Partnered With:

Chinese bitcoin miners at a crossroads

Read this article in 26 Minutes

They sang the song of the wanderers again and sought their own "gypsy" mines.

The time is May 25, 2021, Wang Li, wearing thick medical protective clothing, is in the international flight terminal, fully armed, waiting for takeoff.

After all, the overseas epidemic has not yet stabilized, and the large international terminal in Norway is now empty. No one will go abroad at this time, unless it is necessary, such as Wang Li's case.

As an employee of Bitmain, a famous mining company in China, Wang Li did not expect that one day he would go to a foreign country on his own, just to find a suitable land for a new mine.

Sitting in the waiting hall, he thought a lot, but couldn't figure out what to do. He just posted a message in his circle of friends, "Shut down for 16 hours".

It all started a few days ago, on an ordinary Friday night.

At 10 PM on May 21st, the Financial and Banking Commission of the State Council announced that it would crack down on Bitcoin mining and trading activities and resolutely prevent the transfer of individual risks to the social sector. This is the first time the State Council has explicitly cracked down on virtual currency mining.

News out, currency circle in an uproar.

If the "shutdown of Bitcoin mines in Inner Mongolia" can be regarded as a local action, and the "power outage in Xinnayuan, Sichuan" can be interpreted as the protection of electricity for daily life and production, now Bitcoin miners really have to give up their luck, find a solution in advance, and wait for their boots to land.

It also means that Bitcoin miners in China are no longer just migratory birds in Sichuan, Inner Mongolia, Xinjiang and other places. Instead, they are singing the song of the wanderers again and searching for their own "gypsy" mines around the world.

one

"Wandering" may be the "original gene" engraved in China's bitcoin mining industry.

In China, which has advantages in natural resources, Bitcoin miners favor the rich hydropower in Yunguichuan, Xinjiang and Inner Mongolia as well as the rich thermal power in Inner Mongolia.

Like migratory birds migrating north and south every year, choosing water to live. Bitcoin miners also chase the cheapest "electricity". They travel to and from Xinjiang, Inner Mongolia, Sichuan and other places twice a year in the dry rains. They cross the mountains in the southwest, northwest and northwest in search of hydropower stations on the most fast-flowing rivers, thermal power stations and wind power stations in the desert Gobi.

Comments on Weibo

The flood period is also considered to be the "gold rush period" for miners. A period of high water usually occurs during the rainy season or spring when temperatures continue to rise. The river is rich in water for a long time, and abundant water power brings more and cheaper electricity. For miners, that means lower costs and higher profits.

"Mine Director", a netizen on Zhihu, said that many miners like this season and hope to make more profit by spending less on electricity. This year's wet season begins on May 25, and miners have already been sending their machines to Sichuan to select sites in advance.

However, as the debate over the environmental pollution caused by Bitcoin mining continues, the popularity of the ESG (Environment Social and Governance) movement and the lack of electricity in southern China, the attitude of national regulators to mining has changed.

Since February this year, Inner Mongolia has begun to eliminate virtual currency mining, requiring a complete clean-up and closure of virtual currency mining projects. All mines will be withdrawn by the end of April 2021, and new virtual currency mining projects are strictly prohibited. On May 25, the Inner Mongolia Development and Reform Commission again issued the "Eight Measures on Firstly Cracking down and Punishing the" Mining "of Virtual Currency (Draft for Comments)", which put forward different punishment strategies according to the eight types of objects.

In Sichuan Province, which has abundant hydropower, several virtual currency mining enterprises have settled in the demonstration zone of hydropower consumption industry to solve the problem of "abandoning water and electricity". According to Mint, founder of Marvellous Capital, power has been cut to Xinna Garden in Sichuan, which may have to wait for the policy to be clear before it can be restored.

Many miners have been forced to shut down as this year's flood season approaches.

two

When the mining machine stops running, this change is directly reflected in the calculation force.

According to the F2Pool website, in the past two weeks, BTC's overall network capacity has dropped from a high of nearly 213Eh /s to a low of 125Eh /s, a 41% drop.

BTC network computing power trend

If you look at the current data of major mining pools, the downward trend of computing power has also been continuing. According to BTC.com, all of the TOP five mining pools showed a decline in capacity, with the exception of the 11th largest Lepbit (BTC.TOP) Pond, which maintained a 29 percent increase in capacity as of May 27.

