This article was originally written by the Chinese media BlockBeats (区块律动) and translated by PandaYoo.com after it was licensed. Copyright belongs to the original author and it is forbidden to reprint without permission.
It was May 25, 2021. Dressed in the thick medical protective clothing, Wang Li waited for takeoff in the international flight terminal.
The large international terminal seems empty at this point. After all, the COVID-19 outbreak in China had been over for a long time. No Chinese person wants to leave China at this time, unless the situation is urgent, such as Wang Li’s.
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 new suitable place for bitcoin mining.
Sitting in the waiting hall, he thought a lot, but couldn’t make sense of it, so he just posted a message in his WeChat Moment, “Shut down for 16 hours”.
It all started back a few days ago, on an ordinary Friday night.
At 10 p.m. on May 21, the State Council’s financial committee announced that it would crack down on bitcoin mining and trading, and resolutely prevent individual investment risks from turning into systemic risks. This is the first time that China’s State Council has explicitly cracked down on crypto-digital currency mining.
As soon as the news came out, the cryptocurrency community was in an uproar.
If the previous “shutdown of bitcoin mining in Inner Mongolia” could be considered as a local government action, the “power outage of bitcoin mining in Sichuan” could be interpreted as a way to protect the public from electricity. At the moment, bitcoin miners can really only give up their luck and find a solution in advance, waiting for the boots to fall.
This also means that Chinese bitcoin miners are no longer just migrating birds back and forth in Sichuan, Inner Mongolia, Xinjiang, etc. They are going to have to sing the wanderer’s song again and look for their own “gypsy” mining sites around the world.
“Migration” is perhaps the “animal instinct” engraved in China’s bitcoin mining industry.
In China, which has natural resource advantages, bitcoin miners are favored by the abundant hydropower in the Yunnan, Guizhou and Sichuan regions and the abundant thermal power in Xinjiang and Inner Mongolia.
Like migratory birds that migrate north and south every year. Bitcoin miners also chase after the cheapest “electricity”, traveling between Xinjiang, Inner Mongolia and Sichuan during the dry and rainy seasons every year, shuttling between the mountains in the southwest and northwest of China, looking for hydroelectric power stations on the most turbulent rivers, as well as thermal and wind power stations in the desert and Gobi.
The flood period is also considered to be the “gold rush” for miners. A period of high water usually occurs during the rainy season or spring when temperatures continue to rise. Rivers are rich in water for a long time, and abundant water power brings cheaper electricity. For miners, that of course means lower costs and higher profits.
“Mining Director”, a netizen on Zhihu, said that many miners liked this season and hoped to make more profit by spending less on electricity. This year’s wet season began on May 25, and miners have already been sending their machines to Sichuan to find suitable 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 would 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 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, a demonstration zone of hydropower consumption industry was built to solve the problem of the waste of water and electricity—several virtual currency mining enterprises have settled in.
According to Bo He, the founder of Marvellous Capital, power has already been cut in the demonstration zone and may not be restored until the policy is clear.
Many miners have been forced to shut down as this year’s flood season approached.
When the mining machines stop running, the change is directly reflected in the hash rate.
According to F2Pool, in the past two weeks, BTC’s overall network hash rate has dropped from a high of nearly 213Eh /s to a low of 125Eh /s, decreasing 41%.
Observing the current data of the major mining pools, the downward trend of computing power has also been continuing. According to BTC.com, all of the top five mining centers showed a decline in hash rate, with the exception of the 11th largest Lbitt (LTC.TOP) pool, which showed a 29% increase in the hash rate as of May 27 (the actual rate didn’t change much due to the switch between BTC and BCH).
Jiang Zhuoer, the founder of LTC.TOP, 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 the power blackout in the Sichuan demonstration zone, Jiang Zhuoer believed that the main reason was due to less precipitation and power shortage this year. “But our new machines are basically in Xinjiang. There are only Ant S9, Avalon A8 and other old types in Sichuan. Most of them have just been taken out of the warehouse and haven’t been turned on yet, so the impact is limited.”
The other side of the decline in China hash rate is the increase of the foreign mining hash rate.
At the moment, the hash rate in China may account for only 50 percent of global capacity. By contrast, America’s share rose to about 12%.
It is worth noting that the Chinese hash rate has previously dominated the global Bitcoin mining network. China accounts for 65.08% of the global hash rate, according to Cambridge University’s Centre for Emerging Finance (CCAF). It was followed by the United States, Russia, Kazakhstan, Malaysia, and Iran.
It means the territory of the hash rate is shifting. While China’s hash rate continues to decline, the development of compliance and the inflow of capital have led to rapid growth in North American. The Foundry USA mine pool under Grayscale has quickly moved from the previous 10 to the 8th place in the world.
The flowing direction of the hash rate represents the choice of main miners.
“At present, big mine owners who have mining machines in China, are basically looking for opportunities to go abroad while waiting for the implementation of the policy.” Wang Wenguang, the general leader of the mining business of Bit Deer Group, told Blcobeats 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 was still good, so they kept mining while waiting for the policy and looking to go abroad.” Wang Wenguang said.
Industry insiders close to Bitmain told Blockbeats 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 Bitmain are mainly distributed in Xinjiang, Inner Mongolia, Sichuan.
