Abbott who are pro-mining. In the United States, it will develop into a legitimate industry, which will be incredible.”

China's mining dominance :

Although data for the global distribution of mining power for 2021 is not yet available, previous estimates have suggested that China accounted for 65 percent to 75 percent of global bitcoin mining, with Xinjiang, Inner Mongolia, Sichuan, and Yunnan accounting for the majority of it. Sichuan and Yunnan are renewable energy meccas thanks to their hydropower, while Xinjiang and Inner Mongolia are home to many of China's coal facilities.

The number of miners in Inner Mongolia has already begun to decline. After failing to fulfil Beijing's environment standards, province leaders opted to tell bitcoin miners two months to leave, blaming the province's energy shortfalls on the cryptocurrency industry.

While it's unclear how China will handle the next steps, Nic Carter of Castle Island Ventures believes a staggered deployment is inevitable. “It appears that we are moving quickly from policy announcement to practical implementation,” he remarked.

The hashrate, a word used in the bitcoin industry to indicate the computational capacity of all miners in the network, is used to measure the exodus.

“Given the reduction in hashrate, it appears likely that installations are being switched off across the country,” Carter stated, adding that he believes China will eventually lose 50 percent to 60 percent of its bitcoin hashrate.

Despite the fact that China's announcement has yet to become policy, it isn't stopped miners like Alejandro De La Torre from cutting their losses and exiting.

“We don't want to have to deal with a fresh prohibition in China every year,” said De La Torre, vice president of Poolin, a Hong Kong-based mining pool. “As a result, we're relocating to the United States and Canada in an effort to diversify our global mining hashrate.”

One of the most appealing aspects of bitcoin is that it is completely location agnostic. Miners simply need an internet connection, as opposed to other industries that demand them to be close to their customers.

“The nice thing about bitcoin is that it's a portable market; you can bring it straight to the source of energy,” said Steve Barbour, founder of Upstream Data, a business that designs and provides portable mining equipment for oil and gas facilities.

The exodus, however, will not be immediate, in part because miners will need time to transport their rigs out of China or liquidate their assets and set up operations elsewhere.

Where are they going?

Miners at scale are driven to travel to the world's cheapest sources of power since they compete in a low-margin business where their only variable cost is often electricity.

Carter remarked, "Every Western mining host I know has had their phones ringing off the line." “Chinese or ex-Chinese miners are looking to Central Asia, Eastern Europe, the United States, and Northern Europe.”

Kazakhstan, China's next-door neighbour, is one possible destination. The country's coal mines provide a cheap and plentiful source of electricity. It also helps that Kazakhstan has a more relaxed attitude toward construction, which is good news for miners who need to establish physical infrastructure in a short amount of time.

Didar Bekbauov is the founder and CEO of Xive, a company that provides hosting to worldwide miners. Xive also supplies the specific mining equipment that is required.

Bekbauov says he's lost count of the number of Chinese miners who have called him to inquire about relocation alternatives, which range from 15 to hundreds of rigs.

“One miner told us that only government-owned power facilities have imposed restrictions on mining, while private power plants will continue to serve miners,” Bekbauov told CNBC.

“However, because the vast majority of electricity is generated by government power plants, miners will be forced to relocate. As a result, they are unsure and frantic in their search for alternative locations,” he explained.

It remains to be seen whether Kazakhstan is a destination or only a stopover on a longer journey west.

Arvanaghi is optimistic about North America, believing that the hashrate will increase in the next months.

“Not only does Texas have some of the cheapest electricity in the United States, but it also has some of the cheapest electricity in the world,” he said. “Starting a mining company is also quite simple with $30 million or $40 million, you can be a leading miner in the United States.”

Wyoming has been trending toward becoming pro-bitcoin and could be another mining destination, according to Arvanaghi.

However, there are a few big obstacles in the way of the United States being a global mining destination.

For one thing, Carter told CNBC that building the real physical infrastructure required to house miners will take six to nine months. “In terms of onshoring these wayward miners, the United States definitely can't be as nimble as other countries,” he added.

It's also possible that the logistics of the shift will be challenging. Because of the Covid pandemic's tailwinds, there is a shipping container shortage.

The reliability of the Texas electricity infrastructure, though, is likely the most pressing concern. A storm that wreaked havoc on broad areas of the state in 2021 has renewed debate about whether Texas should winter-proof its power grid, a potentially pricey endeavour that might influence taxes or other levies for those who use the state's electricity grid. More recently, ERCOT, the Texas grid operator, urged consumers to save energy due to an unusually high number of "forced generation outages" and an impending heat wave, according to officials.

Responding to Musk's criticism :

Elon Musk, the CEO of Tesla, has slammed bitcoin mining, arguing that it is harmful to the environment. This isn't a brand-new criticism.

For years, critics have accused bitcoin of harming the environment, while advocates have hailed the advantages of bitcoin and its role in driving the emergence of renewable energy.

It's unclear if the migration of Chinese miners would help or hurt bitcoin supporters in the argument about the token's carbon footprint. To date, the popular narrative has been that China is mining a large portion of the world's bitcoin.

“It's obviously a step forward in terms of narrative,” Carter observed. “However, China has the most abundant stranded hydro resources in the world.”

Wind, solar, and hydropower, particularly in the south, provide important energy vectors. The grid in Xinjiang, for example, is 35 percent fueled by wind and solar energy.

If all of the miners leave China, there will be less fossil-fuel-powered mining, but the network's percentage of renewable-energy-powered mining will decrease. This is why the fate of these migrant miners could have a significant impact on bitcoin's future. “It's the biggest storey for bitcoin this year,” Carter added.

De La Torre claims that they are trying to grow their activities by employing green energy, a trend that has been developing for years. In most places of the world, he claims, hydro plants are cheaper than fossil fuels.

Blockstream CEO Adam Back noted, “Mining is price sensitive, so it seeks out the lowest cost electricity, and the lowest cost power tends to be renewable because if you're burning fossil fuels...it has extraction, refinement, and transportation costs.”

Lazard, an investment bank, publishes an annual summary of energy prices by source. Many of the most common renewable energy sources are either equal to or less expensive than conventional energy sources like coal and gas, according to its 2020 report. And the cost of renewable energy continues to fall.

However, running crypto miners entirely on renewable energy has its drawbacks.

Though solar and wind energy are now the world's cheapest energy sources, both power sources have scale constraints, thus miners who rely only on wind or solar energy are concerned about their profitability.

The next six months :

For the time being, there isn't enough mining capacity in the world to absorb the Chinese miner exodus. We could see hashrate fall offline — and stay down – while they look for a new home.

In practise, this means that for a limited time, all remaining miners will be more profitable.

More geographical dispersion would equal out the global power balance and limit any single sovereign nation's ability to co-opt or dominate the network.

In the coming months, we may also see the emergence of distinct crypto economic zones.

“You'll see states take a very positive position and create specific zones to encourage miners to host locally,” Carter said. “We're witnessing that at the state level here,” says the author. You'll see it at the national level, and you might even see mining-related electrical subsidies.”