The calculation force change of mine pool on May 27

Jiang Zhuoer, founder of Leibit Mine Pond, told Rhythm that their mines are mainly located in Xinjiang and Sichuan provinces. "Currently there are no mines in Inner Mongolia, so the Inner Mongolia policy will have little impact on them."

Talking about the situation of power outage in sichuan xiunna park, jiang zhuoer believes that the main reason is sichuan less precipitation this year, power shortage. "But our new models are basically in Xinjiang, Sichuan only Ant S9, Avalon A8 and other old models, and most of them just out of the warehouse, not on, so the impact is not big."

The other side of the decline in domestic computing power is the increasing of foreign mining pool computing power.

At the moment domestic computing may account for only 50 per cent of global capacity. By contrast, America's share of computing power rose to about 12%.

Until now, Chinese computing power has dominated the global Bitcoin mining network. China accounts for 65.08% of global mining capacity, according to Cambridge University's Centre for Emerging Finance (CCAF). It was followed by the United States, Russia, Kazakhstan, Malaysia and Iran.

China's share of the world's computing power in April 2020

That means the computing landscape is shifting. While China's computing power continues to decline, the development of compliance and the inflow of capital have led to the rapid growth of North American computing power. The Foundry USA mine pool under Grayscale has quickly moved from the previous 10 to the 8th place in the world.

three

The flow of calculation force represents the choice of big miners.

"At present, big mine owners with their own mining machines in China are basically looking for opportunities to go out to sea while waiting for the implementation of the policy." Wang Wenguang, head of the mining business of Bit Deer Group, told Rulse that the mining service team, which is the largest in China, has sensed the mood of the big miners.

"At present, the profit from mining is quite good, so they are currently digging while waiting for the policy, while looking to go abroad." Wang Wenguang said.

According to multiple verification by Lulu, at present, Bitmain, Bitdeer, Bitdig (the mining service of Leibit Mine Pool) and other domestic mining enterprises have started their plans to go abroad.

Industry insiders close to Bitmain told Ryu that before Bitmain split up, the domestic mines were mainly owned by Zhan Ke Tuan (Bitmain's chairman), while the foreign mines were owned by Wu Jihan (Bitdeer's chairman). So at present, the mines in Bitumen are mainly distributed in Xinjiang, Inner Mongolia, Sichuan and other places.

After the policy of the State Council came out, Bitmain required the sales of mining machines to go to sea to look for mining sites and solve domestic problems. "The current batch of sales have gone to North America, the Middle East, Central Asia and other places, fully armed, vaccinated, when they will return is not clear." "The person said.

In addition, Jiang Zhuoer also told Rhythm that he will consider in North America and other places to increase computing power and mines in China. His mines are already planning North American operations.

four

Where is the way out to sea? At present, there are two major directions: North America and the Middle East.

Wang Wenguang told Rongdong that in North America, represented by the United States and Canada, the local policies are relatively stable and the legal system is relatively sound. Many large mining companies have been stationed there, but the comprehensive cost of mining in North America is too high. The United States also imposes a 25 percent tariff on Chinese electronic products.

Another relatively cheap option is Kazakhstan. The region has abundant energy resources, is closer to China, has lower labor and construction costs, and has far lower tariffs than the United States. But the rule of law is not high, the business environment needs to be improved, and, as in China, policy is the biggest risk.

Mint also tells Rhythm that Canada may be better positioned to build mines in North America than in the United States. Canada's mines are concentrated in Ontario, which is rich in natural gas, and Quebec, where Canada has a 5% tariff.

At present, people who choose to go abroad tend to fall into two categories.

One is to go abroad directly to build mines. The cost of building a mine in North America is about six to 10 times higher than in China because of high equipment and labor costs there, Wang told Rhythm. In Kazakhstan's cheaper environment, the combined cost of building a mine is roughly the same as at home.

The other is to transport mining machine to go abroad for trusteeship. But it is not at all easy to transport a large number of mining machines abroad.

Mint told Rhythm that the cost of mining machinery out to sea includes tariffs, mining machinery freight, operation and maintenance costs, labor costs and time costs. It can take as little as six months to rebuild a mine in Canada, for example, compared with half a month at home.