After the policy of the State Council came out, Bitmain required the salesmen to go abroad to find new sites to solve its domestic problems. “The current group of fully prepared, vaccinated salesmen has traveled to North America, the Middle East, Central Asia and other places. It’s not clear when they’ll be back.” “The insider said.
In addition, Jiang Zhuoer also told Blockbeats that he would consider increasing the hash rate in North America rather than in China. His centers are already planning to move to North American.
Where to go? At present, there are two major directions: North America and the Middle East.
Wang Wenguang told Blockbeats that in North America, represented by the United States and Canada, the local policies were relatively stable and the legal system was sound. Many large mining companies have been stationed there. However, the comprehensive cost of mining in North America is too high. In addition, the United States also imposes a 25 percent tariff on Chinese electronic products.
Another cheaper option is Kazakhstan. The region has abundant energy resources, is closer to China, with lower labor and construction costs, and has far lower tariffs than the United States. But the rule of law in Kazakhstan is not high, the business environment needs to be improved, and, as in China, the policy is the biggest risk.
Bo He also told Blochbeats that Canada might 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 a hash rate center. The cost of building a center in North America is about 6 to 10 times higher than in China because of high equipment and labor costs there, Wang told Blockbeats. In Kazakhstan’s cheaper market, the combined cost of building a mine is roughly the same as in China.
The other is to transport mining machines to go abroad for trusteeship. But it is very difficult to transport a large number of mining machines abroad.
Bo He told Blockbeats that the going abroad cost included tariffs, mining machines 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 in China.
At present, Chinese mining machines can go abroad in accordance with the general electronic commodity export process. However, the door of going home 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 customs. It is very difficult for mining machines to go back to China after they go out.
In addition, digital mining is a relatively new industry in the world. “No other country has as mature a supply chain and infrastructure as China. Maintenance and spare parts for foreign centers can be troublesome,” said Bo He.
“Even if the overseas industrial environment is not as mature as China’s, it has become a trend to go abroad. The domestic hash rate will continue to decline, while foreign`s will continue to rise. This trend is irreversible.” Wang Wenguang said.
Bo He said that the current helpless trend was due to the policy changes. As long as possible, China is still the mining industry’s first choice.
As companies and big miners struggle to find new homes abroad, managed mines and small miners are obstructed by the high cost of leaving.
There are not many options for those who stay.
Some mine owners have chosen to go further within China, moving their mines to other low-cost regions such as Xinjiang and Yunnan provinces and waiting for the details of the policy. Lao Ji is one of them. After years of working in the digital mining industry, he has become a steady, low-key man who had seen enough ups and downs. However, he is still shocked by the rapidly changing.
“When the Inner Mongolia policy came out, I wasn’t worried because my mines were all in Sichuan and used hydroelectric power. But this time it is becoming very serious. If hydroelectric mining is also prohibited, it will be difficult for us.”
Lost in the middle of nowhere, Lao Ji has nothing to do but wait and see.
“Our machines are all physical assets. We have invested tens of millions of yuan in the early stage, so we can’t just abandon them casually. Yet we also know very little about the situation overseas, which means we could only wait for the policy to decide what can be done.”Talking about the future, Lao Ji was quite helpless.
Some others chose to leave and sold their mining machines through wechat moment. Before the State Council’s policy was released on May 21, Blockbeats found that some miners, who had sensed the industry’s upheaval through the attitude of local governments, already began to sell their machines.
The change of the data center also affects the price of the mining machine. A senior person in the mining industry told Blockbeats 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 market began to cool down, and the second-hand machines also began to reduce prices.
However, Jiang Zhuoer was more optimistic about the survival of small miners in China.
He believes that as long as possible, the domestic mining machine can continue to mine. 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 found a warehouse to run dozens of machines or put a few mining machines at home, you could increase your income by thousands of yuan per month. Surely someone would do taht.” “Said Jiang Zhuoer.
Another important question for domestic miners is when the regulation will be imposed? Will the policy be one size fits all?
According to Bo He, policies require preventing individual risks from being transmitted to the broader society. It mainly affects cloud hash rate、disguised fund-raising, illegal fund-raising mining products and platforms. This means that cloud platforms may face a complete withdrawal, and various service platforms that provide social information will also face a rectification.
“At present, China’s Bitcoin mines in Sichuan and Yunnan are mainly clean energy mines, which meets the requirements of China’s carbon neutral policy. The mining process does not produce any wastewater or waste gas, which is very environmentally friendly.” She said.
“A moderate crackdown on overheating is necessary, but an over-heavy-handed policy is not conducive to regulation,” said Bo He. “Many industrial chains have gone underground, which increases the difficulty of supervision.”
As this article was coming to a close, a netizen revealed a new message, “I heard that the big miners were called to a meeting to investigate. However, the policy will not be implemented immediately. The miners’ worst-case plan was to dig through the flood season.” The credibility of the news was uncertain, but it represented the miners’ hope.
Morning of June 2, 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 definitely the preview of the country’s overall regulatory attitude.
Where should the Chinese bitcoin miners who stand at the crossroads go, and when will their wanderings stop? we may know the answer soon.