At present, Chinese mining machines can go abroad in accordance with the general electronic commodity export process, but the door of mining machines back to China has been closed. Wang Wenguang said that in order to prevent the flow of electronic waste into the country, China does not accept second-hand electronic goods into the customs, and it is very difficult for mining machines to go back to China after they go out.

In addition, mining is a relatively new industry in the world. "No other country has as mature a supply chain and infrastructure as China, and maintenance and spare parts in foreign mines can be troublesome," said Mint.

"Even if the overseas mining environment is not as mature as China's, it has become a trend to go abroad. Domestic computing power will continue to decline, while foreign computing power will continue to rise, and this trend is irreversible." Wang Wenguang said.

Mint said that the current sea belongs to the policy changes under the helpless move, if conditions, China is still the mining industry's first choice.

five

As companies and big miners struggle to find new homes abroad, the high cost of going out to sea discourages managed mines and small miners.

There are not many options for those who stay at home.

Some mine owners have opted to move further within China, moving their mines to other low-cost regions such as Xinjiang and Yunnan provinces and waiting to see what the policy says. Lao Ji is one of them. After years of working in the mining industry, a steady and low-key man who admits to having seen the ups and downs, he was stunned by the policy change.

When the Inner Mongolia policy came out, I wasn't worried because my mines are all in Sichuan and use hydroelectric power. But this time it looks like it's going to be a big deal. If hydroelectric mining is applied all the time, it will be difficult for miners."

At a loss, Lao Ji and there is no good way, can only wait and see.

"Our machines are all physical assets. We have invested tens of millions of dollars in the early stage, so we can't just dissolve them casually. We don't know much about the foreign situation. Talk to the back road, Lao Ji quite helpless.

Others choose to leave the mining industry and resell the machines. Before the State Council's policy was released on May 21, Rhythm found that some miners, sensing the industry's upheaval through the attitude of local governments, were selling their mines on Moments.

The change of the mine also affects the price of the mining machine. A senior person in the mining circle told Lulu that domestic mining machinery companies were all "secondary traders" before. As a large number of mine owners moved and sold off mining machinery, probably from the middle of May, the mining machinery market began to cool down, and the second-hand mining machinery also began to reduce prices.

Gangzhuer, however, is more optimistic about the survival of small miners in China.

He believes that now the domestic stock mining machine if the conditions, but also continue to dig. If the policy is implemented in the future, the worst case is that all the mines in China will be shut down, and the mining machines will flow into the hands of small and medium-sized miners, or even family miners.

"In 2014 and 2015, family miners appeared on a large scale. If you find a warehouse to run dozens of machines or put a few mining machines at home, you can increase your income by thousands of yuan per month. Surely someone will continue to dig." "Said Gandraw.

Another important question for domestic miners is when will the boots fall? Will the policy be one-size-fits-all?

According to Mint, the policy requires that individual risks be prevented from being transmitted to the social sector, and the products and platforms of cloud computing power, disguised fund-raising and illegal fund-raising mining are mainly affected. Cloud computing power platforms may face a full withdrawal, and various service platforms that provide social information will also face rectification.

"At present, China's Bitcoin mines in Sichuan and Yunnan are mainly clean energy mines, which use waste water to produce electricity, which meets the requirements of China's carbon neutral policy. The mining process does not produce any waste water or gas, which is very environmentally friendly." She said.

'A moderate crackdown on overheating is necessary, but a one-size-fits-all policy is not conducive to regulation,' said Mr. Mint. 'Many industrial chains have gone under water, which has increased the difficulty of regulation.'

As this article was about to end, a netizen in the circle of friends revealed the new news, "I heard that the big miners were called to a meeting to investigate, but the policy has not been applied to all. The coal miners' worst plan is to finish digging during the flood season. The credibility of the news is uncertain, but it represents the miners' high hopes.

This morning, the National Energy Administration Sichuan Regulatory Office held a small scope of virtual currency mining research symposium. As an important province in clean-energy mining, Sichuan's regulatory rules are a preview of the country's overall regulatory attitude.

Where to go for China's bitcoin miners at the crossroads, and when their wandering will stop, may be the answer.

Acknowledgements: 0x 33 also contributed to this article.